How to Create a Pro-Forma Balance Sheet

A pro forma balance sheet is used to predict the future health of a business. Business owners prepare pro forma financial statements to use for business plans or to deliver to investors. They also develop and use them to plan future business decisions. When a company prepares a pro forma balance sheet, it usually starts with a current balance sheet and adjusts the amounts based on predictions and reasoning.

Study a current balance sheet. This financial statement shows a reflection of the health of a company by listing its assets, liabilities, and equity. It is designed following the standard accounting equation: Assets = Liabilities + Equity.

Label the financial statement. All financial statements must include a title, company name, and date. Title this statement “Pro forma Balance Sheet.” Write the name of the company and the date for which you are predicting the information.

Study the assets of the current financial statement. Assets are things that a company owns of value and generally fall into three categories. Current assets are the assets of a business that can easily be converted to cash within a year or less, such as cash and accounts receivable. Non-current assets are fixed assets, such as buildings and machinery. The third category is “other assets”. This category applies to assets that do not fit into the other categories.

Make assumptions. Adjust account balances that you can easily guess. If you are planning to purchase new equipment by the pro forma date, increase the equipment count. If you plan to increase sales throughout the year, increase the amount you are owed in accounts receivable.

Study the liabilities. Liabilities represent the amounts owed by the company and are classified by current liabilities and non-current liabilities. Current liabilities represent the amounts that the business will pay in one year or less. Non-current liabilities represent the amounts that will not be paid in that time frame.

Adjust the balances of liabilities. Determine if your company has large asset financing plans this year, or if it plans to pay off a promissory note or other debt.

Determine the amount of principal. This amount is calculated for a pro forma financial statement by subtracting liabilities from assets.

Write down all the numbers on the financial statement. Write the projected asset amounts on the left side of the financial statement and the liability and equity amounts on the right side. Put the total of all assets on the lower left side and the total of all assets and equity on the right side. Check that these two amounts are equal.