Pro forma financial statements
Learn what pro forma financial statements are, the main types, and how to create one.
November 2023 | Published by Xero
Published Thursday 23 July 2026
Table of contents
Key takeaways
- A pro forma financial statement predicts your future financial results using estimated data rather than past performance.
- The 3 main types are the pro forma income statement, balance sheet, and cash flow statement.
- You can use pro forma statements to secure funding, plan your business, and weigh up new opportunities.
- Because they rely on assumptions, treat pro forma statements as forecasts, not guarantees.
What is a pro forma financial statement?
A pro forma financial statement is a document that predicts future financial results using estimated data. It's a forecast, so it shows how your business could perform under a set of assumptions rather than what has already happened.
You build one by taking your current numbers and projecting them forward. That projection helps you test decisions and plan ahead before you commit money or time.
Types of pro forma financial statements
Most pro forma forecasts fall into 3 types, and each one projects a different part of your finances. Here are the statements you'll usually prepare.
- Pro forma income statement: projects your future revenue, costs, and profit over a set period, mirroring your income statement.
- Pro forma balance sheet: projects what you'll own and owe at a future date, mirroring your balance sheet.
- Pro forma cash flow statement: projects the cash moving in and out of your business, mirroring your cash flow statement and supporting cash flow forecasting.
Reasons to use pro forma financial statements
You'll reach for a pro forma statement whenever you need to see the financial impact of a decision before you make it. These are the situations where one helps most.
- Securing funding or loans, so lenders and investors can see your projected numbers
- Business planning, including budgeting and forecasting for the year ahead
- Evaluating new opportunities, such as a new product, market, or location
- Mergers or acquisitions, where you model the combined finances
- Budgeting, so you can set targets and track against them
How to create a pro forma financial statement
Building a pro forma statement follows a clear sequence, moving from your real numbers to your projected ones. Work through these steps in order.
- Gather your historical financial data from recent periods to give the forecast a solid base.
- Set your assumptions about revenue growth, costs, and any planned changes.
- Project the income statement to estimate future revenue, expenses, and profit.
- Project the balance sheet to estimate future assets, liabilities, and equity.
- Project the cash flow statement to see how cash will move, which supports ongoing cash flow forecasting.
- Review and revise your projections as new information comes in.
Pro forma statements vs actual financial statements
The key difference comes down to time: a pro forma statement looks forward, while an actual statement looks back. Here's how the two compare.
- A pro forma statement uses estimates and assumptions about the future.
- An actual financial statement reports past performance using real, recorded transactions.
- You use a pro forma statement to plan and a set of actual statements to report and file.
Limitations of pro forma financial statements
Pro forma statements are useful, but they come with clear limits you'll want to keep in mind. They're only as good as the assumptions behind them.
They rely on estimates, so a change in your assumptions can shift the results. They aren't a required or standardized filing, and you shouldn't treat their projections as guarantees.
Plan ahead with confidence using Xero
Pro forma planning is easier when your real numbers are already organized and up to date. Xero brings your reporting and forecasting together in one place, so you can build projections from accurate data and get one month free.
FAQs on pro forma financial statements
Here are answers to some frequently asked questions about pro forma financial statements.
How is a pro forma financial statement different from a regular financial statement?
A pro forma statement projects future results from estimated data, while a regular statement reports actual past performance. One helps you plan ahead, and the other records what already happened.
Are pro forma financial statements required in Canada?
No, pro forma statements aren't a required or standardized filing in Canada. You prepare them by choice to plan, raise funding, or model a decision.
How accurate are pro forma financial statements?
Their accuracy depends entirely on the assumptions you use, so realistic inputs lead to more reliable projections. Treat them as informed forecasts rather than exact predictions.
What is the difference between a pro forma statement and a budget or forecast?
A pro forma statement models full financial statements under a specific scenario, while a budget sets spending targets and a forecast estimates likely results. They overlap, but a pro forma statement gives you the projected statements themselves.
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.