What is pro forma earnings and revenue & how to calculate pro forma earnings

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In this video tutorial I explain what is pro forma earnings and revenue, and how to calculate them.

Many people get confused by the term pro forma. It doesn’t sound like anything familiar, and can be very confusing. Fortunately, it is pretty simple to understand what it is. Pro forma simply refers to the future revenue or earnings that your business will have.

The truly difficult thing isn’t to understand what pro forma means, but to calculate it correctly. There are two general ways to calculate pro forma earnings. If your business is currently operational, and has been that way for a while, you can base future revenue projections on that of past years and current acceleration or deceleration in earnings and revenue. If your business has not started, this calculation is much more tricky because there is no data on which you can base sound projections. If you have no data on which to base future projections, what you can do is research industry norms and trends for a business like the one you are about to open, and base your projections on industry data. This may not be too accurate because your business may not be a common business within your industry. What can help you is to have someone on your team who has extensive experience within your industry. A person who has experience within your industry will tend to have a keen sense for what is unique for your business, and how that may make your company’s pro forma earnings and revenue projections different than the industry average.

Learn to plan and start a business

Here is a video in which I discuss the steps needed to start a new business or a project.

If you are in the planning stages of your particular business or nonprofit, check out this video on how to create a smart business plan with a strong strategy.

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