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Invoice pro forma for Operations

Hey there. This is Seth Williams from retipster.com. And in today's video we're going to talk about something called a pro forma financial statement. So wouldn't it be really cool if you could accurately predict exactly what would happen when you invest your money into an asset? Say if you were to buy a rental property or a piece of equipment or anything that makes money, and you could know without a shadow of a doubt, how much money that thing was going to make for you? Well, unfortunately nobody has a crystal ball and there's always going to be some element of uncertainty with anything you invest in. But there is a way to take certain data and information and compile it into something called a pro forma financial statement which is basically putting together a best guess at how a particular investment is going to perform in the coming months and years. This is something bankers, business owners and other financial professionals do pretty regularly when making big decisions like getting a loan, investing in a major asset or starting a new product line. And to put it simply a pro forma is like a financial statement that projects and predicts what the future financial performance of an investment is going to look like based on certain actions that are made within the given time period. For example, in the case of an investment property, this might include things like making renovations to the property, filling vacancies, maybe changing the price of rent to bring it up to the current market standard. And in the case of a business, this might include hiring new employees, maybe opening up a new plant, investing in better infrastructure, implementing new efficiencies, or expanding a new arm of the business that's going to result in more revenue for the company. A pro forma is used in many different scenarios and industries such as when a bank is underwriting a new loan when investors are being briefed on a potential investment opportunity or performance update, or when two companies are merging together. Now just as a heads up, it's not uncommon for some people to put together pro formas that are completely off base, very inaccurate and even intentionally misleading because they're trying to convince certain financial decision makers of a certain outcome that may not necessarily be accurate or realistic. So for this reason, it's really important for anybody who's reviewing a pro forma financial statement to use their discernment and even question the numbers about why the numbers look the way they do, because they may or may not be accurate. And it's important to understand the assumptions that went into those pro forma financial statements. Pro forma financial statements can be very useful in making big business decisions, but their usefulness is limited by their accuracy. And their accuracy is limited by the quality of assumptions that were made in the preparation of the pro forma. Since pro forma financial statements are basically an educated guess about what the financial performance is going to look like it's very important that whoever is preparing those pro forma financials is very careful and considers all the possible consequences and assumptions that go into those numbers. The idea behind any pro forma is to come up with numbers that have the highest possible likelihood of actually coming to fruition. Thanks a lot for watching. And if you liked this video, be sure to check out the next one that talks about another critical aspect of underwriting a real estate deal all about the appraisal. I'll see you there.