Pro forma financial statement
A pro forma financial statement projects your future finances. See the types, steps and a Singapore example.
November 2023 | Published by Xero
Published Wednesday 30 September 2026
Table of contents
Key takeaways
- A pro forma financial statement projects your future finances based on assumptions about a planned change, such as a new hire or a second location
- Statutory accounts in Singapore follow set reporting standards, while pro forma statements rely on your own assumptions and have no fixed format
- The three main types are the pro forma income statement, balance sheet and cash flow statement
- Build one from your actual figures, then test the change you’re planning under conservative and optimistic scenarios
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 about a specific event or decision to show what your numbers could look like afterwards.
The term “pro forma” is Latin for “as a matter of form”. In accounting, it describes figures prepared on assumed terms rather than from completed transactions.
Say you’re thinking about opening a second shop in Tampines. A pro forma statement estimates the extra rent and sales, then shows how your profit and cash would change. You can judge the move before you sign a lease.
Pro forma vs historical financial statements
The main difference is timing: historical statements record the past, while pro forma statements model a possible future.
Your historical financial statements report actual revenue, expenses, assets and liabilities for a period that has ended. Singapore companies prepare these statutory accounts under the Singapore Financial Reporting Standards (SFRS), which the IFRS Foundation reports are closely aligned with international standards.
Pro forma statements answer a different question: what would your finances look like if a particular change happened? They follow no set standard, so you choose the assumptions and layout.
You may also come across prospective financial statements, such as forecasts and projections, which present your expected future results. Pro forma statements show the effect of a transaction, such as an acquisition, on your historical figures as if it had already happened. The US Securities and Exchange Commission’s reporting manual treats them as separate disclosures.
Small businesses often use “pro forma” for both ideas. This page focuses on forward-looking projections you can use to plan decisions.
Why use pro forma financial statements
Pro forma financial statements show how a planned decision could change your profit and cash before you commit. Here are six ways you can use them.
Financial planning and forecasting
Projecting your income and costs lets you set realistic targets and plan where your money goes. This helps when you’re preparing for a busy season or a product launch.
Securing investment and funding
Banks and investors want evidence that your business can repay a loan or generate a return. Whether you’re applying for a bank loan or exploring other ways to fund growth, projections show you’ve tested the numbers behind your plan.
Strategic decision-making
Big decisions like hiring staff or raising prices change your numbers. A pro forma projection shows the likely effect on your bottom line before you act.
Mergers and acquisitions
If you’re buying or merging with another business, pro forma statements combine both sets of financials. The result shows what the joined business could look like, so you can decide whether the deal makes sense.
Risk assessment
Pro forma statements let you test worst-case scenarios, such as a drop in sales or losing a key client. Modelling the effect on your cash flow shows where you’re exposed, so you can plan a buffer early.
Benchmarking performance
As time passes, compare your projections with the actual figures in your profit and loss statement. The gaps show which assumptions held up, so each new forecast gets sharper.
Types of pro forma financial statements
There are three main types of pro forma financial statements. Each looks at a different part of your finances, and together they show the full effect of a planned change.
Pro forma income statement
A pro forma income statement projects your revenue and expenses over a future period. It estimates your profit or loss after changes like a new revenue stream or a price rise.
Use it to check whether an initiative will pay off. If you’re launching a new service, it shows whether the extra revenue is likely to outweigh the added costs.
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, the projected 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 into and leaving your business over a future period. It shows whether you’ll have enough cash to cover bills as they fall due.
This matters for small businesses, where a gap between paying suppliers and collecting from customers can strain your working capital. You can build this statement using the same methods as cash flow forecasting.
How to create a pro forma financial statement
You can build a pro forma financial statement from your existing records without advanced accounting knowledge. Work through these five steps.
1. Gather your baseline numbers
Start with your latest actual income statement, balance sheet and cash flow statement. Review at least 12 months of data to spot trends in revenue and costs.
If your business is seasonal, make sure the baseline captures both busy and quiet periods. The more accurate your starting figures, the more reliable your projections.
2. Identify major changes
Decide which events or decisions you want to model, such as a new hire or a new loan. List each one and note which statements it affects.
A new hire, for example, adds salary and employer Central Provident Fund (CPF) contributions to your income statement. It also increases cash outflows on your cash flow statement.
3. Calculate the financial impact
Estimate the financial effect of each change and when it will land. Rather than noting “more marketing”, put in the amount and the month you expect results.
Apply these adjustments to your baseline figures. Carry each change through all three statements where it applies.
4. Prepare multiple scenarios
Build a realistic case, then a conservative and an optimistic version. Vary your key assumptions, such as sales growth and how quickly new customers arrive.
Seeing the spread of outcomes helps you prepare. It also shows lenders and investors you’ve considered the risks.
5. Review and update your projections
As actual results come in, compare them with your projections line by line. Where the numbers differ, update the assumption behind them as well as the total.
Each update makes your next projection more accurate.
Pro forma financial statements for startups
Startups have no trading history, so their pro forma statements rely on research and estimates instead of past results. These projections are often the first financial documents a lender or investor sees.
Base your assumptions on:
- market research on customer demand and pricing
- quotes from suppliers and landlords
- the sales targets you’ve set for your first year
Your pro forma statements then feed into your business plan, showing how and when the business could become profitable. Revenue can take longer to build than you expect, so a cautious case gives you a safer view of the cash you need to launch.
Pro forma vs budget
Budgets and pro forma statements both look ahead, but they answer different questions.
A budget is your operating plan for a set period, usually a financial year. It sets spending and revenue targets so you can track performance and control costs month by month.
A pro forma statement models a specific what-if. A budget asks how to allocate your resources this year, while a pro forma asks what would happen if you made a particular change.
You’ll likely use both together: the budget guides day-to-day spending, and pro forma statements test big decisions first. When a projection holds up, you can fold it into your next budget and forecast.
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 projection rests on assumptions about the future, and market conditions or customer behaviour can shift. Your results are only as reliable as the assumptions behind them.
No standardised rules
Statutory accounts follow SFRS, but for small, private businesses, pro forma statements generally follow no fixed format and aren’t independently audited. Even in listed-company filings, where pro forma information follows set presentation rules, Deloitte’s guidance notes an auditor’s report on it isn’t required. Two businesses in similar situations could present very different projections, which makes comparisons hard.
Potential for bias
Without fixed rules, projections can drift towards optimism, especially when you’re excited about a new venture. Test each assumption critically, and ask your accountant to check the figures.
Best used alongside actuals
Pro forma statements work best next to your actual records. Compare them with up-to-date financial reports so you can see where your projections and real performance diverge.
Common mistakes to avoid
Small errors in a pro forma statement can lead to a big decision based on the wrong numbers. Watch for these common mistakes:
- Using one strong month as your baseline instead of a full year
- Leaving out employer CPF contributions when you cost a new hire
- Assuming customers pay the day you invoice them
- Changing one statement without updating the other two
- Relying on a single scenario
- Setting projections once and never checking them against actual results
Pro forma financial statement example
This example shows how a pro forma income statement helps a small business decide whether to hire.
Imagine you run a graphic design studio in Singapore. Your annual revenue is S$180,000 and your expenses are S$140,000, giving you a net profit of S$40,000. You’re considering hiring a junior designer to take on more client work.
The hire would cost S$52,000 a year: S$42,000 in salary, S$7,140 in employer CPF and S$2,860 for equipment and software. Employer CPF is 17% of wages for Singapore citizens and permanent residents aged 55 and below, under CPF contribution rates from 1 January 2026.
With the extra capacity, you expect to win S$70,000 in new work. Your pro forma income statement projects revenue of S$250,000 and expenses of S$192,000. That gives a projected net profit of S$58,000, up S$18,000 on today.
Next, test a conservative version where the designer brings in only S$45,000 of new work. Revenue reaches S$225,000 against the same S$192,000 in costs, so net profit falls to S$33,000. That’s below your current S$40,000.
Comparing the two versions tells you the hire pays for itself once new work passes S$52,000. If you’re confident of reaching that level, the hire looks worthwhile; if not, you could wait or hire part-time.
Simplify your financial reporting with Xero
Accurate baseline figures are the starting point for any pro forma projection you rely on. The better your records, the more useful your forecasts.
Xero brings your accounting data into easy-to-read reports and cash flow forecasts, with bank feeds keeping your numbers current. 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.
Are pro forma financial statements required by law?
Singapore’s statutory filing rules cover your historical financial statements, which you must prepare each year even if your company qualifies for an audit exemption. Pro forma statements sit outside those rules, though banks and investors often ask for projections when you apply for funding.
Is a pro forma the same as a profit and loss statement?
They share a layout, but a profit and loss statement reports actual income and expenses for a past period. A pro forma income statement uses that format to project future figures based on your assumptions.
How is a pro forma statement different from a proforma invoice?
A proforma invoice is a preliminary bill you send a customer before a sale is confirmed. It shares the Latin name but sets out a proposed sale, while a pro forma statement projects your finances.
How far ahead should a pro forma statement project?
One to three years suits most purposes, with monthly detail for the first year. Shorter projections tend to be more accurate, while longer ones help with strategic planning.
How often should you update your pro forma statements?
Update them at least quarterly, and straight away after a major change such as winning a large contract or losing a key client.
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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.