Business Proforma – Principle and Purpose Analysis

Table of Content

This article examines the utilization of the Business pro forma, encompassing its timing, location, rationale, and methodology. It also delves into the purpose and elements of a business pro forma, such as the income statement, balance sheet, and statement of cash-flows. Furthermore, it explores the significance and objective of an executive summary. The term “pro forma,” derived from Latin meaning “as a matter of form,” is mainly linked to financial statements within the business realm. Business pro formas are usually generated prior to an anticipated transaction.

The pro forma statement presents projected earnings in various scenarios, such as selling off parts of the company, merging with another company, or starting a new venture. By using a performance statement, a company can gain insight into future levels of receivables, payables, inventory, and other corporate accounts, including anticipated profits and borrowing needs. Pro forma statements are used to present financial projections for a specific time period.

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The pro forma statement is constructed according to the standard formats mandated by the American Institute of Certified Public Accountants (AICPA) and the Securities and Exchange Commission (SEC) for business purposes. Pro forma financial statements are essential in developing a business plan as they aid management in decision-making and controlling the new venture. Comparing and contrasting different business plans using the pro forma statement is a common practice among management.

Pro forma statements serve multiple purposes for management. They provide managers with an anticipated outlook on financial and operational aspects, while also enabling the creation of sales and budget projections. Additionally, these statements help consolidate the projected outcomes into profit and loss projections, which can be further translated into cash-flow projections.

The availability of such information allows management to make informed decisions regarding research and development, marketing production, and the overall assessment of a company’s viability. Moreover, pro forma statements can offer management valuable investment analysis, while also providing credit officers with an overview of a business’ financial structure under different conditions.

Pro formas are commonly developed before commencing a business with the intention of persuading potential lenders and investors to provide funding. It is crucial to acknowledge that these numbers can occasionally be misleading. To ensure the precision of the data, entrepreneurs must conduct their own investigation or consult similar businesses for market insight. The pro forma income statement serves as a tool for companies to eliminate exceptional or non-recurring items when evaluating their financial performance.

The pro forma income statement is a projection of expected earnings for a given business period. To create this statement, there are four necessary steps: developing sales projections, formulating a production schedule, calculating additional expenses, and determining projected profits. The method used to calculate the cost of goods sold depends on whether the company offers services or products – for products, it is based on the production schedule, while for services, it is determined by the value of the service.

Information provided by the income statement can help management make informed business decisions. The pro forma balance sheet is used to demonstrate how a business plans to manage its future assets and assess its overall financial strength. It consists of projected current assets, including projected cash and pro forma accounts receivable. To calculate pro forma accounts receivable, a business must consider the average collection time of receivables and sales projections from previous periods.

The estimated accounts receivable and projected cash are considered to determine the pro forma total current assets. These figures, along with pro forma land, buildings, and vehicles, are included in the pro forma balance sheet to calculate the overall pro forma total assets. The next section focuses on liabilities and begins by calculating expenses for bills and previously purchased supplies to determine the pro forma accounts payable. Determining salaries then allows for easy calculation of the pro forma accrued payroll.

The pro forma notes payable refer to the notes payable that are due within one year. The pro forma total current liabilities are determined by adding the pro forma accounts payable, accrued payroll, and notes payable. Additionally, we calculate the pro forma long term liabilities, which may include items such as the pro forma mortgage note payable. By combining both the pro forma long term liabilities and pro forma current liabilities, we obtain the overall pro forma total liabilities. Lastly, the final section of the pro forma balance sheet is dedicated to displaying the owner’s equity, which consists of both the pro forma common stock and proforma retained earnings.

In contrast, when it comes to the statements of cash flows in apropos-proforma.html”>pro-forma financial statements, they serve as forecasted statements illustrating how cash flows within an organization. Cash receipts can be categorized into operating activities, investing activities or financing activities. In direct presentation format, it reports significant categories like gross cash and operating receipts and payments along with their respective differences. Conversely, in indirect presentation format net income is reconciled with net operating cash flows utilizing balance sheet data such as accounts receivable, accounts payable, inventory and net income.

An executive summary is a concise overview of a business, highlighting key points such as services/products, locations, market research, projections, marketing procedures, and unique traits that set this business apart from others. It should also include the company’s mission statement. The executive summary plays a crucial role in the business plan as it needs to be clear, succinct, and compelling to capture the reader’s interest and encourage further exploration of the business.

Pro forma statements are essential for business planning and control. They are used by managers in decision making for creating an annual budget, developing long-term plans, and selecting capital expenditures. Pro forma statements also play a crucial role in external reporting. Public accounting firms rely on pro forma statements to help users understand how changes in the business entity, accounting principles, or accounting estimates impact the financial structure of a company.

Pro forma statements have various applications for both mature businesses and small business/startup firms. These statements play a crucial role for small businesses and startups that may not have the necessary track record to prepare traditional financial statements. As a planning tool, pro forma statements aid small business owners in mitigating risks involved in starting and managing a new business. Additionally, the information in pro forma statements can help convince lenders and investors to provide funding for a start-up company. The proposed business is called Zerbe’s Choppers.

Zerbe’s Choppers is a lawn service company that will be based in Lafayette and serve the nearby areas. The company’s physical location will be in Lafayette. The range of services provided includes grass cutting, removal of debris from the lawn post-cutting, and tree trimming. Customer service is highly valued by this company, with all staff members – from the phone-answering secretary to the grass cutters – being trained in this area. Customers will be acquired through employee referrals, word-of-mouth, door-to-door marketing, yard signs, as well as radio and newspaper ads.

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Business Proforma – Principle and Purpose Analysis. (2017, Mar 11). Retrieved from

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