As a CFO or finance team member, you're helping shape your company's future through the decisions you make today. But how can you truly know how these choices will impact future operations? That's where pro forma financial statements come in.

Pro forma financial statements are like a secret weapon, helping you anticipate challenges and creating realistic scenarios to help you make the most informed decisions possible. When you understand how to use pro forma financial statements to your best advantage, you can feel confident in the business choices you make.

Continue reading to learn what pro forma financial statements are and the many ways they can be used to make strategic decisions for growing businesses. 

Table of Contents

• What does "pro forma" mean in finance?
• How businesses use pro forma financial statements
• Key components of pro forma financial statements
• How to create pro forma financial statements step-by-step
• Sample pro forma financial statement
• Pro forma financial statement use cases for growing businesses
• Risks and limitations of pro forma financial statements
• Best practices for pro forma financial statements
• How QuickBooks can help with pro forma financial statements
• FAQ

What does "pro forma" mean in finance?

In finance, a pro forma financial statement is one that uses estimates based on hypothetical future scenarios a company is considering (such as expanding a product line). Pro forma financial statements — sometimes also referred to as projections — take the same form as the financial statements, but they give finance professionals the ability to enter estimates, which is why they aren't considered in the same way that standard financial statements would be.

Standard financial statements that are produced for publication at the end of a fiscal period show the past performance of the business, and as such, are calculated on historical information.

Pro forma financial statements, on the other hand, show what could happen in various scenarios. CFOs and other financial professionals can manipulate the numbers on a pro forma financial statement based on reasonable estimates in order to determine what might happen if they were to merge with another company, launch a new product, or open a new location.

How businesses use pro forma financial statements

So, why use pro forma financial statements if they're based on what-ifs and estimates?

According to a Bank of Canada Business Outlook Survey for the first quarter of 2025, 40% of businesses are expecting lower sales growth. This is exactly the kind of thing pro forma statements can help prepare businesses for. If a business is expecting lower sales, the finance team can use sales estimates to create pro forma financial statements to show them what else they need to adjust to remain profitable.

While mid-sized businesses are comfortably beyond the start-up stage, they aren't yet large enterprises that may have an easier time riding out economic downturns. They face decisions on whether to expand, raise capital, or adjust pricing. Pro forma statements can help provide a model on which to base decisions that may reduce financial risk.

Here are some common ways scaling businesses use pro forma statements:

• Specific scenario planning, such as what happens if sales drop 10% next quarter.
• Strategic forecasting, like testing out best and worst case scenarios for the upcoming quarter or year.
• Investor or lender pitches showing estimated profitability to secure funding.
• Evaluating growth opportunities, such as opening a new location or hiring more staff.
• Testing pricing strategies, like increasing prices by 5%. 

Key components of pro forma financial statements

A full pro forma financial statement package contains the same statements a traditional financial statement package would include. The difference is the historical figures are replaced with estimates for future data.

Let's take a close look at each component.

Introduction to the financial statements

The introduction to the pro forma statements sets the stage by briefly explaining the context for the statements. This is where the purpose of the statements is clearly laid out. For example, if a business is looking at expanding, the specific details of the expansion would be included here.

It's important that the introduction also include the time frame being examined. Is it the next month, quarter, year, or two years? The introduction should also include a disclaimer that clearly states that the pro forma financials are based on projections and that results are not guaranteed.

Pro forma balance sheet

The pro forma balance sheet includes all the accounts the standard balance sheet shows, but with adjustments for the scenario under question. It shows projected balances at a point of time in the future. A key question to ask is, "What will our company's financial position look like if we follow this plan?" Not all the numbers on the balance sheet will be impacted by the plan, but those that are should be adjusted to their future amount.

For example, if a company is considering financing, the cash and loan balances will change when the funding is received. These accounts must be adjusted to reflect this. Other accounts that may need to be adjusted (depending on the scenario) include accounts payable, equipment, and loans payable.

Pro forma income statement

Similar to the standard income statement, the pro forma income statement shows the expected sales and expenses over a period of time, such as the next quarter. Pro forma P&Ls are often used to model sales growth, cost increases from hiring or scaling, and profitability under various assumptions.

Pro forma cash flow statement

CFOs often use cash flow statements to assess risk and funding decisions.

Like a standard cash flow statement, the pro forma cash flow statement shows details for cash inflows and outflows. But since the pro forma statement is based on estimates, it is predicting cash inflows and outflows rather than charting historical cash transactions.

Its purpose is to determine if the company would have enough cash to operate given the future scenario.

Templates

Since pro forma financial statements use the same format as standard ones, you can use QuickBooks' free financial statement templates for those as well.

Notes to the financial statements

The notes section of the pro forma financial statements is where all the assumptions that were made during the creation of the pro forma statements will be listed. Anything that's not self-explanatory goes here.

Here are some examples of the types of notes you might find in a pro forma financial statement:

• Estimated revenue growth is 15%.
• Planned expenditure on equipment upgrades is $250,000.
• Increased interest expense reflects a new $500,000 loan.
• Effective tax rate is estimated at 25% based on the average rate over the previous two years.

How to create pro forma financial statements step-by-step

There are seven main steps to creating pro forma financial statements.

1. Define your purpose

If you don't know why you're creating pro forma statements, you won't know which figures need to be adjusted for future scenarios. So before you start creating your pro forma statements, decide on the future scenario under consideration.

2. Choose a timeline

The timeline you choose should relate to the purpose of the pro forma statements.

For example, if the business is applying for a loan, you might create a 12-month pro forma statement to show the impact of the financing over the next year. Multi-year projections would be appropriate for larger projections such as mergers or expansions that may require more of an adjustment period.

3. Gather historical data

This step is straightforward. Make sure you have a copy of the most recent standard financial statements to work from. These will provide your baseline data.

4. Make assumptions and adjust

Here's where you start determining how you will estimate future numbers and which numbers will be impacted by what is potentially happening in the business.

This step is the most time-consuming because it's important to make sure no accounts get missed. For example, if the business is applying for a loan but interest expense isn't estimated and updated on the pro forma statements, expenses will be understated and the pro forma financials may not be useful.

5. Create the three core statements

If you're using the standard financial statements as a template, make sure you create a new copy for the pro forma statements so you don't accidentally alter any final numbers from the official financial statements.

Once you've done that, you can start updating account balances based on what was determined in step 4.

Many future scenarios involve adjusting income and expense numbers. So starting with the income statement makes the most sense, because an increase in sales will impact accounts like receivables or cash on the balance sheet.

6. Add notes and assumptions

Hopefully you've already been keeping track of notes and assumptions as you've been working on the pro forma statements. In this step, you will document how you came up with your estimates.

If revenue is predicted to increase by 10%, it's important to note why. Is it because this is the average it has increased during the last several years? Is the company launching a new product?

Showing how you arrived at the forecasted numbers builds trust with stakeholders and helps them see the big picture more clearly.

7. Review internally

The finance team should check pro forma statements for any errors before handing them over to external stakeholders such as lenders, investors, or — in the case of a merger or acquisition — another company's finance team.

Sample pro forma financial statement

Maple Bean Coffee Co. is considering expanding its offerings. The finance team estimates the new offerings will increase 2025 COS by 30% while only increasing revenue by 20%. The company plans to spend an additional 20% on advertising to market the new products.

In addition to these changes, the finance team is aware that rent is increasing by 5% and insurance will increase by 10% in 2025. Here's the pro forma income statement the CFO created to see if the new offering is worthwhile. 

Net income will increase by $21,100 ($85,900 - $64,800). This is an increase of 32.56%, indicating the new offerings have the potential to be profitable. 

Pro forma financial statement use cases for growing businesses

As companies grow, not only are they faced with more decisions, but those choices also have higher stakes. Pro forma financial statements can be helpful when analyzing a variety of scenarios, including expanding operations, applying for funding, or preparing for an acquisition or merger.

Below are some of the most common uses of pro forma financial statements.

Budgeting and forecasting

While often used synonymously, budgeting and forecasting are actually slightly different. Budgeting is what you plan to spend and earn, and forecasting is based on trends in the marketplace or various scenarios that could apply to the business. Pro forma statements can be created for both budgeting and forecasting to test different situations.

Raising capital and/or applying for loans

When raising capital, a company can use pro forma financial statements to show how the business will perform with the new capital received. A pro forma set of statements is also useful for demonstrating how a company will come up with the funds to repay a loan.

Evaluating mergers, acquisitions, or expansion

Financial statements of two companies can be combined to form one set of pro forma statements. This is useful if a company is considering acquiring another company, merging, or even expanding locations.

Managing risk and cash flow

In an economic downturn, companies could be at risk for paying increased supply costs. Finance teams could consider modelling worst-case scenarios using pro forma statements to prepare for such situations.

Complying with internal governance or investor reporting

Some company boards and investors require forward-looking statements quarterly or annually to maintain transparency and set performance benchmarks. 

Risks and limitations of pro forma financial statements

It's important to remember that pro forma financial statements are based on estimates. This means that anything can happen to impact actual numbers going forward. If assumptions made during the creation of the pro forma financial statements are incorrect, projections can be misleading.

Because pro forma statements are based on estimates, they aren't governed by standards like International Financial Reporting Standards (IFRS) or Accounting Standards for Private Enterprises (ASPE) — which means they aren't compliant with Generally Accepted Accounting Principles (GAAP). Not having a standard way to prepare pro forma statements means that it's up to the CFO or finance team to decide how they're created.

If pro forma statements are used as part of a pitch to impress stakeholders, there's a risk that the statement preparers may inflate the results of their estimates.

Not only that, but if the notes to the statements aren't clear or don't consider alternative scenarios, there's a chance stakeholders may misinterpret the statements as guaranteed results.

Best practices for pro forma financial statements

When preparing pro forma financial statements, it's best to focus on accuracy, transparency, and compliance.

Always remind yourself of the purpose of the statements and ask if there's a possibility of something being misinterpreted. If so, add clear notes to the statements. Being conservative with your assumptions will also help keep the estimates realistic.

Because there is no governing standard regarding pro forma financial statements, there is no requirement to file these statements with the Canada Revenue Agency (CRA). But the CRA does require accurate records for tax planning, so it's best to follow accounting standards like IFRS or ASPE even when creating pro forma statements. Use the same standard you use when preparing standard financial statements.

Because what-if scenarios can change quickly, make sure you're monitoring the various versions of your pro forma financial statements. Keep track of updates and how estimates are calculated. 

How QuickBooks can help with pro forma financial statements

If all this information about pro forma financial statements has your head spinning, don't worry. For mid-sized businesses needing tools that go the distance, QuickBooks Online Advanced offers:

• Custom reporting
• Dashboards to help visualize cash flow
• Integration with spreadsheets for pro forma templates
• Role-based access for collaboration between departments
• Tools to track budget vs. actuals so you can refine your pro forma statements over time

With all these options, you can have the right-sized tools for your mid-sized business.