Related: The 300 Best Small Business Ideas If the projections predict a downturn in profitability, then you can make operational changes, such as increasing prices or decreasing costs, before these projections become reality.
A Pro Forma Statement Is an Important Tool for Planning Future Operationsįor my purposes here, a pro forma income statement is similar to an historical income statement, except it projects the future rather than tracks the past.
They should also be included with in the financial of a business plan. But for our purposes, we will be using the first definition.Ī pro forma income statement, along with a pro forma cash flow and a pro forma balance sheet, form the primary financial projections for a business. You may be wondering, what does “pro forma” mean? Basically, it is a fancy word for “future” or “projected.” Sometimes, however, it is used to restate financial books in an unofficial way.įor example, a company might present a “pro forma” income statement of what its income may have looked like if it did not include the money-losing division it sold off.
