Financial Goals & Performa Statements

Five Essential Ingredients

Before putting pen to paper and formulating financial goals, it is important to weave five key principles into your financial goals plan.Here they are in brief: 1.Create Wealth : Find a way to greatly increase the value of what you do. Ask: "How can I be worth more to the company I work for?" Or start a new income stream using modern technology. If you know your subject, and want to build an income stream with growing, diversified revenues. 2. Maintain Wealth : Include in your financial goals a budget that allows you to spend less than you earn. Invest whatever is left. 3. Increase Your Wealth : Compounding growth will really increase the speed with which you attain your financial goals. Reinvest the profits from your past investments. 4. Protect Your Wealth : Build into your financial goals plan a strategy for protecting your assets. Search out experts in your area who can give advice and make sure you are protected against litigation. 5. Enjoy Your Wealth : Don't wait until you have accumulated a fortune before you start enjoying the proceeds of your financial goals. Reward yourself occasionally. Experience the joy of giving by sharing a percentage of your wealth to people or causes you care about. When these five essential ingredients are woven into any financial goals plan, the goals become motivating. Such goals touch emotion; they evolve from just an academic exercise of necessity into a way of life that touches the sense of abundance.

Financial Goal Setting - Four Steps

There are no hard and fast rules for implementing a financial goal setting plan. The important thing is to at least do something as opposed to nothing, and to start now.

Here are four steps you can apply to any financial goal setting exercise: Step 1: Identify and write down your financial goals, whether they are saving to send your kids to college or University, buying a new car, saving for a down payment on a house, going on vacation, paying off credit card debt, or planning for you and your spouses retirement. Step 2: Break each financial goal down into several short-term (less than 1 year), medium-term (1 to 3 years) and long-term (5 years or more) goals; which will make this process easier. Step 3: Educate yourself and do your research. Read Money magazine or a book about investing, or surf the Internet's investment web sites. Step 4: Evaluate your progress as often as needed. Review your progress monthly, quarterly, or at any other interval you feel comfortable with, but at least semi-annually, to determine if your program is working. Just remember that you can adjust the time frame whenever you want to. Long-term goals (over 5 years) are those things that won't happen overnight, no matter how hard you work to achieve them. They may take a long time to accomplish (hence the reason they are called long term goals), so give yourself a reasonable amount of time, that are based on your best estimates of what it will take to achieve them. Examples of long-term goals might include college education for a child, retirement plan or purchasing a home. Whatever the case, these goals generally require longer commitments and often more money in the end. Intermediate-term goals (1-5 years) are the type of goals that can't be executed overnight but might not take many years to accomplish. Examples might include purchasing/replacing a car, getting an education or certification, or paying off your debts like credit cards etc. (depending on the amount). Short-term goals (within one year) generally take one year or less to achieve, based on the date the task is needed, the total estimated cost, and the required savings.

Pro Forma Statement

Pro forma, a Latin term meaning "as a matter of form," is applied to the process of presenting financial projections for a specific time period in a standardized format. Businesses use pro forma statements for decision-making in planning and control, and for external reporting to owners, investors, and creditors. Pro forma statements can be used as the basis of comparison and analysis to provide management, investment analysts, and credit officers with a feel for the particular nature of a business's financial structure under various conditions. Both the American Institute of Certified Public Accountants (AICPA) and the Securities and Exchange Commission (SEC) require standard formats for businesses in constructing and presenting pro forma statements. "Anyone thinking of going into business should prepare pro forma statements, both income and cash flow, before investing time, money, and energy. A pro forma income statement is similar to a historical income statement, except it projects the future rather than tracks the past. Pro forma income statements are an important tool for planning future business operations. If the projections predict a downturn in profitability, you can make operational changes such as increasing prices or decreasing costs before these projections become reality.

Uses of Pro Forma Statements

1. BUSINESS PLANNING : A company uses pro forma statements in the process of business planning and control. Because pro forma statements are presented in a standardized, columnar format, management employs them to compare and contrast alternative business plans. By arranging the data for the operating and financial statements side-by-side, management analyzes the projected results of competing plans in order to decide which best serves the interests of the business. In constructing pro forma

statements, a company recognizes the uniqueness and distinct financial characteristics of each proposed plan or project. 2. FINANCIAL MODELING : Pro forma statements provide data for calculating financial ratios and for performing other mathematical calculations. Financial models built on pro form projections contribute to the achievement of corporate goals if they: 1) test the goals of the plans; 2) furnish findings that are readily understandable; and 3) provide time, quality, and cost advantages over other methods. 3. ASSESSING THE IMPACT OF CHANGES: A company prepares pro forma financial statements when it expects to experience or has just experienced significant financial changes. The pro forma financial statements present the impact of these changes on the company's financial position as depicted in the income statement, balance sheet, and the cash-flow statement. For example, management might prepare pro forma statements to gauge the effects of a potential merger or joint venture. It also might prepare pro forma statements to evaluate the consequences of refinancing debt through issuance of preferred stock, common stock, or other debt. 4. EXTERNAL REPORTING. Businesses also use pro forma statements in external reports prepared for owners (stockholders), creditors, and potential investors. For companies listed on the stock exchanges, the SEC requires pro forma statements with any filing, registration statements, or proxy statements. The SEC and organizations governing accounting practices require companies to prepare pro forma statements when essential changes in the character of a business's financial statements have occurred or will occur.

In short (summary)
Pro forma statements are an integral part of business planning and control. em in the decision-making process when constructing an annual budget, developing long-range plans, and choosing among capital expenditures.

users of financial statements in understanding the impact on the financial structure of a business due to changes in the business entity, or in accounting principles or accounting estimates. ongoing, mature businesses, they are also important for small businesses and startup firms, which often lack the track record required for preparing conventional financial statements. minimize the risks associated with starting and running a new business. and investors to provide financing for a start-up firm.