What Are Pro Forma Financial Statements? (+ Examples & How-To)
Kimberly Green | 2025-03-03
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? A pro forma financial statement is 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 (vetted-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...
