If you’re considering beginning the process of strategic planning, one step that you can take to prepare is gathering and analyzing your pro forma projections. Pro forma projections consider relationships and finances of the past in order to extrapolate that data for the future. Without this imperative information, strategic planning is simply not possible.
Pro forma projections are used to give a picture of a company’s future financial needs. If companies are able to project future costs, they are better prepared to meet those costs without surprises. Pro forma projections can also accommodate for “placeholder” investments and costs, allowing businesses to put aside money for things that they do not know are coming up on the horizon, such as a new investment opportunity.
Companies can also use pro forma projections when presenting information to potential investors and bankers. Obviously, a strategic plan is more packed with relevant information, but pro forma statements are a good starting point. These projections assure those offering loans or investments that your business is going to continue to be profitable and the they are going to get their returns. For this same reason, pro forma statements are especially valuable to new businesses seeking start up capital.
Finally, these documents can answer the “what if” questions that every company has. If you’re planning to kick off a new marketing campaign, you can look at your pro forma forms and figure out which part of the year is the least profitable. Once that’s determined, you’ll know that your marketing efforts need to begin right before that time. Further, they can be used as a powerful tool in understanding what would happen if certain aspects or departments of the business are worth their costs. Using your pro forma analysis, you can predict what would happen next year if you’ve left the department intact vs what would happen if it were dissolved.
For those seeking pro forma projections, contact the experts at Froehling Anderson, CPAs.