How to create a projected balance sheet

How to create a projected balance sheet

By Russell Bowyer
How to create a projected balance sheet
How to create a projected balance sheet

How to create a projected balance sheet

A balance sheet and in this case a projected balance sheet is a snap shot of a company’s financial health.

This article is about how to create a projected balance sheet.

A balance sheet lists a company’s assets and liabilities. These are represented by the owner’s equity in the form of share capital, profit and loss and other reserves.

Normally a company prepares a historical balance sheet at the same time as preparing a profit and loss account. This is done either for management accounts purposes, or for end of year financial accounts. The challenge is to get the balance sheet to ‘balance!

So how to create a projected balance sheet is even more of a challenge. This is because it represents a snap shot of the business’s projected assets, liabilities and equity.

You could use our Cash Forecaster Software to prepared your projections. Or Alternatively another set of Excel templates or software, to make life easy. However, this post is to help those of you that want to create your own financial project model, in order to build your balance sheet from scratch. The steps we recommend are, as follows:

Steps to create a projected balance sheet

1. Deciding on your balance sheet format.

The first thing to do is to work out what will be on your company’s balance sheet. For a startup company this is more difficult, but for an existing company this will be more straight forward (as you’ll have past reports to work from).

So once you know what will be on your balance sheet, you can then decide on a format.

The balance sheet format depends on the country you are in as this will be different between say the UK and Europe and the USA.

However, for the purposes of a cash flow forecast the format doesn’t matter too much. It is just so long as you can understand the information.

Having said that though you need to present it in a format that is familiar to the people you are presenting it to.

The format for a balance sheet and the one you choose to use is more important for when you prepare your year end accounts as this is usually governed by the accounting bodies in your country.

2. What are the period end dates?

As a balance sheet is a “snap shot” of your business’s assets, liabilities and reserves you need to decide upon what points in time you want to create these snap shots in the future.

For the purposes of a cash flow forecast this does not necessarily have to be your company’s financial year end.

This is because you may wish to prepare a cash flow forecast part the way through a year and prepare balance sheets at 12 monthly intervals from this start date.

3. How to work out the numbers.

Once you know the format and what is to be included on your balance sheet, together with the end dates, you can then work out the business’s numbers as follows:

i. Fixed assets and depreciation figures

The top of your balance sheet includes your fixed assets and depreciation figures. So you will need to forecast what assets you will have at each period end which needs to take account of additions and disposals together with calculating your depreciation. The net of these figures will show on your balance sheet.

ii. Current assets, including bank account, stock and debtors

Next is your current assets which includes things like cash at bank, stock, and debtors. The cash at bank figure will be the balance you forecast to have in your bank account at each of the given balance sheet dates. Stock will be your projected stock figure at the balance sheet dates. Your debtors figure which would include trade debtors will be the amount owed by your customers at the end of each financial period. This figure will depend upon the amount of credit you allow your customers.

iii. Projected current land long-term liabilities, which includes amounts owed to your suppliers

You will also need to forecast liabilities which includes amounts owed to your suppliers or trade creditors. You will need to work out how much you expect to owe your suppliers at each period end. This number is impacted by the amount you purchase from suppliers and how much credit you are afforded by them. Another liability you may have might include loans and bank overdrafts. You will need to include the projected amount of any outstanding loan balances on your balance sheet, splitting this out between amounts due within 12 months and amounts due after more than one year. If you expect your bank balance to be in overdraft, this needs to be included in the liabilities section of your balance sheet instead of the assets section.

iv. Forecast share capital and reserves

The balance numbers on any balance sheet includes capital and reserves. The important figure here is the net profit or loss number. This number is the cumulative profit or loss at the end of each accounting period. It is important you take account of all income and expenses which should be net of VAT or sales taxes when you calculate this figure. Plus this number should be backed up by your profit and loss forecast report.

4. Presenting the balance sheet in a professional report.

Depending on who the forecast balance sheet report is for will depend on how professional you want this to look. If you are presenting your forecasts to a bank, perhaps for a bank loan, then I suggest it should look professional.

Also knowing your audience is key. As already mentioned you should choose a report format that is familiar to your audience. This is no point in using a UK format if your business is in America and visa versa.

How to create a projected balance sheet
How to create a projected balance sheet – Forecast opening balance sheet report sample

The balance sheet is only one of the reports you should be presenting in your financial forecasts. Financial forecast should consist of a cash flow forecast and a profit and loss forecast too. All of your reports should agree and tie in with each other with the balance sheet holding the reports together.

If after reading this article on how to create a projected balance sheet, you may need more help. If so please feel free to pose your question on our support forum. Alternatively, take a look at Cash Forecast Software as this does it all for you.