Pro-forma Income Statements
Business Plan Pro-forma Income Statements
A pro-forma financial statement can be defined as “a financial statement prepared on the basis of some assumed events and transactions that have not yet occurred.” So a pro-forma income statement is an income statement based on a forecast. (Some people refer to an income statement as a “P & L” or profit and loss.)
When you’ve completed the pro-forma income statement and the cash flow forecast based on it, you can then use that information to produce your first year end balance sheet.
How to Prepare a Pro-forma Income Statement
It is very important to have a solid sales forecast for each of your first 12 months of operation. This should not be what you hope will happen. Your forecast should be both realistic and supportable, and most importantly, believable. Anyone reading your business plan should understand and agree with the sales assumptions that you are making.
You need a detailed sales analysis and forecasts of any other income as well as complete projections of the cost of those sales, salaries and benefits, operating expenses, interest expense, etc.
How Much Profit Will Your Business Make
Your income statement (profit & loss) forecasts will show you if the business can make money. A good forecast will show the sales of each of your major products and services, together with costs of producing or delivering them. Subtracting the cost of goods sold from the revenue will show you the gross profit you can generate.
You also forecast details of your sales and marketing costs and of your general administrative costs. When you deduct those expenses from your gross profit, you will know your Net Income or EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization).
Finding out how if your business can make a profit, and how much, is probably the most important part of business planning.
Your income statement and the other financial documents in your business plan package are the main items that bankers and loans officers examine very carefully. They want to make sure that your business makes financial sense and that it will generate both profits and cash to recover their investment. We are professional accountants as well as business plan consultants, so we are experts.