Projected ("Pro Forma") Cash Flow Statements
A projected cash flow statement is the same as a budget. It estimates how money will flow into and out of a business during a particular period of time. It identifies when and how cash is expected to be received and spent. A cash flow statement deals only with showing cash transactions, it does not deal with non-cash items (see income statements below). Cash flow statements allow you to plan so that not only will you have enough cash to do what needs to be done, but you will have it when it is needed.
Cash flow statements should be prepared for the next three to five year period (depending upon the business), and the immediately upcoming year should be prepared showing the cashflows on a monthly basis.
To prepare a cash flow statement you need to identify each category of cash inflow and outflow during a period of time for the product, and then prepare an estimated budget for each such category during the period of time being considered.
Projected Income Statements
An income statement differs from a cash flow statement in that the income statement deals only with business income (e.g. cash from the sale of the profit, as opposed to cash inflows from other sources like loans or equity investment), and expenses that can be deducted against the business income.
For example, the entire amount of a cash payment towards a loan will be recorded on the cashflow statement. However, only the deductible interest expense portion of the payment will appear on the income statement, since payment back of principal on the loan is not a deductible expense.
Income statements should be prepared for the next three to five year period (depending upon the business). They can be prepared by using the information in the cash flow statements you prepared, along with accounting information regarding the expected amortization of loans (how much of the loan payments are interest), the value of depreciation of assets in the business, and other information relevant to sales revenues and deductibe expenses.
Projected Capital Expenditure Budgets
A capital budget is a plan for expenditures for fixed assets such as equipment and facilities. It may include acquisition costs, building costs, and major repair costs, beyond routine maintenance. A capital budget is a part of a comprehensive annual operating or business plan.
A business, for example, may plan for a certain amount for the repair and maintenance of a fleet of vehicles in its operating budget, but the purchase of new or additional vehicles, or retrofitting with new engines, etc., would be part of the capital budget.
A start-up business would have a capital budget for the acquisition of buildings, equipment, computers and other assets.
A capital budget differs from an operating budget in that most capital purchases are depreciated, instead of being expensed in the current year, plus capital purchases are typically financed with medium to long-term debt, instead of out of operating cash flows.
Projected Balance Sheets
A balance sheet sheet is a "snapshot" of the financial position of a business at a given point in time. It sets forth the assets, liabilities, and net equity of a business. A projected sheet is a prediction of what the financial position of a business will be at a given point in time.
Once you have compiled your financial information into your financial statements, it is a good idea to analyze your projections.