Balance Sheet Forecast

The balance sheet forecast is one of the main statements for business plan financials, and is sometimes referred to as the statement of financial position.

The balance sheet forecast shows a financial snapshot of the business at a specific point in time, usually at the end of each accounting year.

There are many balance sheet formats, the layout below acts as a quick reference, and sets out the most commonly encountered accounting terms when dealing with a business plan balance sheet forecast.

Balance Sheet Forecast at 31 March 20XX
Cash 5,000 Available cash
Accounts receivable 28,000 What customers owe you
Inventory 2,000 Inventory held
Current assets 35,000 Can be converted into cash in one year
Long term assets 45,000 Buildings, machinery etc less depreciation
Total assets 80,000 Assets = Liabilities + Equity
Accounts payable 15,000 What you owe trade suppliers
Other liabilities 8,500 Amounts owed such as wages, tax, interest
Current liabilities 23,500 Amounts to be paid within a year
Long-term debt 14,500 Loans and debt owed to banks and others
Total liabilities 38,000 Total amount owed
Capital 15,000 Money put into the business by the owners
Retained earnings 27,000 Profits kept within the business
Total equity 42,000 Total invested
Total liabilities and equity 80,000 Assets = Liabilities + Equity

As an example, the annual report for apple shows a typical balance sheet layout.

Use of the Projected Balance Sheet Forecast

The business plan financial section for most businesses tends to concentrate on the income statement and fails to get to grips with the accounting balance sheet. Our financial projections template always includes the balance sheet forecast template.

Balance sheet forecasting is important for many reasons:

  • Management should use the projected balance sheet forecast to help identify whether the need for working capital (inventory plus accounts receivable less accounts payable) is growing, and how that need is being funded (cash, overdraft, loans etc).
  • They are used by trade suppliers to decide on whether credit is given as they identify the net assets and cash position of the business.
  • Bank managers utilise the balance sheet forecast, as they base their lending ratios on certain aspects of it, for example the current ratio = current assets / current liabilities is used to determine liquidity and the risk of non repayment of a loan.
  • Balance sheet forecasts are used by investors to decide whether to invest or not and at what price. For example they will look at the debt / equity ratio to determine the level of risk involved

Any number of people could be using your balance sheet forecast to make decisions about your business. It is important that you have an understanding of what information the balance sheet forecast is providing and what that information is telling you.

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