An understanding of the cash flow statement allows the startup entrepreneur to manage the cash flow of a business effectively. In doing so they will avoid many of the cash flow problems which can damage or even destroy what would have been a successful startup operation.
The terms financial budget, financial forecast, financial projection and pro forma financial statement are often used to refer to the same thing. However, while they have a very similar format, normally comprising a balance sheet, income statement, and cash flow statement shown over a period of months or years, they are each based on a very different set of assumptions.
The terms pro forma financial statements, financial projections, financial forecasts, and financial budgets are often used interchangeably, but they are not the same thing.
Pro forma financials simply refers to a set of financial statements in the usual format (balance sheet, income statement, and cash flow statement), which have been prepared in order to show the effects of a transaction on the historical financial statements prior to the transaction actually taking place.
The income statement forecast, sometimes called the profit and loss forecast, is one of the main statements for business plan financials. The income statement forecast shows a business’s financial performance over an accounting period. The accounting period can be any length but is usually a month or a year.
There are many income statement forms, the layout below acts as a quick reference, and sets out the most commonly encountered accounting terms when dealing with a business plan income statement forecast.
The projected balance sheet forecast is one of the main statements for business plan financials and is sometimes referred to as the statement of financial position. The balance sheet forecast shows a financial snapshot of the business at a specific point in time, usually at the end of each accounting year.
There are many balance sheet forms, the layout below acts as a quick reference, and sets out the most commonly encountered accounting terms when dealing with a business plan balance sheet forecast.
In order to understand and be able to explain your financial projections, you need be become familiar with a few common accounting terms. The 10 accounting terms listed below are some of the most often used terms, and should help get you started.