Pro Forma

What Are Pro Forma Financial Statements?

Pro forma financial statements are projections of future income, expenses, and cash flows based on hypothetical scenarios or assumptions. They provide insights into potential financial outcomes and are essential for making informed decisions in commercial property investments.

How to Create Pro Forma Financial Statements

To create pro forma financial statements, begin by gathering historical financial data and relevant market information. Use this data to project future revenues, expenses, and cash flows, considering factors such as market trends and potential property developments.

• Step 1: Define the Purpose and Scope
  Determine the specific goals of your pro forma financial statement, such as evaluating a new investment or assessing the impact of a major property renovation. Clearly outline the scope, including the time frame and key variables to consider.
• Step 2: Collect Historical Financial Data
  Gather detailed past financial records, including income statements, balance sheets, and cash flow statements. Ensure accuracy and completeness to establish a reliable baseline for projections.
• Step 3: Develop Assumptions for Projections
  Identify key assumptions for projecting future financial performance, such as occupancy rates, rent increases, and operating expenses. Consider using commercial property management software to streamline data collection and analysis.
• Step 4: Create Pro Forma Income Statements
  Project future revenues and expenses based on assumptions and historical data. Include potential changes from performing a rent review or adjusting lease terms.
• Step 5: Construct Pro Forma Balance Sheets
  Estimate future assets, liabilities, and equity by considering factors like property value appreciation and planned capital expenditures. Use a pro forma template to ensure consistency and accuracy.
• Step 6: Develop Pro Forma Cash Flow Statements
  Project future cash inflows and outflows, incorporating assumptions about rental income, operating costs, and financing activities. Evaluate cash flow projections to assess liquidity and financial stability.
• Step 7: Analyze Pro Forma Results
  Compare pro forma projections with actual financial performance to identify discrepancies and refine assumptions. Use pro forma analysis to guide strategic decision-making and risk management.
  
  

Tips on Using Pro Forma Financial Statements