Business plan pro forma balance sheet

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Business plan pro forma balance sheet

Businesses may consider the creation of a projected balance sheet as a way to facilitate long-term, strategic planning. A projected balance sheet provides the most relevant financial information needed in the business planning process. A forecasting balance sheet is a useful tool for business planning in general, and it particularly benefits those individuals responsible for arranging and bringing in additional financing.

business plan pro forma balance sheet

Using a projected balance sheet, financial personnel can present lenders and investors with detailed financial information about planned future asset expansion, making it easier to persuade capital providers to supply the required financing.

Making Forecast Assumptions To create a projected balance sheet, a business makes certain assumptions about how individual balance sheet items may change over time in the future. Business plans often focus on anticipated future sales. A projected balance sheet also starts with forecasting sales revenues.

Certain balance sheet items, such as inventory, accounts receivable and accounts payable, exhibit relatively constant relationships to sales, and projections on those items can be made based on projected sales. Projecting Asset Items Common asset items that are most relevant in a projected balance sheet include cash, accounts receivable, inventory and fixed assets.

While the amount of cash expected to be generated from the forecast sales increase may accumulate at a comparable rate, cash balance shown on the balance sheet is not necessarily in proportion to the sales increase.

A business may decide to reinvest part of the cash received, allowing cash holdings to grow at a lower projected rate. Both accounts receivable and inventory generally change in proportion to sales increase because more sales can leave more customers on account and require more inventory in stocks.

Projecting Liability Items Major liability items in a projected balance sheet may include accounts payable, short-term debt and long-term debt. Accounts payable often are the result of accepting trade financing on inventory purchases.

If more sales require more inventory, the increase in inventory likely leads to an increase in outstanding accounts payable. Thus, accounts payable likely change in proportion to sales.

To accommodate a sales increase, a business may choose to increase short-term financing at a certain rate each year. Long-term debt usually is left unchanged in initial projections and may change later if additional financing is needed. Whether or not a business expects to issue additional equity depends on future financing situations.

Projecting retained earnings essentially relies on the net-income projection in a projected income statement for the same future period. Projecting Discretionary Financing A projected balance sheet may not be balanced upon initial projections of various balance-sheet items.

Total projected assets may exceed total projected liabilities and equity, resulting in a fund shortage in future financing. On the other hand, if total projected assets are less than total projected liabilities and equity, a fund surplus exists.


A fund deficit or surplus in projected financing must be balanced out through discretionary financing by adjusting projections on long-term debt or equity. A projected balance sheet becomes balanced when the projected increase in long-term debt or equity equals the amount of fund deficit in initial financing projections.

A projected balance sheet can also become balanced if a business uses the projected fund surplus to further increase asset investments or reduce initial financing projections.

References 2 Illinois State University: Balance Sheet Projections About the Author An investment and research professional, Jay Way started writing financial articles for Web content providers in He has written for goldprice.A pro forma balance sheet is used to predict the future state of a company's health.

Business owners create pro forma statements to use for business plans or to give to investors. They also create and use them to plan for future business decisions. When a company creates a pro forma balance sheet.

Forecasting the Balance Sheet. Pro Forma Balance Sheet. a business plan containing pro forma financial statements demonstrating the expected effect of the proposed transaction on the company’s financial viability. Pro Forma Balance Sheet. Part of the conditions of a loan agreement, these covenants are the promises by the management of the borrowing firm to adhere to certain limits in the firm's example, not to allow certain balance sheet items or ratios to fall below or go over an agreed upon limit.

How to Write the Financial Section of a Business Plan: The Components of a Financial Section balance sheet items, and other assumptions.

If you are operating an existing business, you should. For the purposes of your business plan, you'll be creating a pro forma Balance Sheet intended to summarize the information in the Income Statement and Cash Flow Projections. Normally a business prepares a Balance Sheet once a year. Pro Forma Balance Sheet Template Pdf Download It is really an effective one and a clear one as well.

If you fond other formats confusing and time taking then this is what you will surely love for your business.

Pro forma - Wikipedia