In business, it is all about planning. And what do we plan for? Well, mainly – acquiring the most significant amount of money humanly possible. But, to create such a profit, you need the most critical financial statements known to mankind. And that is why you will need a proforma statement to accomplish that.

In most cases, a proforma statement is a document projecting the potential financial performance of the company. Many pro forma documents monitor cash flows, net sales, and other essential elements of running a successful business. In this article, we will be going over some of the most crucial aspects you need to include in your financial templates, with some suggestions on how to go about this process.

But, before getting into some pro-forma income statements that can change the outlook of your company, let’s go over some of the templates that will help you create your proformas.

To do that, you will need some kind of software that will help you get started. There are many of those, and you can certainly look forward to a subscription to a particular website or getting some “recommended” product. Still, in our opinion, you should always look for a safe bet when it comes to finances. And that bet is Microsoft Office.

It is the single best software for multiple office-related issues. It has much different software to make your project shine among competitors and make your job easier. You can use one of many Microsoft Excel templates, the software is widely recognized on the market, and you can get this one, and any other business is taken care of. You can create your proforma invoice from scratch, set specific values, and easily edit an Excel template.

Additionally, contrary to popular belief, getting this software is not that expensive and will surely be helpful to you for many years. And now, let’s get into some spreadsheet territory!

Proforma Template #1

Let’s start with something simple if any proforma statement can be considered simple. This proforma invoice is pretty straightforward; you have your names, addresses, estimated costs, and everything needed by most businesses.

There is nothing that unique in that one, as it’s for designed for basic use. Still, it can pretty much guarantee a level of professionalism you can count on. You can download this template for free at SmartSheet.com.

Proforma Template #2

Another one on our list is something rather obvious – a proforma invoice for a small company where everybody knows your name. It’s a straightforward template that most people use in real life, as such things as addresses, lenders, dividends, and many other elements are hardly ever used in smaller businesses.

This can provide you with some down-to-earth usefulness in keeping track of any expense. If you need something grounded in everyday reality, this one is undoubtedly for you. You can download this template for free at eForms.com.

Proforma Template #3

And the last proforma on our list is fancier yet still understandable and clear. It’s a pretty standard format, prepared for the more, let’s say, design-oriented individuals who want to be professional and transparent and do it with style.

It is widely used in the design industry, fashion, and many similar industries where branding is among the most important. If you are working in such a firm, you may want to invest in this one. You can download this template for free at Invoicer.ai.

It may sound like an easy question to answer, but it can’t be further from the truth. Proformas have many different uses and definitions, so simply gathering it all up and presenting a satisfying is a rather demanding task, to be honest.

Let’s start with etymology. As you may have noticed, Proforma does not come from the English language. Its origin is in Latin and stands for –“as a matter of form” or “as a formality.” A pro forma financial statement would be a document drafted as a formality for financial purposes.

For example, you could draft a proforma invoice for multiple clients and see what would be costs of those contracts, how you should operate with your resources, and what are the elements that you can count on. It can also help you get financing from investors.

There are multiple ways you can utilize a proforma statement for your needs, from a window into the future to understanding the state of your financials or if you need to assess cash flow statements. Different scenarios need individual solutions, so your proformas will be drafted each time differently.

Well, there are many uses of proforma statements, as we have mentioned before. It is mostly applied when there is a great change in the company. If there is a kind of merger planned, or you are going to lay off/hire some employees in mass numbers, maybe you have some big client coming up, and you need to allocate the resources.

In that case, creating a proforma document can provide you with well-needed information on what you are trying to accomplish and some potential costs/benefits analysis showing what can come from all of this. Cash flow projections can get you far, and if you calculate your budget, good proforma documentation will show you what you can expect and what kind of costs you can avoid in your planning.

So, now that we know what we are talking about and what it is used for, let’s go over some of the most common pro-forma types on the market. But before that, we need to make an explicit disambiguation between a financial statement and a proforma statement.

The primary difference is this – a financial statement is a formal record of all the financial activities of a company, business, person, and other things. Financial statements are used for many different purposes, but mostly to show the reality of things in the business.

On the other hand, you have proforma statements that are all about dreaming. Proforma statements focus on the hypothetical reality and the impact of different changes to the structure of the company. There are no strict rules on what proforma should look like. Let’s now go over some other types of those kinds of statements.

Proforma Formats

Proforma comes in many forms, but some are more used. Sometimes it’s a proforma invoice, where you can list all the expenses. Sometimes, it’s a cash flow statement; sometimes, it’s a balance sheet.

Whatever it is, though, it must consider a not-real possibility instead of creating financial reports on something already happening. Let’s now go over some of the most common proforma formats.

Income Statement

This is probably the most common use of a proforma statement, as it is the most general. If you want to see the impact of a certain investment, you can always go over a proforma statement to understand what kind of expenses and revenue you can count on.

This one can get you far if you are implementing something that will cost the company but can benefit it in many different ways and you want to convince the potential investors and stakeholders that it’s a good idea to do so.

Balance Sheet

Next up on our list is a balance sheet, which is, more or less, a hypothetical budget after a significant change in the company. For example, if you want to produce a new line of cars in your company, you need to include the costs, the potential benefits of this move, and how it will impact the company.

You need to create a budget before creating this new line; after this happens, what are some of the costs you will have to make to launch this project? It is one of the most important things when crafting a new concept because you can make a lot of mess if you skip this part.

Cash Flow Statement

The last one is the cash flow statement. It’s usually not connected to some significant change in the company. Still, it’s excellent to assess what kind of cash flow you can expect when introducing some sort of new product or service in your company.

You need to create such a statement to ensure that your company's cash flow will be sufficient to see the company’s ability to keep afloat in those hypothetical situations.

Proforma analysis is one of the most excellent tools that you can use to create hypothetical situations in your company such as advancement, introducing a new product and just any other significant change.

People all around the world use this kind of statement to make their businesses bigger, better, and more competitive. Here are some of the most important benefits that come from using a proforma template.

Planning

One of the most comprehensive benefits of creating a proforma statement is the forecasting element of it, which is essential in planning. A good crafter proforma will not only tell you what you can expect after introducing a new product to the market but also – what is the current state of your business and how it will scale with or without the change.

It can be done through a pro forma income statement, pro forma balance sheet, or any other format, but it needs to show the net profit you will gain after implementing changes. It’s essential to the company’s financial health.

Decisioning

Additionally, proforma statements are great for convincing stakeholders about your investments, strategies, and everything. A good business plan can get you far, and with the right marketing strategy, you can convince the owner, customer, and everyone that your plan is the best, as it is within the realms of possibility.

A good proforma presentation, especially its financial aspect, can get you far in discussing how to advance your business/career.

Management

Additionally, drafting a proforma statement will help you understand your organization's financial and structural health. You will quickly notice some of the most reasonable costs in your company and if there is a potential to cut things down.

The best thing about a proforma statement is that you can go down every hypothetical scenario about every element in your company. That will allow you to see what would happen if you created your product on your own rather than relying on suppliers, etc.

Convincing Investors/Stakeholders

As we’ve stated before, one of the key elements of a successful investment is creating the financial backbone for the investors and stakeholders if you are trying to get your project off the ground. It is the best way to make them understand the financial and organizational ramifications of the proposed change.

You will not only convince them to invest their time and money in the project you are proposing, but you will also be able to show them the exact pathway of how the project will go down. The document will also help you understand all the potential issues with the project and how it affects the market as a whole.

Mergers and Acquisitions

It is also an essential element of every big merger and acquisition, as it presents all the possible results of such a significant change for a company. Of course, it will not be 100% accurate, but when estimating such an impactful difference, you can be sure that this kind of tool will help estimate potential benefits and risks.

Additionally, you can use it during negotiations when presenting what elements of an acquired company you would like to keep and what elements are there to stay. It’s an essential aspect of every talk, and you will surely be asked to prepare such a document.

Proforma Limitations

Of course, as with most tools, it’s not an end-all-be-all kind of thing where you can simply put anything, and it will work out somehow. Proforma is a somewhat hypothetical creation, so we would not recommend deciding whether you would want to put your company up for sale only because a proforma turned out to be a loss.

There are multiple factors that you just will not be able to foresee, and it is essential to understand the limitations of such a project. Here are some things that you should probably keep in mind when considering creating a proforma and basing some of your decisions on the outcome of this analysis. Of course, it is not a finite amount of things to believe, but it’s a starting point.

Assumptions

As we are yet in a world where you can predict the future – our tool is also not perfect enough. As all the assumptions may be based on some facts, they are still assumptions, and we cannot guarantee that they will happen. Of course, sometimes it goes well for some people, like those who invested in N95 masks-making business in 2019, but for most people – it is a probability exercise that may not go our way all the time.

It is important to know that it is merely an estimate, not a prediction, so that the circumstances may change and so can change the outcomes of our analysis.

“Act of God”

Speaking of masks, remember COVID? Even in the most detailed proformas, you will probably not include that the world would close for a few years. But – here we are, and here are the facts of the matter – you will not be able to foresee everything, so there can also be room for improvement/deterioration.

You must remember that drafting a well-crafted proforma can be necessary as a guiding principle, but it’s only a guiding principle at best. And by that, we mean that you should not blindly look at your template and expect that every result from the table will be covered in reality but adjust accordingly to the world's facts.

You would not like to have an analysis that is set in stone and you cannot do anything about it. It would not be the most efficient analysis ever created, wouldn’t it?

Now that we know all the benefits and limitations of proformas, let’s go over some of the businesses that utilze this tool to their advantage. Of course, there are plenty more, and you can even argue that every industry could use a proforma analysis, as it is a pretty powerful tool for assessing development.

Nevertheless, some industries use it more often than others, and some of them utilize this technology the most.

Accounting

As you may have imagined, the first one on our list is accounting, which is here for a reason. As proforma analysis is mainly based on the financial world, accounting can utilize this concept fully without resorting to outside influences.

You can simply predict the sales of a new product, the effects of a merger, and many other things by just merely efficiently adding numbers. Of course, it would not be a perfect analysis, but it would be an analysis nonetheless.

Business

Overall – the business world, where you merge companies and introduce new products, is a place where proformas are widely used. Whether it’s a simple investment or a complete change of course for a company, you will see a proforma document on the table among “important people.”

Most business decisions are made based on the estimations made by financial teams that suggest these kinds of decisions to the higher-ups based on their analysis. Pro forma statements are standard practice in banks, financial institutions, and many others that use them to their benefit.

International Trade

Proforma statements are also significant in international trade. Of course, they are much more advanced, as they need to encompass many additional elements of the analysis, such as different law orders from other countries and how they will impact different markets, so you can imagine that drafting such a thing is a much more significant investment.

Of course, those are still being made. Still, they are not as clear-cut as national proformas because there are too many factors to include, and, the more factors you have, the more likely you will have some problems with predicting the outcomes.

So, let’s review some of the most critical factors you should include in your proforma analysis. There are of course, some elements that can be added, but the basic boilerplate is this:

• Estimate the production cost – be sure to find out all the expenses that you will have to intake to introduce a change

• Set a deadline – without a proper timeline, you will not be able to create financial projections that are within your budget and within your timeframe

• Choose the right stakeholders for the job – be sure that the team taking care of the change will be able to take care of the said project

• Predict the cash flow – you don't want to end up without being able to pay for lease/salaries because you have launched a new project

• Create a reviewing process – be sure to include a review of every element of your plan, as you will probably struggle without a proper rethinking of each part of the plan

• Talk to professionals – talk/hire people who know what they’re doing and can help you with your pro-forma templates. Lawyers and accountants can be pricey, but what is not is the effect of their work – priceless!

• Create a pro forma template – it will make your work so much easier if you could create/use a template to change it fast and send it out without any issues! It is much better than drafting it from scratch

Drafting a proforma document is strictly financial work, so draft it with the correct vocabulary. Pro forma financial statements are full of advanced language, so we have prepared a quick little guide on all the terms you may encounter in your work:

• Net income – how much money you make; simply put, it’s the difference between all the revenue and all the expenses

• Gross margin – every pro forma statement template has to include the difference between the revenue and the cost of production, and that is the gross margin

• Operating expenses – all the costs you don’t want to have but must pay, such as utilities, rent, etc.

• Earnings before interest, taxes, depreciation, and amortization – that is pretty self-explanatory, although you may find it as EBITDA

And here we are, at the end of the article. Thank you so much for taking the time out of your busy day to stay with us, thinking about important stuff like proformas, invoices, and all the wonders of the financial world.

We hope you found all the necessary information on how to create a proforma template, what are some of the benefits of this analysis, and some key elements to keep in mind while drafting this document. It’s pretty great too, really, and we hope that it will prove to be useful for you and your company.

Additionally, we are very grateful that you visited our website, and hey, while you are here, maybe you will find something even more exciting than drafting a pro forma statement. We have a lot of fantastic articles on various topics, from office-related stuff, through software, even up to the gaming world. If it is something you might be interested in, be sure to check it out!

With that in mind, we will leave you to it and see you at the next one. Stay safe!