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Balance Sheet Forecast: Meaning, Importance & Examples

When it comes to making sound financial decisions for your business, one of the most vital tools is balance sheet forecasting. It allows you to see future trends and predict how your company will fare financially. You can then use this information to plan your company’s success.

What Is a Balance Sheet Forecast?

A balance sheet forecast is a projection of your company’s financial future. It predicts your company’s equity, assets, and liabilities at a specific future date. This information is crucial for making sound business decisions, such as expanding or contracting operations, borrowing money, or investing in new products or services.

Importance of Balance Sheet Forecasting

This is an essential tool for making informed financial decisions about your business. The ability to predict future trends makes it easier for managers to strategize. Experienced financial controllers look beyond the company’s historical data to accomplish this. Predicting the markets and consumer behavior is also crucial to strategizing for future outcomes and creating a roadmap to meet future goals.

Companies also commonly need balance sheet forecasts to secure business loans or attract investment. The forecast proves to the decision-makers that the company is in an excellent position to repay the loan in full or that it can provide a strong return on investment.

Balance Sheet Forecast Examples

Creating financial documents takes time and skill. Look at this example to see how accountants organize the information*:

How To Forecast a Balance Sheet

The process is the same, whether you need a balance sheet forecast for business plans or regular strategizing. You may need to adjust the purpose and market conditions, but you can use these general steps as a base:

1. Start the Income Statement

Create a detailed document up to the point of depreciation expense and interest. This will give you a snapshot of the company’s overall financial health so you can determine how much revenue to expect in the future. 

2. Start the Balance Sheet

Calculate your balance sheet up to retained earnings. These are some of the elements you might need to calculate to arrive at your final figure:

  • Debt
  • Equity
  • Property, plant, and equipment
  • Retained earnings

3. Finalize the Income Statement Projection

There are some additional components you need to calculate to finalize the income statement:

  • Estimated tax expense
  • Depreciation
  • Interest
  • Net Income

4. Finalize the Balance Sheet Projection

Use the net income finalized with the income statement to complete the projection. Finally, review all the information to ensure accuracy and completeness.

Balance Sheet Projection Best Practices

Balance sheets are only as effective as they are accurate. Financial professionals use a wide range of best practices to eliminate errors and boost usability.

1. Roll Balances Forward

This practice smooths out irregularities and offers a more accurate view of the company’s financial state. It addresses the fact that balance sheets rely on cumulative data and that historical performance directly impacts future outcomes.

2. Identify Net Zero Accounts

While rolling balances forward is necessary for most accounts, some exceptions do exist. Any account with wide variations across each quarter becomes a good candidate for a net-zero start. Accounts payable accounts are typical examples.

3. Adjust for Labor Changes

If you expect to have more or fewer personnel in the future, make corresponding adjustments to your balance sheet. Labor is one of the highest financial costs, so adjusting for variations in headcount and labor hours is critical for ensuring accuracy.

4. Estimate Working Capital Costs

Financial professionals generally look at accounts receivable and accounts payable to estimate working capital. However, the economy, consumer behavior, and company policies will affect working capital. Adjust for the effects of these when calculating projections.

5. Plan for Events That Affect Cash

Whether you plan to spend millions on a new branch or expect venture capital, this significantly impacts cash flow. That will then affect the numbers on your balance sheet. When completing projections, insert a line to account for these events whenever applicable.

6. Leverage the Power of Automation

Software that automates the forecasting process can save time and ensure accuracy. Choose software this is compatible with your company’s financial system that can also handle the volume of data your business generates.

Forecasting Balance Sheet in Excel vs. Automation

The launch of the Microsoft Excel® spreadsheet revolutionized data entry in the business world. While it was a marked improvement over entering data on paper, it still has inefficiencies and risks. It also requires manual data entry. Just one error can generate dozens more because of the interlinking of data.

Proactive business leverage automation to resolve forecasting cash on balance sheet concerns. Automated software can take all your company’s data and input it into a forecasted balance sheet. This removes the possibility of human error and can provide insights a human analyst might not see.

How Gaviti’s Automated Accounts Receivable Software Can Help

Gaviti does not automate balance sheet projections. However, it automates the data entry points used for your balance sheet. It serves as a centralized source of truth and provides real-time adjustments. Its capabilities save your team time and money and eliminate mistakes.

Book your free demo to see what it can do for you.

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