What Is a Pro Forma Balance Sheet? Definition, Example, and How to Build One

By Beth Freestone, Senior Financial Analyst

Originally published June 14, 2022 · Updated October 2026

At a Glance

A pro forma balance sheet is a projected balance sheet and a key component of your pro forma, your 5- to 7-year financial projection. It lists your future assets, liabilities, and stockholders’ equity in the same format as your historical balance sheet. The only real difference is the timeframe: a traditional balance sheet looks back, and a pro forma balance sheet looks ahead. Founders use it to plan, investors use it to estimate their return, and established businesses use it to compare big decisions side by side.

What is the purpose of a pro forma balance sheet?

A pro forma balance sheet helps you plan. It shows what your business expects to own and owe, and the equity left over, if your plan plays out, so you can see cash needs, financing needs, and tradeoffs before they arrive. Founders, investors, and managers of established businesses each use it a little differently.

For startup founders. You can use pro forma balance sheets to manage and plan for your future assets. Pro forma projections help you avoid surprises as you manage your liabilities and additional assets, like inventory.

For investors. A potential investor in a startup is going to analyze pro forma balance sheets to calculate their potential return on their investment.

For established businesses. As a manager of an established business, a pro forma and its statements help you make internal decisions. Let’s say your company is looking to invest in one of three different machines to produce your final product. Creating a pro forma, including the balance sheet, lets you compare those machines side by side over time and make a strategic decision from that comparison.

You can create a business pro forma on your own to better learn your numbers. Once you’ve made the attempt but feel it could be more complete, skilled financial analysts, like those on CFO Share’s fractional CFO team, can help. Pro forma projections paint a clear, complete picture of where your company could be over the next 5 to 7 years.

→ Related: Why Proformas and Pitch Decks Don’t Mix

What is the difference between a pro forma balance sheet and a balance sheet?

The only difference is the timeframe. A traditional balance sheet is historical, a tabulation of what has already occurred. A pro forma balance sheet is future-looking, often 5 years out. Both use the same format and follow the same rule: assets equal liabilities plus equity.

As a startup founder, your goal is to plan for your business’s future rather than only review what historically took place. To see the contrast, look up the balance sheet of a public company like Amazon. You’ll notice it’s organized by reporting periods that have already ended, since public companies file financial statements with the SEC quarterly and annually (Forms 10-Q and 10-K).

Why is a pro forma balance sheet important?

A pro forma balance sheet shows whether your plans are affordable before you commit to them. Let’s say your new business is going to produce consumer goods. In year 3 of producing your goods, you know you want to buy a warehouse for your inventory. Your 5-year balance sheet will help forecast whether that purchase can be paid for with cash or will need financing.

This highly specialized form of forecasting helps you, as a key decision-maker, determine which options are profitable or even viable.

Pro forma balance sheet example

A pro forma balance sheet lists the same lines as a regular balance sheet (cash, receivables, inventory, equipment, payables, debt, and equity), with a column for each future year. The sample below follows the warehouse example above: a hypothetical consumer goods company that plans to buy a $1.2 million warehouse in Year 3.

Sample pro forma balance sheet for a hypothetical consumer goods company ($ in thousands). “Today” is the most recent actual balance sheet; Years 1 to 5 are projections.

Key assumptions. Revenue grows from $2.0 million in the most recent year to $4.7 million in Year 5, with a 40% gross margin and net income of 8% of revenue (after interest and taxes, simplified). Customers pay in 45 days, inventory covers 60 days of cost of goods sold, suppliers are paid in 30 days, and accrued expenses run at 2% of revenue. The business spends $50,000 a year on equipment, with $50,000 a year of depreciation on existing equipment, and buys a $1.2 million warehouse in Year 3, depreciated over 30 years starting in Year 4. An $800,000 warehouse loan is taken in Year 3 and repaid at $40,000 a year, with no owner distributions.

How to read it. Every column after “Today” is a projection. Total assets equal total liabilities plus equity in every year, which is how you know the model hangs together. Cash drops in Year 3 even with the loan, because the warehouse is paid for up front. And the loan is what makes the plan work: without it, this model shows cash running roughly $475,000 short at the end of Year 3.

How to build a pro forma balance sheet

You build a pro forma balance sheet forward from today’s balance sheet, one year at a time. Your income statement forecast feeds retained earnings, your assumptions about collections, inventory, and payments drive working capital, and your cash flow forecast sets the cash line. If the sheet balances every year, the pieces connect.

1. Start with today’s balance sheet. Use your most recent actual balance sheet as the first column. If your books aren’t current and accurate, fix that first, because every projection builds on it.

2. Forecast the income statement. Project revenue, cost of goods sold, operating expenses, interest, and taxes for each year. Each year’s net income, minus any owner distributions, adds to retained earnings.

3. Set working capital assumptions. Tie receivables, inventory, and payables to your sales and costs using days: how long customers take to pay, how much inventory you keep on hand, and how long you take to pay suppliers.

4. Add planned investments. Add equipment, buildings, or other purchases to property and equipment, and subtract depreciation each year.

5. Layer in financing. Add loans, loan repayments, and owner investments or distributions based on your plan.

6. Let cash come from the cash flow statement. Cash is the result of everything above, not a number you type in. Build the statement of cash flows and carry ending cash to the balance sheet.

7. Check that it balances, then test it. Assets must equal liabilities plus equity in every year. Then change key assumptions, like slower sales or slower collections, and watch how cash responds.

→ Related: How to Create a Financial Forecast with Your CFO

What are pro forma financial statements?

Pro forma financial statements include the same statements as those of an established business. They should include at least a balance sheet, a profit and loss statement, and a statement of cash flows. Those statements convey the future business activities and the future financial performance of the company.

You may also see “pro forma” used a second way. In public company reporting and acquisitions, pro forma financial information shows how a specific transaction, such as buying another company, might have affected historical results had it happened earlier. This article covers the forward-looking kind owners use for planning.

If you don’t have a finance background or haven’t built a forecast before, you may simply waste your time trying to build your own pro forma financials. That’s when bringing in a professional, like the team at CFO Share, is often the faster and more cost-effective approach.

→ Related: What Are Pro Forma For Startup Financial Statements?

Key Takeaways

• A pro forma balance sheet projects your future assets, liabilities, and equity, usually as part of a 5- to 7-year pro forma.

• The only difference from a traditional balance sheet is the timeframe: one looks back, the other looks ahead.

• Founders use it to plan, investors use it to estimate returns, and established businesses use it to compare big decisions.

• It shows whether a major purchase, like a warehouse, can be paid for with cash or will need financing.

• Build it forward from today’s balance sheet, let cash come from your cash flow forecast, and make sure it balances every year.

Want a second set of eyes on your projections?

CFO Share’s fractional CFOs and financial analysts build pro forma models that show owners what their business can support before they commit to a big decision, and they walk you through what the numbers mean. Since 2017, we’ve worked with over 300 small businesses. Schedule a call to talk through what you’re planning.

About the author

Beth Freestone is a Senior Financial Analyst at CFO Share, where she builds and updates the financial models, forecasts, and dashboards that help growth-minded, founder-led businesses make decisions with confidence. Beth brings more than 15 years of acquisitions financial modeling in commercial real estate.