A pro-forma balance sheet is a tabulation of future projections and can help your business manage your assets now for better results in the future. It can assure that there are no surprises in the future when it comes to paying your bills, getting returns on investors, and keeping your inventories in stock. We touched on what pro-forma sheets were in this blog post, but now let’s look a bit more in-depth into what will be included on the final product:
Step 1: Short Term Assets
The first two items on your pro-forma balance sheet will be your current cash assets and your accounts receivable. The accounts receivable will include any income from this source within the range of your pro-forma sheet, based on your current income and factors such as when accounts receivable bills are usually paid. For example, if we are completing a pro-forma balance sheet for the month of July and payments are expected within 30 days, we can assume that all accounts receivable income will be available by the end of July.
Step 2: Long Term Assets
Next, you would account for all long-term assets and the sum of those totals. This includes:
The value of the building would need to be the original purchase price minus the current depreciation. Currently, the IRS has the depreciation value of buildings set at 39 years. Simply divide the original purchase price of the building by 39, then multiply by the number of years that the building has been in use. That will give you the current value of the depreciation. Take this number away from the original price, and you are left with the asset value of the building. Land’s value would be calculated at its purchase price, as the value of land does not experience depreciation. Finally, calculate the asset value of vehicles. Vehicles depreciate much faster than buildings, but finding the current asset total is the exact same as the building total, simply replacing the 39 years with the 8 year life span of a vehicle.
Step 3: Total Assets
Your pro-forma total assets is simply the sum total of the numbers from steps 1 and 2.
Step 4: Liabilities
This step includes accounts payable, payroll, and any other expenses within the range of you pro-forma balance sheet. Imagining again that we are accounting for the month of July, it would include any money owed that month to consultants, employees, labor services, or loan payments. This would also include all mortgage payments. Once all of this has been accounted for, add those numbers together.
Step 5: Final Tabulations
The last step is final tabulations. Subtract your liabilities from your assets and this will tell you whether you have enough to continue operations as usual, or if you should consider loan applications or cutbacks due to lack of assets.
The professionals at Froehling Anderson CPAs can make this process even easier, with their in-depth knowledge of pro-forma financial statements and projections. Don’t be caught unaware- Allow Froehling Anderson to assure you’re ready for your financial future.