Pro forma financial statement
Learn how pro forma financial statements help you test business decisions before you commit.
November 2023 | Published by Xero
Published Wednesday 30 September 2026
Table of contents
Key takeaways
- A pro forma financial statement projects your finances after a planned change. It lets you test a decision before you commit money to it.
- The three main types are the income statement, balance sheet and cash flow statement. Each shows a different side of a planned change.
- You build one from your actual figures, then prepare more than one scenario. A conservative case shows how much risk you’re taking on.
- In Indonesia, your actual statements follow national accounting standards, while pro forma projections are flexible planning tools. Compare the two to sharpen your estimates.
What is a pro forma financial statement?
A pro forma financial statement is a projection of your business’s future finances. It starts with your current figures and applies assumptions to show what your numbers could look like after a specific decision or event.
The term is Latin for “for the sake of form”, as the Corporate Finance Institute explains. It presents assumed or forecast figures in a formal layout, so you can shape the numbers around the question you’re asking.
Historical financial statements record what’s already happened: your actual revenue, expenses, assets and liabilities for a past period. A pro forma statement looks ahead and answers one question: what would your finances look like if this change took place?
Say you’re thinking about opening a second shop in Surabaya. A pro forma statement sets the extra rent and staff costs against expected sales. You can judge the move before you sign a lease.
Why use pro forma financial statements
Pro forma statements turn a planned decision into numbers you can check. Here’s how small businesses put them to work.
Financial planning and forecasting
Projecting revenue and costs for the months ahead helps you set realistic targets and decide where to spend. It’s especially useful when you’re planning for growth or preparing for a busy season.
Securing investment and funding
Lenders and investors want to see how your business will generate returns. Pro forma statements set out your expectations in a clear format, and they pair well with a written business plan when you apply for funding.
Strategic decision-making
Hiring staff or raising your prices changes your numbers. A pro forma projection shows the likely effect on your profit before you act.
Mergers and acquisitions
If you’re buying or merging with another business, a pro forma statement combines both sets of financials to show how the joined business could perform. Pair it with a clear view of what the other business is worth to judge whether the deal makes sense.
Risk assessment
You can model tough scenarios, such as a drop in sales or losing a major client. Spotting weak points early lets you build contingency plans and keep your cash flow healthy.
Benchmarking performance
Comparing your projections with actual results over time shows which assumptions held up. Review them each quarter, or sooner when your circumstances change, and use what you learn to track profitability more closely.
Types of pro forma financial statements
There are three main types of pro forma financial statements. Each one shows a different part of how a planned change could affect your business.
Pro forma income statement
A pro forma income statement projects your revenue and expenses for a future period to estimate your profit or loss. It factors in expected changes, such as a new revenue stream or higher supplier costs.
Use it to check whether a new service will earn more than it costs to deliver.
Pro forma balance sheet
A pro forma balance sheet projects your assets, liabilities and equity at a future date. It shows how an event such as taking on a loan or bringing in an investor would change your financial position.
If you finance new equipment with a loan, for example, the balance sheet shows both the new asset and the matching liability.
Pro forma cash flow statement
A pro forma cash flow statement estimates the money coming in and going out over a future period. It covers operating, investing and financing cash flows, so you can see whether you’ll have enough cash to pay your bills.
Timing gaps between payments and receipts can squeeze a small business, so check this view before any big spend. It builds on the same thinking as cash flow forecasting.
Pro forma vs actual, forecast and budget
Pro forma statements share line items with other financial reports, and each report answers a different question. Here’s how they compare.
Pro forma vs actual financial statements
Actual financial statements record completed transactions. In Indonesia, businesses prepare them under Standar Akuntansi Keuangan (SAK). Eligible smaller businesses can use the simpler SAK Entitas Mikro, Kecil, dan Menengah (SAK EMKM), in effect since 1 January 2018.
Pro forma statements use the same layout but swap recorded figures for assumptions, so they show what could happen.
Pro forma vs forecast
A forecast estimates your most likely results if the business carries on as it is. A pro forma statement models a specific “what if”, such as a new hire. It can even restate past results as if a change had already happened.
Pro forma vs budget
A budget sets revenue and spending targets for a set period, usually your financial year, and guides day-to-day cost control. A pro forma statement tests one decision before you commit to it.
Most businesses use both. The budget runs regular operations, while pro forma statements help you weigh bigger moves.
Common pro forma adjustments
Adjustments are the changes you make to your baseline figures to reflect the scenario you’re testing. Common adjustments include:
- extra revenue from new customers or higher prices
- higher running costs, such as new staff or a bigger office
- loan repayments and interest from new financing
- the combined figures of a business you plan to acquire
- one-off sales or costs stripped out of your baseline
How to create a pro forma financial statement
If you know your own figures, you can build a pro forma statement. Follow these four steps to turn your current data and planned changes into a clear projection.
1. Gather your baseline numbers
Start with your latest actual income statement, balance sheet and cash flow statement. Review at least the past 12 months to spot trends in revenue, costs and cash.
If your business is seasonal, such as a shop that peaks around Lebaran, make sure your baseline captures those swings. Accurate starting figures make every later step more reliable.
2. Identify major changes
Decide which events or decisions you want to model, such as hiring, expanding or taking on debt. List each change and note which statements it affects.
A new hire, for example, raises payroll costs on the income statement and cash outflows on the cash flow statement.
3. Calculate the financial impact
Estimate the cost, revenue and timing of each change as precisely as you can. Instead of writing “more marketing”, put down the amount and the month you expect results.
Apply these adjustments to your baseline, and carry them through every statement they touch.
4. Prepare multiple scenarios
Build a realistic case first, then an optimistic and a conservative version with different growth and cost assumptions. Seeing the spread of outcomes helps you plan ahead and shows lenders you’ve weighed the risks.
Pro forma financial statement example
This example shows how a pro forma income statement works for a small Indonesian business. All figures are illustrative.
Imagine you run a graphic design studio in Bandung. Your annual revenue is Rp 1.2 billion and your expenses are Rp 950 million, leaving a net profit of Rp 250 million. You’re thinking about hiring a junior designer to take on more client work.
The designer’s total cost comes to an estimated Rp 150 million a year. That covers salary, employer contributions to Badan Penyelenggara Jaminan Sosial (BPJS) Ketenagakerjaan and BPJS Kesehatan, and equipment. Check the current BPJS Ketenagakerjaan contribution rates when you build your own estimate.
With the extra capacity, you expect to win Rp 300 million in new client work over the year. Your pro forma income statement projects revenue of Rp 1.5 billion (Rp 1.2 billion plus Rp 300 million). Projected expenses are Rp 1.1 billion (Rp 950 million plus Rp 150 million).
That gives a projected net profit of Rp 400 million, which is Rp 150 million more than today.
In a conservative scenario, the new designer brings in only Rp 120 million. Revenue reaches Rp 1.32 billion against the same Rp 1.1 billion in expenses. Profit falls to Rp 220 million, which is Rp 30 million below your current level.
Comparing both cases shows your break-even point for the hire: the designer needs to bring in at least Rp 150 million of new work. That figure gives you a clear target before you advertise the role.
Limitations of pro forma financial statements
Pro forma statements are useful planning tools, and knowing their limits helps you use them well. Keep these points in mind when you read your projections.
Based on assumptions
Every projection rests on assumptions about the future, and markets and costs can shift. Your projection is only as accurate as the assumptions behind it.
Flexible format
Your actual financial statements follow SAK. For many private businesses, that’s SAK Entitas Privat (SAK EP). It took effect on 1 January 2025 and replaced SAK Entitas Tanpa Akuntabilitas Publik (SAK ETAP).
The Dewan Standar Akuntansi Keuangan of Ikatan Akuntan Indonesia (DSAK IAI) issues these standards for actual statements. Pro forma statements follow whatever format you choose, so two businesses can present similar plans in very different ways.
Potential for bias
With no fixed rules, projections can drift towards optimism, especially when you’re excited about a new venture. Test your assumptions hard and ask your accountant or advisor to check the figures.
Best used alongside actuals
Your actual records remain your source of truth for tax and reporting. Reading them together with your pro forma statements shows you both where you are and where you could be.
Build better projections with Xero
Every useful pro forma statement starts with accurate baseline figures. Xero keeps your accounting data organised in one place, with automated bank feeds and reports you can run anytime.
With up-to-date numbers ready, you can plan your next move with confidence. Try Xero today and get one month free.
FAQs on pro forma financial statements
Here are answers to common questions about pro forma financial statements.
What is the difference between pro forma and management accounts?
Management accounts report your actual performance over a recent period, often monthly, to help you run the business. Pro forma statements take those figures and project how the business could perform under a specific scenario.
Are pro forma financial statements required by law in Indonesia?
Small businesses in Indonesia have no general legal duty to prepare them. Lenders or investors may still ask to see your projections when you apply for funding.
How far ahead should a pro forma statement project?
One year suits most operating decisions, such as a new hire. Funding and expansion plans often look two to three years ahead, though accuracy drops the further out you go.
Can you create a pro forma statement for a new business?
Yes. Without past figures, you base your assumptions on market research, supplier quotes and the cost estimates in your plan.
Is a pro forma the same as a P&L?
A profit and loss statement (P&L) records actual income and expenses for a past period. A pro forma income statement uses the same layout to project figures for a scenario you’re considering.
Are pro forma statements for internal or external use?
They work for both. You can use them internally to test decisions, then share them with lenders, investors or buyers who ask to see your projections.
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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.