Pro Forma
Pro forma means 'as if' — a restated income statement showing what the business would look like under a different set of assumptions, typically post-normalization.
What is pro forma?
'Pro forma' is Latin for 'as a matter of form.' In agency valuation, a pro forma income statement restates the historical financials under assumptions that approximate steady-state, third-party-operated economics. The most common pro forma adjustments are owner compensation normalization, removal of non-recurring expenses, and treatment of one-time gains.
A pro forma is not a forecast. It's a restatement of what already happened, with selected items adjusted to make year-over-year comparisons cleaner and to give buyers a defensible run-rate number to underwrite against. The output is pro forma revenue, pro forma EBITDA, and pro forma margin — the numbers that flow into valuation multiples.
Why it matters in agency valuation
Sellers who skip pro forma analysis arrive at the negotiation with reported numbers; buyers arrive with pro forma numbers. The buyer's pro forma is almost always less flattering than the seller's reported — it strips perks, normalizes comp, and removes one-time gains. Doing your own pro forma analysis before listing means you don't get caught off guard.
Example
Related terms
Normalized EBITDA is reported EBITDA adjusted to reflect what the business would have earned at market-rate owner compensation and without one-time or owner-discretionary expenses.
An add-back is an expense that is removed from reported earnings during normalization because it would not exist under a different owner — typically owner-specific perks, one-time legal fees, or excess T&E.
EBITDA is earnings before interest, taxes, depreciation, and amortization — the cash-flow proxy buyers use as the denominator in agency valuation multiples.
Owner compensation is the total amount the agency principal pays themselves — base salary, bonus, benefits, and owner perks — used as a key normalization in EBITDA-based valuation.
Last reviewed: April 24, 2026
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