What Is a Pro Forma Financial Statement?
A pro forma financial statement projects future revenue, expenses, and cash flow. It’s used by startups, small businesses, and investors to forecast business performance and make better financial decisions.
Understanding how to plan for the future is critical in any business—and that’s exactly what pro forma financial statements are designed to help with.
These are financial reports that estimate what your business’s income, expenses, and cash flow might look like in the future. They’re typically used in budgeting, forecasting, raising capital, or planning for major business changes like expansions or mergers.
What Is a Pro Forma Financial Statement?
Apro forma financial statementis a forward-looking version of your regular financials. Instead of reporting what happened in the past, it models what could happen based on assumptions.
There are three main types of pro forma statements:
Pro Forma Income Statement– Forecasts revenue, expenses, and net income
Pro Forma Balance Sheet– Projects future assets, liabilities, and equity
Pro Forma Cash Flow Statement– Shows anticipated cash inflows and outflows
These projections help with:
Evaluating investment opportunities
Securing loans or investor capital
Preparing for different business scenarios (best-case, worst-case)
When Should a Business Use Pro Forma Financials?
You’ll typically use pro forma financial statements in situations like:
Launching a new business or product line
Preparing to pitch investors or lenders
Forecasting for internal budgeting and growth planning
Analyzing the financial impact of strategic decisions (like hiring or expansion)
Mergers and acquisitions
If you're a startup founder or small business owner looking for financing, investors will often expect pro forma financials as part of your pitch.
How to Create a Pro Forma Income Statement
This is the most commonly used pro forma document. It estimates how much revenue you’ll earn and what expenses you’ll incur over a given period—often 12 months.
Steps:
Start with projected revenue based on historical data or market research.
Estimate cost of goods sold (COGS).
Subtract COGS from revenue to get gross profit.
Add in operating expenses like rent, salaries, and marketing.
Subtract expenses from gross profit to get projected net income.
Use Case:A startup with no prior financial history might base revenue projections on customer interviews, industry data, and similar companies. A growing business might use last year’s numbers and adjust for seasonal patterns or new initiatives.
Example: Pro Forma vs Actual Financial Statement
Let’s say your business earned $500,000 in revenue last year. You're launching a new service and expect 20% growth.
Actual Revenue (Last Year):$500,000
Pro Forma Revenue (Next Year):$600,000
If your expenses increase by only 10%, yourpro forma statementwould show increased net profit—which might help justify hiring a new employee or expanding into a new market.
Pro Forma vs Budget vs Forecast
These three are often confused. Here's a simple breakdown:
Pro Forma= Whatmighthappen under specific assumptions (often used for external presentation)
Budget= What youplanto happen (used for internal management)
Forecast= Yourbest guessbased on current trends
Best Practices for Creating Pro Forma Financial Statements
Base assumptions on credible data (past performance, market trends)
Include multiple scenarios: baseline, optimistic, pessimistic
Update regularly—especially when goals or external conditions change
Work with a CPA or fractional CFO to improve accuracy
Explore top accountants for small businesses on Sam’s List
FAQ
What is a pro forma financial statement used for?
Pro forma financials help businesses forecast future performance, plan budgets, and secure loans or investment.
How do I create a pro forma income statement?
Start with projected revenue, subtract cost of goods sold, factor in operating expenses, and calculate net income.
What’s the difference between a pro forma and an actual statement?
Pro forma shows whatcouldhappen in the future. Actual statements show whatalready happened.
Do investors require pro forma financials?
Yes. Most investors and lenders will want to see forward-looking statements before offering funding.
Author: Kimi, Co-founder of Sam’s List
Kimi writes about what she’s learning while building Sam’s List and shares honest takeaways from her conversations with accountants and financial advisors across the country. None of this is financial advice—just the stuff most people wish someone told them sooner.
