Financially Simple LogoFinancially Simple LogoFinancially Simple LogoFinancially Simple Logo
  • Home
  • Pandemic & Business
  • Starting
    • Start Here
    • Starting a Business Article Series
    • Podcast
    • Essential Advisory Team
      • Financial Planner
      • Certified Public Accountant
      • Lawyer
      • Insurance Agent
      • Banker
      • Business Coach
    • Supplemental Articles
      • Business 101
      • Taxes
      • Debt
      • Insurance
      • Finance
      • Laws
  • Growing
    • Start Here
    • Business Value Growth Series
      • Foundational Articles
      • Planning & Strategy Articles
      • Leadership Articles
      • Sales Articles
      • Marketing Articles
      • Personnel & Staff Articles
      • Operations Articles
      • Financial Articles
      • Legal & Insurance Articles
    • Podcast
    • Supplemental Articles
      • Business Taxes
      • Finance
      • Debt Reduction
      • Insurance
      • Legal
  • Exiting/Selling
    • Start Here
    • Building a Sellable Business Series
    • Podcast
    • Supplemental Articles
      • Business Finance
      • Taxes
      • Debt
      • Insurance
      • Legal
  • Personal
    • Start Here
    • Personal Finance for Business Owners Series
      • Foundational Articles
      • Cash Flow Articles
      • Insurance & Risk Management Articles
      • Investing & Retirement Accounts
    • Supplemental Articles
      • Retirement
        • Retirement Planning
        • Estate Planning
        • Income for Life Series
      • Accumulation Planning
      • Investing
      • Tax Planning
      • Personal Financial Planning
      • Insurance
      • Tax Tips
      • Savings
      • Education Planning
      • Debt
      • Most Popular Articles
  • Multimedia
    • Books
      • The Ultimate Sale
    • Courses
      • NEW! Comprehensive Strategic Planning
      • Debt Pay Down System for Business Owners
    • Podcast
      • Listen on Spotify
      • Listen on iTunes
      • Listen on Stitcher
      • Listen on Libsyn
      • Listen on Google Play
      • Listen on TuneIn
      • Listen on PlayerFM
      • Listen on RadioPublic
    • Newsletter
    • Video
      • Video Blogs
      • Our YouTube Channel
      • Subscribe TODAY!
  • Free Resources
    • Get Control Workshop
    • PPP Expense Tracking Calculator
    • SWOT Analysis Worksheet
    • Strategic Planning Worksheet
    • Business Entities Cheat Sheet
    • Pro Forma Example Worksheet
    • Personal Budgeting Calculator
    • Financially Simple Newsletter
  • Work with Us
    • Work with the Financially Simple Advisory Team
    • Speaking & Training Opportunities
    • Have Justin Educate Your Team
    • “Ask Justin”
    • Awards & News
    • About Justin
the essential leadership qualities list for every small business owner
The Essential Leadership Qualities List for Every Small Business Owner
January 10, 2019
Differences Between Small Business Leaders and Managers
6 Key Differences Between Small Business Leaders and Managers
January 15, 2019

How to Build Pro Forma Financial Statements That WOW Investors

January 14, 2019
How to build a pro forma financial statements

You’ve probably heard the term pro forma before, and maybe you even have an idea what it is. According to the Business Dictionary, pro formas are “assumed, forecasted, or informal information presented in advance of the actual or formal information.” That’s the basic definition, but what does that mean? In a nutshell, you’re taking historical numbers over the last few years, and you’re trying to project them forward into the future. You’re using a spreadsheet to create pro forma financial statements.

How to Build Pro Forma Financial Statements

My personal pro forma financial statement goes back five years and displays all of the income I’ve earned and the expenses I’ve incurred. Then, I’ve projected out the next 10 years of my company’s income and expenses. You don’t have to go backward five years or forward 10 as I do. Maybe you show your historical trends over the past three years and forecast your numbers over the next five years. Essentially, though, your goal is to show historical patterns that predict plausible future profit margins.

So, how do you do that? How do you build your pro forma financial statements?

#1 – Create a spreadsheet

  • List past and future years across the top columns.
  • List income and expenses down the side rows.

FREE DOWNLOAD: Get a copy of our Pro Forma Worksheet


#2 – Total all income sourcespro forma example worksheet

  • Create rows for every income source. Maybe, like me, you receive money from account management fees, consulting fees, financial planning fees, technology fees, etc. Perhaps, you’re in a medical field and receive income from insurance, from credit cards, from cash, etc.
  • After you’ve itemized what you’ve made from each income source, total them up to determine your gross historical revenue.
  • Then, predict your income growth rate for future years by multiplying your actual revenue by 2, 5, or whatever percent makes the most sense based on your historical numbers.

#3 – Total all expenses

  • Create rows for every expense your company incurs. If you don’t know where to begin, look at your company’s Profit & Loss Statement and use the expenses listed there.
  • After you’ve itemized what you’ve paid for each expense, total them up to determine your gross historical expenses.
  • Then, predict your future expenses. If you have rent contracts or software contracts, you may be able to predict your future expenses to the penny. If you’re listing insurance expenses, employee expenses, or the like, you may want to factor a cost of living increase of 2, 3, or 4% a year.

#4 – Determine Your Profit Margin

  • Subtract your total expenses from your total income to determine your profit margin.
  • Make allowances for major one-time purchases or gross expenses as necessary.

The Value of Pro Forma Financial Statements

Ultimately, you’re using your pro forma financial statements to track your company’s profit margins. You want to see if your margin is within your industry’s standards. For if you can show a significant profit margin and show how you got to that point and how you’ll keep hitting that margin, then you can ask investors or business buyers for a premium for your company.


RELATED ARTICLE: Why would anyone buy your business? See what buyers look for.


Business Reset Challenge

Share

Related posts

January 1, 2021

Measuring Value Improvement of A Business: What to Know


Read more
December 30, 2020

The Profitability Gap: A Business Owner’s Guide


Read more
December 29, 2020

11 Business Lessons from 2020: Applying Them to 2021


Read more

Business Reset Challenge sidebar

The Ultimate Sale book
Learn more about the Strategic planning course

Don't Miss New Articles

Subscribe to the twice-a-month email newsletter and receive articles crafted by the experts at Financially Simple. And yes, you can easily unsubscribe at anytime.
  • Should be Empty:
  • Special Business Series:

    Articles:
    Starting A Business series
    Growing Business Value series
    Building A Sellable Business series
    Debt Reduction for the Business Owner
    Income for Life Retirement series
    Podcast Series:
    Starting A Business
    Growing Business Value
    Building A Sellable Business
    Personal Finance for Business Owners
    Business Podcast
    Get Answers:
    Ask Justin
    Work with Justin’s Team

    Awards & Accolades:

    Investopedia Top 100 logo
    Investopedia Top 100 Advisor – 2018, 2019, 2020
    Exit Planning Institute Leader of the YearExit Planning Institute Leader of the Year
    Feedspot Top 10 Business PodcastFeedspot Top 10 Business Podcast
    Forbes Finance Council
    Top 20 Podcast- Financial AdvisorPlayer FM Podcast – Top 20 Financial Advisor

    Educating thousands like you on:

    Yahoo Finance logoFinancial Planning AssociationMSN MoneyForbes logoNerdwallet logoFox News logoInvestopia logoExit Planning InstituteKiplingers logoKiplingers logo

    Get your copy today!

    The Ultimate Sale Business Growth
    The Book That Teaches Business Owners How to Sell Their Business for Maximum Profit

    For your security:

    GoDaddy Verified and Secure
    McAfee Secured
    © 2021 Financially Simple™
    Disclaimers, Disclosure, Cookies, & Privacy | FINRA’s BrokerCheck
    Form ADV | Form ADV Appendix 1 | The Mission of Financially Simple & Heritage Investors