Pro forma models are used by companies to estimate future transactions, with financial statements and commercial invoices being common examples. Companies need to consider the inputs, output format, and users when choosing a pro forma model. Multiple models may be necessary to meet different data needs.
A pro forma model is a method that a company uses to gather documents or information that are estimates of future transactions. The most common pro forma documents are typically financial statements that contain expected dollar amounts of future business activity. To choose the best, companies need to look at the available data inputs and decide what the pro forma statements will look like and who will use them to make decisions. Another example of a pro forma document is a commercial invoice that includes items in a future transaction. Although the company has not yet completed the transaction, the documents simply state the value of the items in a possible future transaction.
The inputs that go into a pro forma model can dictate which model to use when trying to create forward-looking documents. As in the previous examples, one template was for financial statements and another was for commercial invoices. Each of the models is for a specific type of information, which leads to the creation of a specific model. With this in mind, a company can potentially have more than one pro forma model for business activities. Having more than one model for pro forma documents allows a company to accurately predict many different types of business activity.
A pro forma model probably has a standard form that produces the same document in terms of format. People preparing a pro forma model may need to take this output format into account when choosing a model in the first place. For example, pro forma financial statements are likely to have to resemble actual financial statements prepared by the accounting department. The same is true for commercial invoices, where the estimates must be in a similar format to the actual invoice. Having a pro forma model that produces output that is different from the traditional output can create confusion in the company.
A final consideration for a pro forma model is the users of the information. The people who use the information may not have the same data needs. Therefore, the company may need models that provide data for owners and executives and another for operating managers. In some cases, the same pro forma model can create the required results for each individual through minor changes to the inputs placed in the model. These models are more likely for internal stakeholders than for external parties.
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