What Is a Pro Forma Invoice? Required Information and Example

You can learn more about the variations of such documents by checking out our article and examples below. Harkening back to the previous section, a company can use a pro forma income statement, balance sheet, and cash-flow statement to project how these events might affect its financial position. Pro forma financial statements are used in a business plan to present the best-case, expected, and worst-case scenarios for a proposed transaction. With pro forma statements, businesses can better make assumptions on what decisions are best for the company, such as labor increases, production increases, or even expansion. Although not included in GAAP standards, the pro forma style of calculation in financial statements provides leeway in projections and reporting for new companies. For example, a new company could use pro forma principles to project revenue based on very favorable assumptions surrounding the launch of a product that it might be planning to release.

Pro forma statements, on the other hand, are based on hypothetical scenarios, such as the impact of a specific business decision or a future event. In essence, pro forma statements are projections, while traditional statements are historical records. A company plans to expand its operations by opening a new manufacturing facility. They prepare pro forma financial statements to estimate the impact on future revenue, expenses, and profitability, considering various factors such as initial investment, operating costs, and expected sales.

Pro forma financial statements: How to use them to make smarter business decisions

Thus, it is essential for decision-makers, such as investors and analysts, to be aware of the potential for misrepresentation in pro forma disclosures and to remain vigilant in their research and due diligence. Investment pro forma projections showcase the company’s ability to generate returns on investments, giving investors the confidence to proforma example commit their capital. Business owners can tailor these projections to highlight their business’s unique strengths, ultimately appealing to a broad range of potential investors. Pro forma financial statements and Generally Accepted Accounting Principles (GAAP) financial statements serve distinct purposes in the financial reporting process.

Pro forma financial statements can be prepared separately or in a set like general-purpose financials. Let’s take a look at each report in the set and why management would choose to create a pro-forma version. Now the income statement, balance sheet, and other data can be used to create the statement of cash flows. These assumptions can https://www.bookstime.com/ be off by a little or a lot, but the bottom line is their outcomes should not be weighed too heavily in decision-making without other indicators to back up the assumption. And as we mentioned earlier, they are not in compliance with GAAP, which means they have to be labeled as pro forma and cannot replace formal financial statements.

Sample Proforma Invoice

There’s an important difference between “forecasting” and “accounting.” Forecasting is more of a “temporary model” startup founders use to determine what will drive the business growth over time. Several third-party sites offer links to pre-built pro forma templates they’ve designed. It’s used to show the company’s ability to operate in the long term and short term based on existing cash inflows. Then, enter the company’s contact information, of which includes the company’s phone number, website URL, email, and street address.