Author: Unison Globus

Pro forma Financial Statements

Pro forma financial statements are hypothetical projections used by companies to estimate the financial impact of potential business decisions and events. They allow companies to evaluate the risks and benefits of these decisions before implementation and provide stakeholders with a clearer understanding of a company’s financial health and future prospects.

Why are Pro Forma Financial Statements Important for CPA Firms?

As a CPA firm, it is crucial to have a deep understanding of pro forma financial statements to provide value-added services to your clients. By leveraging these statements, CPA firms can offer insights and advice on potential business decisions, helping clients assess the financial impact of those decisions.

In this blog post, we will provide an overview of key concepts and considerations related to pro forma financial statements. We will cover different types, benefits, methods used, limitations and risks, examples of practical use, and guidance on how CPA firms can effectively assist their clients in utilising them.

Types of Pro Forma Financial Statements

As a CPA firm, understanding the different types of pro forma financial statements can help you provide valuable insights and advice to your clients. Here we’ll take a closer look at the three main types of these statements, their uses, and other variations you may encounter.

Let’s dive in!

1. Pro forma income statement

• A pro forma income statement projects the financial results of a company’s operations over a future period, usually a quarter or a year.
• It estimates revenues, expenses, and profits based on hypothetical assumptions, such as changes in sales volumes, prices, or costs.
• A pro forma income statement can help companies evaluate the impact of potential changes in their business model, such as introducing a new product line, expanding into a new market, or restructuring their operations.

2. Pro forma balance sheet

• A pro forma balance sheet projects a company’s financial position at a future point in time, usually the end of a quarter or a year.
• It estimates the company’s assets, liabilities, and equity-based on hypothetical assumptions, such as changes in capital expenditures, financing, or asset sales.
• A pro forma balance sheet can help companies evaluate the impact of potential changes in their capital structure, such as issuing new debt, buying back shares, or acquiring other companies.

When evaluating a company’s financial health, you need to know two types of statements: pro forma financial statements and regular financial statements. While both can provide valuable insights into a company’s performance, they differ in several important ways.

Let’s study more about this.

• These are hypothetical projections of what a company’s financial statements would look like under certain circumstances, such as a merger or acquisition, or a new product launch.
• These are not required by Generally Accepted Accounting Principles (GAAP) or the Securities and Exchange Commission (SEC).
• These are often used for internal decision-making purposes or to communicate financial information to external stakeholders in a more understandable way.
• It may include non-GAAP financial measures or exclude certain expenses to give a more accurate reflection of a company’s financial position under the specific scenario being modeled.
• It can be prepared for future periods or for past periods to reflect the impact of a specific event that occurred in that period.

3. Regular financial statements

• Reflect a company’s actual financial performance over a given period of time, usually a fiscal quarter or year.
• Are required to be prepared and presented following GAAP and to follow SEC reporting requirements if the company is publicly traded.
• Provide a historical record of a company’s financial performance and position.
• Must include all required GAAP disclosures and financial statement footnotes.
• Generally, we cannot exclude expenses or use non-GAAP measures unless they are specifically allowed under GAAP.

In addition to these types, there are also other variations, such as:

• Pro forma condensed financial statements: abbreviated versions of these statements used to highlight critical financial data in a concise format.
• Accounting pro forma statements: used to evaluate the impact of accounting changes on a company’s financial statements.
• Cost of goods sold (COGS) pro forma statements: used to evaluate the impact of changes in product costs on a company’s financial statements.

It’s important to note that these are based on hypothetical assumptions and may not reflect actual financial performance. CPA firms should be cautious in interpreting these statements and ensure they comply with applicable regulations and guidelines.

Benefits of Pro Forma Financial Statements

These statements provide a wealth of benefits for companies, allowing them to make informed decisions, attract investors, and secure loans. Pro forma statements can help businesses stay competitive and profitable in a rapidly changing marketplace by presenting a snapshot of a company’s future financial position.

Here we explore the top benefits of pro forma financial statements for companies of all sizes and guide how to create and use them effectively.

1. Forecasting future financial performance

It can help companies estimate their financial performance for future periods based on certain assumptions, such as changes in revenue or expenses. This can be especially helpful for companies that are planning significant investments, expansions, or changes to their operations.

2. Strategic business decisions

It can provide valuable information for decision-making purposes. By modeling the potential financial impact of different scenarios, companies can make more informed choices about which options to pursue.

3. Attracting investors and securing loans

It can be a powerful tool for demonstrating a company’s potential to investors or lenders. By presenting a pro forma balance sheet, income statement, and cash flow statement, companies can show how they expect to grow and generate profits in the future.

4. Help with budgeting and planning

It can be used to create budgets and financial plans for the future. By modeling the impact of different scenarios, companies can develop more accurate budgets and projections.

5. Ensure compliance with GAAP and SEC requirements

These statements must comply with GAAP and Securities and Exchange Commission (SEC) requirements. By creating it, companies can ensure that they follow these rules and regulations.

6. Effective creation and use of pro forma financial statements

It can be presented as condensed and easily understandable. This can be helpful for stakeholders who may need a deeper understanding of accounting principles or financial statements.

Overall, it can be a valuable tool for companies that want to plan for the future, make strategic decisions, attract investors or secure loans, and ensure compliance with GAAP and SEC requirements. Pro forma financial statements can help companies achieve their financial goals and objectives by presenting a clear and accurate view of financial projections.

How to Create Pro Forma Financial Statements

Creating accurate pro forma financial statements is a critical aspect of financial planning and analysis for companies. As a CPA firm, it is essential to have a deep understanding of these statements to provide valuable services to your clients. It can help your clients make critical business decisions and assess the financial impact of those decisions.

To create it, you must have a solid understanding of the business and its financials. It is important to gather relevant data and information, make assumptions and projections, and follow generally accepted accounting principles (GAAP).

Here are some critical steps to follow:

1. Gather the necessary financial information, such as historical financial statements, budgets, and operating metrics.
2. Identify the key assumptions and drivers of the business and use them to make projections for future periods.
3. Develop a pro forma income statement, balance sheet, and cash flow statement based on your projections.
4. Ensure that your pro forma statements comply with GAAP and are consistent with the company’s accounting policies.
5. Analyze and interpret the pro forma financial statements to provide meaningful insights to your clients. Review and update the pro forma financial statements regularly to reflect business and market conditions changes.

By following these steps, you can create accurate and reliable pro forma financial statements to help your clients make informed business decisions.

Examples of Pro Forma Financial Statements

Pro forma financial statements are essential for companies looking to make informed financial decisions. By creating hypothetical financial projections, companies can estimate the potential impact of different business decisions on their finances. Pro forma financial statements can be used in various situations, including mergers and acquisitions, initial public offerings, and new product launches.

CPA firms can benefit from understanding how pro forma financial statements work and how they can be used.

Here are some examples of pro forma financial statements:

1. Pro forma income statement

A pro forma income statement estimates a company’s income and expenses for a future period based on anticipated changes to revenue and expenses. This type of statement can be used to estimate the impact of new products or services, changes in pricing, or other factors that may affect a company’s revenue.

2. Pro forma balance sheet

A pro forma balance sheet estimates a company’s assets, liabilities, and equity for a future period based on anticipated changes. This type of statement can estimate the impact of changes in inventory levels, investments, or other factors that may affect a company’s assets and liabilities.

3. Pro forma cash flow statement

Pro forma cash flow statement estimates future cash flow based on anticipated changes in a company. It helps assess impacts on expenses, investments, and more.

4. Pro forma condensed statement of operations

This type of statement summarizes a company’s revenue and expenses for a future period. It can be used to quickly assess the impact of a business decision on a company’s profitability.

5. Pro forma financial projections

Pro forma financial projections are comprehensive financial statements including all three above-mentioned statements.

Generally Accepted Accounting Principles (GAAP) and Pro Forma Financial Statements

Adhering to Generally Accepted Accounting Principles (GAAP) is crucial for accurate and reliable financial reporting. This also applies to pro forma financial statements, as they are designed to provide stakeholders with an estimate of a company’s financial performance.

CPA firms play a critical role in ensuring that their clients’ statements comply with GAAP guidelines.

Here are some key considerations to keep in mind when it comes to GAAP and pro forma financial statements:

• GAAP guidelines provide a framework for financial reporting that ensures consistency, accuracy, and transparency.
• When creating these statements, it’s essential to follow GAAP guidelines to ensure that the projections are reliable and consistent with actual financial performance.
• Failure to comply with GAAP guidelines can lead to inaccuracies, misrepresentations, and legal repercussions.
• CPA firms can help their clients navigate GAAP guidelines and ensure compliance when creating these statements.

CPA firms ensure accurate statements for informed decisions and investor attraction. Stay updated on GAAP for compliance and value-added services.

Pro Forma Financial Statements and Securities and Exchange Commission (SEC) Regulations

Understanding the regulations set by the Securities and Exchange Commission (SEC) regarding pro forma financial statements is crucial. Pro forma financial statements are hypothetical projections that can be used to estimate the potential impact of future events on a company’s financial performance.

The SEC requires companies to follow specific guidelines when presenting these statements in their filings.

Here we will discuss the regulations set by the SEC for these statements and the requirements for presenting them in SEC filings.

Key Points for CPA Firms

• Pro forma financial statements are subject to SEC regulations when presented in a company’s filings. SEC mandates specific format and disclosure of material differences between pro forma and actual statements.
• CPA firms should ensure that their clients comply with SEC regulations when preparing and presenting pro forma financial statements.
• SEC filings reveal companies’ use of pro forma statements. CPA firms advise clients on compliance.

Key Takeaways

Pro forma statements aid businesses. CPA firms must understand their purpose, types, benefits, and creation. CPA firms provide insights to assess financial impact and support client success. Following GAAP and SEC regulations is essential for creating pro forma statements.

Non-compliance can have serious consequences, including legal issues and damage to a company’s reputation.

At Unison Globus, we specialize in providing top-notch financial advisory and accounting services, including pro forma financial statements. Our team of experts can help your business navigate the complexities of creating and using pro forma financial statements effectively.

Contact us today to learn more about our services and how we can support your business’s financial success.

Sound planning, budgeting, and forecasting significantly impact an organization’s survival, potential growth, and profitable tenure. These inevitably significant processes are the ones that enable an organization, at large, to set the KPIs, their short- and long-term goals, and ultimately the propensity to make an informed decision.

A budget is a carefully thought-out roadmap that an organization is expected to abide by with the intention to achieve the set goal. A lot goes into curating an ideal budget. One needs to crucially scrutinize the organization’s cash flow, its current financial position, and other critically material past records.

Variable Costs and their Importance

Variable costs refer to the direct costs and variable overhead incurred during the production or manufacturing of a product or service, excluding all fixed costs. They specifically pertain to costs that are directly influenced and affected by changes in production.

Management plays a crucial role in actively managing these costs, as fixed costs have already been incurred and cannot be reversed. Therefore, these costs require direct involvement and attention from management.It enables cost-volume-profit (CVP) analysis and break-even analysis by determining the contribution margin which improves resource allocation by the business. Now, to know these things you or your accountant must know to calculate variable cost per unit, and a variable costing income statement.

How to find Variable cost per Unit?

Understanding the variable costs per unit formula and its applications can help businesses make informed decisions about pricing, production, and profitability. By calculating the variable costs per unit, businesses can determine the minimum price they need to charge to cover their costs and make a profit.

For example, if your company sells sets of plates for $400 but each set requires $250 to create, test, package, and market, your variable cost per unit is $250.

Variable Costs Formula

The formula for calculating variable costs is straightforward. You need to multiply the variable cost per unit by the number of units produced or sold. Here is the formula:

Variable Costs = Variable Cost per Unit x Number of Units

For example, if a company produces 10,000 units of a product with a variable cost per unit of $10, its variable cost would be:

Variable Costs = $10 x 10,000 = $100,000

A Variable Costing Income Statement

A variable costing income statement is a financial report in which you subtract the variable expenses from revenue, resulting in a contribution margin. The contribution margin is the incremental profit earned when a product’s sales exceed its variable costs.

Variable Costs and its impact on Budget

1) Business activity independent

Variable costs are directly connected to the production activities such as raw materials, energy, temporary labor costs, or leased employees needed to manufacture products. The Schematic below shows roughly how the total costs increase with the number of units (Or product quantity). This information is often useful to “Price” the product.

2) Time-wise adaptability

Variable costs can vary and are dependent on time since they are directly related to the manufacturing of the products. Note that, if you extend your time frame, all costs including fixed costs become variable in theory. Why? Because you can find “better deals”, high rent vs. low rent, or high salaries vs. low salaries.

Ways to reduce the impact of variable expenses on your budget:

1. Determine the annual average for each variable expense in your budget

While determining the annual average for the variable expense, instead of looking into the last 12 months’ figures, take into consideration the average of 3 years’ worth of expenses. This will help you account for anomalies that may impact your variable expenses.

2. Add a buffer

After you have determined the average for each variable expense, add a buffer to it. A buffer of 3% to 5% should be more than enough to cover your price increases and anomalies that might result in an outlier year for the expense.

3. Track your actual spending

Compare your actual expenditure for each variable expense to the budgeted amount. Look for the areas where the expenditure went over budget or under budget for each expense category.

4. Set up a savings account for variable expenses

This is a crucial step in this process. Each month the actual expenses are under budget for any variable expense, move the excess into a savings account for variable expenses. This will create a reserve you can draw from during months when your expenses are higher than usual.

5. Reassess variable expenses annually

It is important to resist the temptation of using the same variable expenses projections in the budget each year, even if there is a substantial amount in the variable expenses savings account. Following such a practice is highly erroneous. It is crucial to reassess variable expenses regularly, particularly those that can be controlled more effectively.

Conclusion

In conclusion, variable costs are an essential aspect of any business operation. Understanding the concept of variable costs is vital for businesses to make informed decisions regarding their pricing, production, and overall financial health.

Variable costs vary based on the level of production, and this makes them different from fixed costs, which remain constant regardless of production levels. The formula for calculating variable costs per unit is relatively straightforward and can help businesses in determining the cost of producing each unit of their product.

By identifying and analyzing variable costs, businesses can effectively manage their expenses, increase their profit margins, and remain competitive in their respective industries. By implementing effective cost management strategies, businesses can reduce their variable costs and increase their bottom line.

Unison Globus is committed to helping businesses of all sizes manage their finances, including their variable costs. Our team of experienced professionals provides a range of accounting and financial services designed to help businesses reduce costs, increase revenue, and grow their operations. Contact us today to learn more about how we can help your business succeed. Want to outsource accounting or bookkeeping services for your business? Get a trial of our services now.

The Rise of Accounting Outsourcing Services

As small to medium-sized accounting practices grow and expand, many are turning to outsourced accounting as a solution to common challenges. But what exactly is outsourced accounting, and why has it become so popular in the accounting and bookkeeping industry today? In this definitive guide, we’ll examine what outsourced accounting is, why it’s becoming more popular, and what it could mean for your business.

What is Outsourced Accounting?

Outsourced accounting involves assigning accounting, bookkeeping, and/or compliance work to accounting professionals in another country. Business owners typically partner with an outsourced accounting services provider who presents them with qualified candidates for screening and onboarding as new team members. This approach allows owners to delegate day-to-day work to their new global team members, freeing up time to focus on the core business and growth.

• Accounting outsourcing involves contracting an external service provider to handle a business’s accounting functions.
• This includes bookkeeping, accounts receivable, accounts payable, and personal and business tax returns.
• Accounting outsourcing services providers typically use cloud-based software to provide real-time access to financial data.
  The outsourced team can communicate via video calls, emails, and other virtual channels.
• With outsourced accounting services, businesses can access the benefits of having an in-house accounting team without the cost and commitment of hiring full-time staff.

Why is Accounting Outsourcing Becoming More Popular?

Firms are turning to outsourced accounting solutions to counter several common pressures, including:

Price pressure

Advances in cloud accounting technology have led to lower client expectations for compliance and administrative services.

Talent shortage

Attracting and retaining qualified accountants is challenging, especially as they tend to fall on the higher end of the pay scale. This squeezes margins on more routine work, drying up the recruitment pool.

Capacity crunch

Owners often need help to complete procedural work and leave time for high-margin strategic work, leading to a need for new solutions to remain competitive.

Greater competition

With competitors anywhere from across the country to across the globe, growing your capacity also means matching your reach.

Why Outsource Accounting Services?

Outsourcing accounting functions can free up time and resources, allowing you and your staff to focus on core competencies and growth while providing better services to clients. With specialized expertise, technology, and greater flexibility, outsourcing can be a valuable tool for businesses looking to reduce costs and improve efficiency.

At Unison Globus, we offer cloud-based outsourced accounting services that can help you achieve your business goals. Here are some of the ways we can help:

Bookkeeping

Our team of experienced bookkeepers can help you maintain accurate and up-to-date financial records, giving you real-time insights into your business.

Accounts payable and receivable

Our outsourced accounting services can help you manage your accounts payable and receivable, ensuring that payments are made and received on time.

Financial reporting

We can provide you with timely and accurate financial reports, allowing you to make informed decisions about your business.

Tax compliance

Our team of experts can help you stay compliant with tax laws and regulations, minimizing your risk of penalties and fines.

Cloud-based accounting

Our cloud-based accounting services can provide you with 24/7 access to your financial data from anywhere, at any time.

If you’re considering outsourcing accounting services, be sure to assess potential service providers and avoid common outsourcing mistakes. At Unison Globus, we provide guidance and support to help you get started. Check out our services page and sign up for a free trial today to see how we can help you focus on your core business and provide better services to your clients.

Moreover, keeping mind the additional reasons to outsourced accounting services are:

• Accounting outsourcing services can save your business time and money while improving the quality of work.
• By accounting outsourcing, you can access specialized expertise and technology that may not be available in-house.
• Accounting outsourcing can also provide greater flexibility to adjust staffing levels based on business needs.

Overall, outsourcing accounting services can help your business focus on core competencies and growth rather than administrative tasks.

Benefits of Outsourcing Accounting Services

Accounting outsourcing offers several key benefits for accounting firms, including:

• Increased capacity, efficiency, and profitability: Outsourcing provides a holistic solution to common business challenges.
• More time to focus on business development and providing a better client experience.
• A better work-life balance for owners and staff.
• The ability to fill roles more quickly with qualified staff.
• Lesser-Known Benefits of Outsourcing Accounting

In addition to the above benefits, accounting outsourcing can also offer the following:

• Increased ability to promote local staff to help with higher-level work.
• Happier staff and staff retention due to reduced pressure and more manageable workloads.
• Cost-effectiveness due to savings on technology and infrastructure.
• Business continuity in the event of power outages or other disruptions.
• Increased productivity and competitiveness.

Addressing Concerns About Accounting Outsourced Solutions

While accounting outsourced solutions offer many benefits, some business owners may need help with the impact on the local job market. However, outsourcing does not necessarily lead to job replacement. Instead, it offers a solution for firms to grow their capacity and remain competitive while still providing valuable services to the local community.

Factors to consider before outsourcing

Before deciding to outsource accounting or other business functions, it is essential to consider a few factors. These include defining your objective for outsourcing, assessing potential service providers, and evaluating your ability to communicate with a global team. Additionally, it is recommended to appoint a local “champion” to manage the outsourced team.

Roles to outsource

Several roles can be outsourced, including financial services, accounting functions, executive assistants, corporate secretaries, data analytics assistants, client service assistants, paraplanners, financial planning assistants, mortgage broker assistants, HR assistants, recruitment support assistants, IT assistants, integrations specialists, marketing coordinators, social media managers, and business development associates. Outsourcing these roles can save time and resources and provide a high ROI.

Avoidable outsourcing mistakes

To ensure a seamless outsourcing process, it is essential to avoid common pitfalls, such as delegating the most challenging work first, failing to create standardised workflows, not getting clients and local staff onboard, hiring only one remote team member, and not taking the time to understand the global team’s culture and fully integrating them into the company. It is recommended to meet with the global team in person at least twice a year to foster a sense of belonging and articulate their value within the company.

Global team ambitions

Outsourced accounting services and other business functions can be a low-risk, high-reward prospect, provided the correct steps are taken. If your firm is considering outsourcing, Unison Globus is available to provide a free Accounting Outsourcing Strategy and one-on-one chat to help with the inception and rollout of your global team.

Outsourced Accounting for Small Businesses: Benefits and Considerations

Small businesses frequently face resource and budget constraints, making it difficult to maintain an in-house accounting team capable of meeting their needs. By outsourcing accounting services to a reputable provider, small businesses can benefit from a cost-effective solution. Outsourcing enables access to specialized expertise, advanced technology, and scalability, all without the burdensome overhead costs associated with hiring and training a full-time accounting team.

With outsourced accounting, small businesses can focus on their core competencies, such as marketing, product development, and customer service, while leaving accounting functions to the experts. This can help increase operational efficiency, reduce errors and fraud, and provide a better customer experience by ensuring accurate and timely financial reporting.

Benefits of Outsourcing Accounting for Small Business

Another significant benefit of outsourcing accounting services for small businesses is access to a wide range of services. Whether a small business needs basic bookkeeping services or more advanced financial analysis and reporting, outsourcing providers can tailor their services to meet the business’s specific needs.

For example, Unison Globus provides various outsourced accounting services, including bookkeeping, payroll processing, tax compliance, financial reporting, and analysis. Their team of experienced professionals can help small businesses save time and reduce costs by streamlining accounting functions and providing valuable insights into their financial performance.

Small businesses should also consider the potential risks and challenges when considering outsourcing accounting services. For instance, selecting the appropriate provider can lead to improved work quality, mitigating the risk of data security breaches or legal and regulatory compliance problems. Small businesses must conduct thorough research on potential providers, assessing their experience and reputation. It is crucial to verify that the chosen provider has robust data security measures in place to safeguard sensitive financial information.

In conclusion, outsourcing accounting services for small businesses looking to reduce costs, increase efficiency, and specialized access expertise. Small businesses can focus on their core business by partnering with a reputable provider like Unison Globus while leaving accounting functions to the experts.

How to start with Outsourced Accounting Services?

• Define your objective for outsourced accounting services to provide direction to your team.
• Assess potential service providers to find a good fit for your business.
• Determine whether you have the capability to communicate with a global team and consider appointing a local champion to manage the team.
• Typical accounting functions that are outsourced include bookkeeping, tax returns, and executive assistant tasks.
• Avoid common outsourcing mistakes such as delegating the most challenging work first and not integrating the outsourced team fully into your company culture.

Conclusion: Is Outsourcing Right for Your Firm?

Outsourced accounting services can be a game-changer for accounting firms, freeing up time and resources to focus on core business and provide better client services. It reduces costs, improves efficiency, and provides access to specialized expertise and technology.

Assessing potential service providers and avoiding common outsourcing mistakes is crucial. Unison Globus can provide guidance and support to help you get started. Check out our service page and sign up for a trial today.