What Is a Pro Forma Income Statement?

Trial profit and loss statement refers to an accounting statement prepared for the purpose of forecasting and trial calculation of the company's future product sales revenue, cost of goods sold, sales and management expenses, and profit and loss. The purpose is to predict the future profitability of a business.

Trial income statement

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Trial profit and loss statement refers to an accounting statement prepared for the purpose of forecasting and trial calculation of the company's future product sales revenue, cost of goods sold, sales and management expenses, and profit and loss. The purpose is to predict the future profitability of a business.

The following table lists all profit data of MPP Plastics for one year. The company supplies plastic molds to customers such as rigid product manufacturers, toy manufacturers, and instrument manufacturers. It can be seen from the trial profit and loss statement in the table that the company began to make profits in April. In order to meet the needs of the sales volume in a particular month, the cost of selling products increases as the cost of raw materials and labor increases.

Before preparing a trial income statement, you first need to calculate monthly sales. Sales research, industry sales and some important data can provide the basis for this. For example, the sales volume can be predicted through consumer propensity surveys, synthesis of sales team opinions, expert opinions, or time series. Generally speaking, it takes time for new companies to expand sales. And, depending on the particular situation at a particular stage, the corresponding cost to achieve these increases may remain high for several months.

Because a wide range of advertisements can attract consumers to a certain aspect of a website, the sales revenue of Internet companies is often difficult to predict. Gift Internet companies, for example, failed to predict sales at all in the first few months of building their profile. The huge advertising costs discussed below can build this popularity. Website CTR data is available. Therefore, the gift Internet company can predict the average monthly or daily click-through rate through industry data, and then predict the number of consumers who will actually purchase the product and the average transaction amount from the click-through rate. With a reasonable CTR percentage, the average transaction amount can be used to predict the sales revenue of Internet companies.

The trial income statement also provides all operating expenses for each month of the first year. The company needs to list each expense and carefully estimate the expenses to ensure that any additional expenses are included in the appropriate months. For example, if you increase the sales area or add a new salesperson or sales representative, sales expenses (travel, commissions, entertainment, etc.) will increase. Probably the sales expenses will be very high in the beginning, especially when the company is not well-known, it is necessary to make more sales calls to promote each sale.

You can directly multiply the unit variable cost by the number of sales or use the industry standard percentage to calculate the cost of selling the product. For example, the National Hotel Association or the Food Marketing Association will publish the standard product cost of the restaurant industry as a percentage of sales. These percentages are derived from research into the entire restaurant industry by catering companies.

The number of employees and their status can be reflected from the company's salary (see the next chapter Organization Plan). Costs due to increased headcount should also be included in the budget table. Other increases in wages also reflect increases in salaries.

Entrepreneurs should also consider the need to increase insurance, participate in specialized trade shows, or increase warehouse space. All of these are reflected in Table 92. The trial balance for liability and medical insurance increased in November and May. These costs can be easily determined by the insurance company and can reflect the state of the business at the time. An important trade show in February significantly increased advertising costs. Any abnormal fees, such as trade shows, should be identified and explained below the trial balance.

In February of the first year, the company incurred additional liabilities to cover the inventory in May of the previous year and increase the warehouse. Although this table does not reflect costs, any other equipment needed should also be reflected in the additional depreciation charges incurred during the month.

In addition to the monthly trial income statement for the first year, forecasts for 2 to 3 years are also needed. Generally, investors prefer to see a 3-year profit and loss forecast. The above table has calculated the total for the first year, and the following table shows the total profit and loss items for each of the three years. The percentage of sales should be calculated for the first year. This percentage can be used as a basis for determining the forecasted costs for Years 2 and 3. The company in Year 3 predicts that profits will increase significantly compared to Year 1. But in some cases, entrepreneurs may find that the new company will not be profitable until the second or third year. Profitability depends on the nature of the business and startup costs: for example, a service company may only need a short time to make a profit, while a high-tech company or some other company that requires a large amount of fixed asset or equipment investment will Time is profitable.

1 Chen Jinchi, English-Chinese Modern Dictionary of Finance and Accounting. China Finance and Economics Press, 2009.12.

2 (US) Hisrich, RD (US) Peters (MP), translated by Wang Yu et al. Entrepreneurship (5th edition). Tsinghua University Press, May 2004, 1st edition. ^{[1 ]}