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Tuesday, October 24, 2006

Figuring Out Pro Forma Income Statements

You can use pro forma income statements to examine revenue and expense projections. Pro forma income are created by comparing financial performance from the pervious year to the current year figures. The change can help you make future projections.

Pro forma income statements can be made even if you don’t have past or current data. Estimate the first year’s figures and then assume how these numbers might change in future periods. Tracking changes from period to period is the most important part of figuring out pro forma income statements.

HOW DO I ESTIMATE NUMBERS FOR PRO FORMA INCOME STATEMENTS?

REVENUE:

1. How much service revenue are you expecting to generate?

2. Are you going to resell products? What will your projected sales be next year?

3. Will you have other potential revenue sources, including acting as an agent for or getting referral fees from ISPs or Web hosts?

COST OF GOODS SOLD: What does it cost you to buy your resale items?

BUDGETED EXPENSES: Exhibits; Sales Seminars; Expenses Related to Direct Sales; Postage; Printing Costs; List Rental; Copy Editor or Graphic Artist.

SALES CALL EXPENSES: Gas; Tolls; Telesales; Phone Expenses and Parking.

DISPLAY ADVERTISING

COMMISSIONS

IT EXPENSES: Training and Certification; Research and Development (R & D); Subscriptions; Extra PCs.

ADMINISTRATIVE EXPENSES: Payroll; Subcontractors; Telecommunications-related Expenses (cell phone, business line, etc.); Insurance (general Liability, Casual, Business); Travel and Entertainment; Office Supplies; Health Insurance; Car Payments; Bank Fees; Credit Card Fees and Professional Fees (including accountant and lawyer fees).

If you total up your revenue and subtract your expenses, you will come up with your pro forma income statement. You can analyze these numbers against the numbers from other years and create pro forma income statements that span three to five years into the future.

Segment pro forma income statements into quarters to make them easier to manage. The further you plan into the future, the more off you might be about the projections, but putting down future plans on paper can help devise the best business plan possible.

Blogged By: Computer Consulting 101 Professional Kit