How To Create Projected Balance Sheets (With an Example)

1. Step 1: Calculate cash in hand and cash at the bank. …
2. Step 2: Calculate Fixed Assets. …
3. Step 3: Calculate Value of Financial Instruments. …
4. Step 4: Calculate your Business Earning. …
5. Step 5: Calculate Business’s Liabilities. …
6. Step 6: Calculate Business’s Capital.

Why is having a projected balance sheet important?

Projected balance sheets are crucial because they support the business’s ability to plan strategically and effectively. It’s imperative that company executives and owners comprehend more about the growth of the company, including how assets should grow, which debts the organization must acquire, and the equity it holds for shareholders, before they can properly form any long-term plans they may have for the business.

Building a projected balance sheet gives you access to the pertinent financial information you need to make the necessary plans, such as hiring more staff, attracting more investors, growing operations, or investing in machinery that will increase productivity and boost sales. Without a projected balance sheet, you might not be able to explain why a person or company should invest capital in the company or know what steps your company can take to reach its goal.

What are projected balance sheets?

The financial statements that depict projected changes to a company’s financial status, including investments, other assets, liabilities, and financing for equity, are known as pro forma balance sheets. To learn more about the business and forecast income and expenses for the future, business owners or accountants perform projections. The primary line items you’ll probably see on a projected balance sheet are described as follows:

How to create a projected balance sheet

Here are some steps to take if you need to create a projected balance sheet for your business:

1. Create a format for the projected balance sheet

Since projected balance sheets are typically used to project balances for a specific time period, they are something you can create numerous times. Before a merger, before a sales presentation, or on a regular basis, you might want to create a balance sheet to ensure that you are fully aware of how the business should look in the coming months. This will help you decide whether you can make a sizable purchase or expand operations in some other way.

You can easily modify the assets, liabilities, and equity for the time period you’re working within with a formatted projected balance sheet, saving time and effort by not having to create one every time. To make this simpler and to ensure that you have a consistent format that anyone adjusting or reviewing can understand, think about using an accounting program or spreadsheet software.

2. Gather past financial statements

Gather any previous financial statements you may have, unless you are a startup with no records. By examining trends and ongoing assets and liabilities that are already included on current balance sheets, accountants and other financial experts can accurately project an organization’s financial future by using its past financial statements. To ensure that your projections are as accurate as possible, try to collect financial data for at least two years.

3. Review your past and ongoing assets and liabilities

You can better prepare for creating a projected balance sheet by looking at these items because you’ll be reminded of and more aware of the assets you’ve had in the past, the assets you currently have, and the liabilities you have in the present and the past. You’ll be in a better position to decide if those same assets and liabilities should appear on the projected balance sheet you’re creating once these line items are displayed. For instance, a paid-off mortgage debt liability won’t need to be included on a projected balance sheet, but an ongoing debt with ongoing payments will.

Keep in mind that assets can change depending on sales, inventory levels, and any funding received by the company. While some assets and liabilities may continue to stand out on balance sheets, it’s crucial to examine each item separately to see if it’s necessary for building a projected balance sheet.

4. Project your fixed assets

Because they are an asset that the company uses on a regular basis, such as production equipment or company vehicles, fixed assets are tangible and more long-term for the business. Any projected balance sheet can easily include fixed assets, but don’t forget to take depreciation into consideration. When an asset is used more frequently, especially if there is normal wear and tear present, its value decreases, which is known as depreciation. When creating a projected balance sheet, it’s crucial to keep in mind that the assets you list each year might stay the same but lose value over time.

5. Estimate the companys debt

How much debt the company will have during the period you’re covering in the projected balance sheet should be easy to predict if you’ve been managing the company’s debts. Examine your current debts, taking note of their amounts, the monthly payments they require, and the date by which they are due in full. With this knowledge, you’ll be better able to decide which debts to include and in what amounts on the projected balance sheet.

6. Forecast your equity

Reviewing previous equity, determining the company’s net income, accounting for your dividends, and adding any changes to equity will help you forecast your equity. When you can predict equity with accuracy, you can determine how much money the company will make and distribute to its stakeholders. Investors who want to feel confident that their investment will yield a healthy return should also be aware of this information.

Projected balance sheet example

If you need some ideas for your own projected balance sheet, look at this one:

Antonios Granite

Total Assets
Cash$15,000Inventory$12,000Machinery$67,000

Total Liabilities
Taxes payable$11,000Wages owed$24,000Accounts payable$13,000

Equity
Invested capital$30,000Retained earnings$22,000

Create a Projected Balance Sheet – Business Plan Series

FAQ

What is the difference between estimated and projected balance sheet?

*It is a balance sheet without provisions and adjustments. Estimated Balance Sheet: Based on projections, an estimated balance sheet is created for future data (for which the period has begun but not yet ended). e. for the period which already started but not completed.

How do you prepare a projected balance sheet for a bank loan?

1. Calculate your cash on hand and in the bank as a first step.
2. 2nd Step : Calculate Fixed Assets. …
3. 3rd Step : Calculate Value of Financial Instruments. …
4. 4th Step : Calculate your Business Earning. …
5. 5th Step : Calculate Business’s Liabilities. …
6. 3rd Step : Calculate Business’s Capital.

What is projected balance in bank account?

Projected Balance: This displays the balance as it would be if all pending and hold transactions were completed successfully.

How do you make projections of financial statements?

1. Project your spending and sales. …
2. Create financial projections. …
3. Determine your financial needs. …
4. Use the projections for planning. …
5. Plan for contingencies. …
6. Monitor.

What is included in projected financial statements?

In order to create a financial picture that management believes it can achieve as of a future date, projected financial statements take into account current trends and expectations. The income statement and balance sheet in the projected financial statements will at the very least be summarized.