Preparing Financial Projections and Pro Forma Statements


By Jo Ann Joy


PIt is critical to your business success that you prepare realistic forecasts of your future business performance. You need to forecast your operations for three to five years in order to guide your business growth. You will need realistic forecasts to support your business plan if you need a loan or investor funds. The elements of and influences on pro forma statements include:

Prior Financial Statements
Of course you will have to use previous financial statements if your business has been operating for some time. From your prior financial statements, you will use sales and revenue levels, business ratios, average expenses, and any relevant information about your accounts receivable or payable. You should expect your prior financial statements to show financial improvement for each year of operation.

Internal Factors
That status of your operations is important in preparing pro forma statements and projections. For example, you must consider whether your business needs to relocate due to expansion, or your business needs to buy expensive new equipment to replace older models. You also must consider your competition, how you are measuring up to them, and whether you need a new marketing plan to be more competitive. Also, consider whether your company needs additional personnel or additional training.

External Factors
The status of the country’s economy is very relevant to your company’s future. Certain businesses may be affected by the status of the global economy. It is important to understand the industry trends to be certain that your product or services will continue to be marketable. The amazing pace of technological growth has changed many businesses and even eliminated some. Also, a manufacturing company must have a reliable source of raw materials, and the future cost of raw materials must be considered.

Projected Financial Statement
The pro forma financial statements will include estimated future sales, expenses, and profits. These items need to be broken down in order to be meaningful. The sales estimates should state which salesperson, which department, or which region will generate the sales. The estimated expenses must be broken down into general and administrative, operating expenses, depreciation, and taxes.

All of your estimates and projections must logically flow from previous years’ financial statements. If you are a start-up business, you may not have profits for the first year or two. You should start to show profit by the third year and your profits should continue to grow except for occasional large expenses. Your pro forma statements must include estimates of any large expenses that will affect your profit such as relocating, property damage, or a new marketing campaign. Unless you have a background in accounting or finance, you will need a professional’s help.

Jo Ann Joy, Esq., MBA, CEO

The future of your business starts here!

You may contact Jo Ann by phone at (602) 663-7007, by fax at (602) 324-7582, by email at joannjoy@Indigo Business Solutions.net, and by mail at 2313 East Ocotillo Rd., Phoenix, AZ 85016. Copies of any articles will be provided free of charge.

For more information about these and other important legal and business topics, and for free articles, please visit our website at www.IndigoBusinessSolutions.net. Copyright 2006. All rights reserved. Indigo Business Solutions is a registered trade name.

Discover the secrets to success.

About the author: Jo Ann Joy is the CEO and owner of Indigo Business Solutions, a legal and business consulting firm that is a “one stop shop” for small businesses. We provide legal and business services all professional services that a business may require without being "referred out" to other professionals.

Jo Ann has a law degree, an MBA, and a degree in Economics. She is a strategic business attorney who works closely with businesses to greatly improve their chance of success. Her background includes commercial, corporate, contract and real estate law, accounting, financial planning, mortgages, marketing, product development, banking, and business planning and strategies. She ran a successful business for 10 years and has written and given presentations on many different legal, tax, and business subjects.


More Resources

Unable to open RSS Feed $XMLfilename with error HTTP ERROR: 404, exiting

More Management Information:

Related Articles

Creativity Management - Quality from Quantity
Creativity can be defined as problem identification and idea generation whilst innovation can be defined as idea selection, development and commercialisation.There are other useful definitions in this field, for example, creativity can be defined as consisting of a number of ideas, a number of diverse ideas and a number of novel ideas.
Innovation Management - Rigorous data analysis
Creativity can be defined as problem identification and idea generation whilst innovation can be defined as idea selection, development and commercialisation.There are other useful definitions in this field, for example, creativity can be defined as consisting of a number of ideas, a number of diverse ideas and a number of novel ideas.
The Leadership Alignment Model
Some time ago we had the privilege of working with a major UK government department to help them redefine leadership and to reappraise how they develop and encourage leaders. Faced with considerable challenges by the environment in which they operate and by their political masters, this department has decided that leadership is one of the keys to the achievement of the vision laid down by its chief.
Manage Your Time - Save Your Business.
If you work from home, chances are you already know that you're really pulling "double duty". You probably work on your business while doing the laundry, corralling the kids, or fixing dinner.
Steps to Build ISO 9001 Compliant Program
Implementing an ISO 9001 system represents a major effort. However, all of that effort can represent a significant shift for a business - from quantity to quality.
Tales From the Corporate Frontlines: Team Dynamics and Communication
This article relates to the Team Dynamics competency, which evaluates interpersonal communication, cooperation, and productivity between members of a single team, group, or department within your organization. In today's marketplace, in order for organizations to operate efficiently, it is essential that they understand how to create and utilize effective work teams at all levels of the organization.
Profits and Business Success - 5 Profit Traps to Watch Out For
The old saying 'You have to spend money to make money' can be a dangerous one. Every business has it's costs, but not every business owner takes the time to distinguish between what is an essential expense, and what is a 'nice to have' expense.
Innovation Management: The Power of Emotional Attachment
Creativity can be defined as problem identification and idea generation whilst innovation can be defined as idea selection, development and commercialisation.There are distinct processes that enhance problem identification and idea generation and, similarly, distinct processes that enhance idea selection, development and commercialisation.
What Every Manager Should Know About How to Become An Effective Executive
In his book, The Effective Executive, Peter Drucker pointed out that the effective executive is the person who focuses on making a contribution.This focus on the making of a contribution is the key.
Tales from the Corporate Frontlines: Senior Management and Directional Change
This article relates to the Senior/Top Level management of an organization, and how a huge vision of directional change translates into the day-to-day operation of the company. AlphaMeasure defines senior management as the team of individuals at the highest level who have the day-to-day responsibilities of operating the organization.
Score the Rainbows Pot of Gold: Become the Boss That No One Wants to Leave
Leadership is lifting a person's vision to higher sights, the raising of a person's performance to a higher standard, the building of a personality beyond its normal limitations.Peter DruckerLadies and gentlemen, the captain has turned on the seat belt sign.
Dont Get Caught With Your PR Down
Why risk the embarassment when with a little basic PR training, you as a business, non-profit or association manager can always be ready for battle?Never again will you fail to do something positive aboutthe behaviors of those important outside audiences ofyours that MOST affect your operation.Never again will you fail to create external stakeholder behavior change leading directly to achieving your managerial objectives.
Building the Trust in Your Employees - 12 Easy Tips
In Stephen Covey's great book, "The Seven Habits of Highly Effective People", he talks about the 'emotional bank account', where you have to build a credit in your relationship with the individuals who you work with (and everyone else as well!).If what you do isn't 'trustworthy', then all you have done in your gentle listening and asking great and interested questions to build, is to 'debit' your account.
The Walmart Cult
The CultBecoming a part of the Cult, consists of being recruited a member of the cult, as a person that can be relied on to assume responsibilities and accomplish all or almost all things requested.Depending upon the position you hold and the person that you are attached to the most, any position can be engaging and can be so different from any other experience that you have had prior to Walmart in almost any retail sector that you feel you are being chosen for great things.
Improving Patient Sensitivity in Doctors and Hospital Staff
COMPANY/ORGANIZATIONA South Florida hospital. The CEO of the hospital saw the need to provide exceptional customer service to differentiate itself from the competition and avoid being acquired.
Retaining An Expert -- What Every Business Owner Needs To Know
As an entrepreneur, hiring an expert can be one of the most efficient ways to turbo-charge your business. However, thousands of consultants flood the Information Highway, and each one promises to positively impact your bottom line.
Toxic Bosses
What's everyone's favorite topic around the water cooler? Bad bosses! You know, the ones who make life in the office unbearable? Here are some of the more common varieties you'll find.1.
Across The Interview Table!
Job interviews are easier for the interviewer or the interviewee if you plan and prepare and use proper interviewing techniques. On this page are job interview questions and purpose of each interview question, because there is a purpose behind each and everything that we do and similarly there should be a purpose behind each and every question that we ask in interview.
Recognition: A Quick, Low-cost Way to Motivate Employees
Recognizing good performance through praise or other positive action is one of the simplest and most cost-effective ways to motivate people. It provides three major benefits:It lets people know that their performance was valued, and increases the likelihood that they will continue to perform well.
Running Successful Meetings - The Key Steps To Getting It Right
We all complain about meetings which are a waste of our time and the truth of the matter is that so many are exactly that. We've also seen the "corridor" meeting that takes place afterwards where it seems the real decisions are taken, or the agreed decisions are overturned.