Acquisition Pro Formas for Bank Loans
Acquisition Pro Formas for Bank Loans
Acquisition Pro Formas for Bank Loans
A pro forma is a projected financial statement that shows what the combined business might look like after an acquisition. It is one of the most important documents lenders review when considering financing for a business purchase.
While professional pro forma templates are readily available (from your broker-dealer, custodian, or through AdvisorBox resources), understanding how lenders use them helps you prepare stronger projections and set realistic expectations.
Why Lenders Focus on Pro Formas
Lenders evaluate two main things:
Historical performance — typically the combined financials of the buyer and seller over the past two years.
Future performance — shown through the pro forma.
The pro forma helps the lender assess whether the combined business can generate enough cash flow to comfortably service the new debt.
What a Pro Forma Usually Includes
A good acquisition pro forma is structured like a forward-looking profit and loss statement. It typically shows:
Revenue
Cost of goods sold (COGS)
Operating expenses
Net operating income
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)
Lenders pay close attention to Adjusted EBITDA, which adds back certain non-cash or one-time expenses to show a clearer picture of ongoing earning power. Common add-backs include owner compensation, personal expenses run through the business, one-time legal or consulting fees, and non-recurring costs.
Best Practices for Creating a Strong Pro Forma
Be realistic with assumptions — Base growth rates, cost savings, and revenue projections on historical trends rather than overly optimistic targets. Lenders expect projections to be reasonable and well-supported.
Explain your assumptions — Provide brief, clear explanations for any significant changes from historical numbers. A short paragraph or even a sentence for major add-backs helps the underwriter understand your reasoning.
Show monthly detail — Banks usually want to see the first 12–24 months broken down by month, not just yearly totals.
Avoid extremes — Don’t be overly optimistic or excessively conservative. Aim for balanced, defensible projections.
The Bottom Line
A well-prepared pro forma is not a crystal ball, but it is a powerful tool for evaluating whether an acquisition makes financial sense. It helps both you and the lender understand the combined business’s ability to handle new debt and support future operations.
At AdvisorBox, we help business owners prepare for successful acquisitions by providing guidance on pro formas, financing analysis, and realistic deal structuring.