Pro forma financial statement
Learn what a pro forma financial statement is, the three main types, and how to build one for your business.
November 2023 | Published by Xero
Published Wednesday 30 September 2026
Table of contents
Key takeaways
- A pro forma financial statement projects your business’s future finances using assumptions about a planned change or event. It helps you test a decision before you commit money to it.
- Irish companies prepare statutory financial statements under the Companies Act 2014 using FRS 102 or International Financial Reporting Standards (IFRS). Pro forma statements follow no set standard, so they sit alongside your statutory accounts as planning tools.
- You can create pro forma income statements, balance sheets and cash flow statements. Build each one from your actual figures, then adjust for the change you’re planning.
- Pro forma statements are only as reliable as the assumptions behind them. Prepare a conservative scenario and compare your projections with actual results over time.
What is a pro forma financial statement?
A pro forma financial statement is a projection of your business’s future financial performance. It combines your existing figures with a set of assumptions to estimate what your numbers could look like after a specific event or decision.
The term “pro forma” comes from Latin, meaning “for the sake of form” or “as a matter of form”. In finance, it describes figures presented under assumed or hypothetical conditions, and they often appear in investment or lending proposals.
The key difference between pro forma and historical financial statements is timing. Historical statements record what’s already happened: your actual revenue, expenses, assets and liabilities for a past period. Pro forma statements look ahead and answer a what-if question: “What would your finances look like if this change took place?”
Say you’re thinking about opening a second location. A pro forma statement would project the extra costs, the expected revenue and the overall effect of that expansion. You can then weigh up the decision before you spend anything.
Pro forma vs statutory financial statements
Statutory financial statements report on the past and follow set rules, while pro forma statements model the future and follow your own assumptions. Knowing where each one fits helps you use them correctly.
Under the Companies Act 2014, directors of an Irish company must prepare statutory financial statements for each financial year. They can use the framework in section 291, such as FRS 102, or IFRS.
FRS 102 is the Financial Reporting Standard applicable in the UK and Republic of Ireland. The Financial Reporting Council (FRC) issues it, and it’s based on the IFRS for SMEs standard.
Pro forma statements have no equivalent standard, and they aren’t filed as part of your statutory accounts. You may also come across prospective financial statements, which come in two kinds:
- forecasts, which show the results you expect
- projections, which show results under hypothetical assumptions
A pro forma statement is narrower than either. It takes your existing figures and applies the effect of one specific transaction or event, such as a loan or a new hire.
Why use pro forma financial statements
Pro forma financial statements help you make informed decisions about your business’s future. According to Harvard Business School Online, business owners and creditors use them to measure the potential effect of business decisions.
Financial planning and forecasting
Pro forma statements let you map out your finances for the coming months or years. When you project revenue and costs over time, you can set realistic targets and put resources where they’ll do the most good. They’re especially useful when you’re planning for growth or a new product launch.
Securing investment and funding
Lenders and investors want evidence that your business can repay a loan or generate returns. For example, Microfinance Ireland asks loan applicants for a business plan and a cash flow forecast or income and expenditure template.
Clear pro forma statements show that you’ve thought carefully about the numbers behind your plans. You’ll find more on loans and grants in this guide to funding options for your business.
Strategic decision-making
Every major business decision has financial consequences. Thinking about hiring staff, raising your prices or entering a new market? A pro forma projection shows you the potential effect on your bottom line before you act.
Mergers and acquisitions
If you’re considering buying another business or merging with one, pro forma statements are essential. They combine the financial data of both businesses to project the merged business’s finances. That helps you judge whether the deal makes financial sense.
Risk assessment
Pro forma statements let you test different scenarios, including worst-case ones. When you model what happens if sales drop or a key client leaves, you can spot weak points and build contingency plans.
This kind of forward thinking keeps you prepared for the unexpected. For more ways to keep your finances resilient, see this guide to managing your business money.
Benchmarking performance
Once you’ve created pro forma projections, you can compare them against your actual results over time. The comparison shows where your assumptions were accurate and where they missed, which sharpens your next forecast.
Types of pro forma financial statements
There are three main types of pro forma financial statements, each focusing on a different part of your finances. Together, they show how a planned change could affect your business.
Pro forma income statement
A pro forma income statement projects your expected revenue and expenses over a future period. It estimates your projected profit or loss by factoring in expected changes like new revenue streams or cost increases.
This type of statement is useful when you’re checking whether a specific plan will be profitable. If you’re launching a new service, for instance, it helps you estimate whether the extra revenue will outweigh the costs.
Pro forma balance sheet
A pro forma balance sheet projects your assets, liabilities and equity at a future point in time. It shows how a planned event, such as taking on debt or bringing in new investors, would change your financial position.
This helps you see how a decision affects your business’s net worth and stability. If you’re financing a large equipment purchase with a loan, the pro forma balance sheet would show both the new asset and the matching liability.
Pro forma cash flow statement
A pro forma cash flow statement estimates the money flowing in and out of your business over a future period. It projects your operating, investing and financing cash flows, so you can see whether you’ll have enough cash to meet your obligations.
Cash flow projections matter for small businesses, where timing gaps between income and expenses can cause real problems. If you’re planning a period of heavy investment, this statement shows whether your cash reserves can handle it. Learn more about projecting your cash movement.
How to create a pro forma financial statement
Creating a pro forma financial statement doesn’t require advanced accounting knowledge. Follow these four steps to build a solid projection from your existing data and planned changes.
1. Gather your baseline numbers
Start with your most recent actual financial statements: your income statement, balance sheet and cash flow statement. Review at least the past 12 months of data to spot trends in your income and spending.
If your business is seasonal, make sure your baseline reflects those peaks and dips. The more accurate your starting data, the more reliable your projections will be.
2. Identify major changes and assumptions
Decide which events or decisions you want to model, such as launching a product, hiring staff, changing your pricing or taking on debt. List each change and note which financial areas it will affect.
Next, write down the assumptions behind each change. Common ones include:
- revenue growth rate
- pricing changes
- cost inflation, including wages and supplier prices
- payment timing, such as how quickly customers pay you
- financing terms, such as loan interest and repayments
3. Calculate the financial impact
For each change, estimate its financial effect and when it will land. Be specific: instead of noting “more marketing spend”, estimate the exact amount and when you expect returns. This guide to estimating business costs can help you price new items.
Apply these adjustments to your baseline numbers to create your projected figures. A new hire, for example, adds payroll costs to your income statement and cash outflows to your cash flow statement, so update both.
4. Prepare multiple scenarios
Create at least a realistic version and a conservative version, and add an optimistic one if it helps. Vary your key assumptions, such as revenue growth, cost increases and how quickly you win new customers, across each version.
Multiple scenarios show you the range of possible outcomes and help you plan for each. They also give lenders and investors confidence that you’ve considered the risks.
Pro forma vs budget
Pro forma statements and budgets both look forward, but they do different jobs. A budget guides your spending, while a pro forma statement tests a specific decision.
A budget is an operational plan that sets spending and revenue targets for a defined period, usually a financial year. You use it to manage day-to-day finances by tracking income against expenses, controlling costs and measuring performance against goals.
A pro forma statement models what your finances would look like under specific hypothetical conditions. A budget asks, “How should you allocate your resources this year?” A pro forma statement asks, “What would happen to your finances if you made this change?”
In practice, you’ll likely use both. Your budget guides your regular finances, and pro forma statements help you evaluate major decisions before you commit to them.
Limitations of pro forma financial statements
Pro forma financial statements are useful planning tools, but they have limits. Knowing them helps you read your projections with the right level of confidence.
Based on assumptions
Every pro forma statement rests on assumptions about the future, and those assumptions may prove wrong. Market conditions and customer behaviour can change, and unexpected costs can come up. Your projections are only as accurate as the assumptions behind them.
No standardised rules
Statutory financial statements follow the Companies Act 2014 and accounting standards such as FRS 102 or IFRS. Pro forma statements have no standard preparation rules, so two businesses could present very different pro forma statements for similar situations.
Potential for bias
Without fixed rules, projections can end up overly optimistic or selectively presented. This can happen by accident when you’re excited about a new venture, or on purpose when you want a business case to look stronger. Review your assumptions critically and ask someone independent, such as your accountant, to check your figures.
Best used alongside actuals
Pro forma statements work best next to your actual financial records. Use them with your historical financial statements to get a balanced view of your financial position.
Comparing your projections against actual results over time is one of the best ways to make future forecasts more accurate.
Pro forma financial statement example
This example shows how a pro forma income statement works for a small business in Ireland. All figures are annual and before tax.
Imagine you run a graphic design studio in Dublin. Your current annual revenue is €120,000 and your total expenses are €95,000, giving you a net profit of €25,000 before tax. You’re considering hiring a junior designer to take on more client work.
First, work out the full cost of the hire. The costs for a junior designer on a €30,000 salary are:
- salary of €30,000
- employer Pay Related Social Insurance (PRSI) at the Class A higher rate of 11.25%, about €3,375
- employer My Future Fund auto-enrolment contribution of 1.5%, or €450
- equipment of about €1,500
That comes to about €35,325, or roughly €35,300. The employer PRSI rate for weekly earnings above €552 rises to 11.4% from 1 October 2026, which adds about €45 a year to this hire.
The auto-enrolment figure applies because My Future Fund began on 1 January 2026. In years one to three, employers contribute 1.5% of gross pay for eligible employees. Eligible means aged 23–60, earning €20,000 or more a year and not already in a workplace pension.
You estimate the extra capacity lets you take on €45,000 of additional client work. Your pro forma income statement would then show:
- projected revenue of €165,000 (€120,000 plus €45,000)
- projected expenses of €130,300 (€95,000 plus €35,300)
- projected net profit of €34,700 before tax, up €9,700 on your current position
Next, test a conservative scenario. Say the new designer brings in only €30,000 of extra revenue. Your revenue is then €150,000, and your net profit before tax falls to €19,700, below your current €25,000.
Seeing both outcomes side by side shows you how much new work the hire needs to pay for itself. In this case, the designer needs to bring in more than €35,300 of extra revenue to lift your net profit.
Simplify your financial reporting with Xero
Every good pro forma projection starts with reliable, up-to-date baseline figures. When your actual numbers are accurate, your forecasts give you insights you can act on.
Xero keeps your financial data organised and accessible in one place. With automated bank feeds, easy document uploads, customisable reports and real-time cash flow tracking, you’ll have the figures you need to build meaningful projections. Try Xero today and get one month free.
FAQs on pro forma financial statements
These answers cover common questions Irish business owners have about pro forma financial statements.
Are pro forma financial statements required by law in Ireland?
No. Irish company law requires statutory financial statements covering past periods, while pro forma projections are an optional planning tool that lenders often request.
Can you use pro forma statements for tax purposes?
No, Revenue charges corporation tax on your company’s actual profits, at 12.5% for trading income. You can still use a pro forma income statement to estimate your next tax bill and set cash aside for it.
How far ahead should a pro forma statement project?
Most pro forma statements cover one to three years, depending on the purpose. Shorter projections tend to be more accurate, while longer ones help with strategic planning but carry more uncertainty.
Can you create a pro forma statement for a new business?
Yes, startups often use pro forma statements to project their expected performance. Without historical data, you’d base your assumptions on market research and the revenue and cost estimates in your business plan.
How often should you update your pro forma statements?
Update them whenever your business circumstances or key assumptions change. At minimum, revisit them each quarter so your projections stay in line with your actual performance.
Related terms
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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.