It is critical to your business success that you prepare realistic forecasts of your future business performance. You need to forecast your operations for three to five years in order to guide your business growth. You will need realistic forecasts to support your business plan if you need a loan or investor funds. The elements of and influences on pro forma statements include: Prior Financial Statements
Of course you will have to use previous financial statements if your business has been operating for some time. From your prior financial statements, you will use sales and revenue levels, business ratios, average expenses, and any relevant information about your accounts receivable or payable. You should expect your prior financial statements to show financial improvement for each year of operation. Internal Factors
That status of your operations is important in preparing pro forma statements and projections. For example, you must consider whether your business needs to relocate due to expansion, or your business needs to buy expensive new equipment to replace older models. You also must consider your competition, how you are measuring up to them, and whether you need a new marketing plan to be more competitive. Also, consider whether your company needs additional personnel or additional training. External Factors
The status of the countrys economy is very relevant to your companys future. Certain businesses may be affected by the status of the global economy. It is important to understand the industry trends to be certain that your product or services will continue to be marketable. The amazing pace of technological growth has changed many businesses and even eliminated some. Also, a manufacturing company must have a reliable source of raw materials, and the future cost of raw materials must be considered. Projected Financial Statement
The pro forma financial statements will include estimated future sales, expenses, and profits. These items need to be broken down in order to be meaningful. The sales estimates should state which salesperson, which department, or which region will generate the sales. The estimated expenses must be broken down into general and administrative, operating expenses, depreciation, and taxes. All of your estimates and projections must logically flow from previous years financial statements. If you are a start-up business, you may not have profits for the first year or two. You should start to show profit by the third year and your profits should continue to grow except for occasional large expenses. Your pro forma statements must include estimates of any large expenses that will affect your profit such as relocating, property damage, or a new marketing campaign. Unless you have a background in accounting or finance, you will need a professionals help. Jo Ann Joy, Esq., MBA, CEO The future of your business starts here! You may contact Jo Ann by phone at (602) 663-7007, by fax at (602) 324-7582, by email at joannjoy@Indigo Business Solutions.net, and by mail at 2313 East Ocotillo Rd., Phoenix, AZ 85016. Copies of any articles will be provided free of charge. For more information about these and other important legal and business topics, and for free articles, please visit our website at www.IndigoBusinessSolutions.net. Copyright 2006. All rights reserved. Indigo Business Solutions is a registered trade name. |
