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Report name: Sample Forecast

How the Balance Sheet Forecast is Calculated

More than a simple list of assets and liabilities, liquidity, solvency and even operating cash flow can all be derived from this balance sheet forecast.

forecast for year beginning the 1st.May 2017May 2018May 2019
Fixed Assets56,62454,08177,791
Current Assets217,675261,733506,750
Total Assets274,298315,813584,540
Current Liabilities154,652125,407181,409
Long Term Liabilities13,8784,09511,648
Total Liabilities168,530129,502193,057

Net Current Assets (Working Capital)

Net Assets105,768186,311391,483

Retained Profits Bfwd


add: Profit / Loss after Tax


less: Dividend


Retained Profits C/Fwd


Capital and Reserves (Equity)


How to Read the Balance Sheet Forecast

One-man band or multinational, the value of any business and the quality of its management are described by the state of the company balance sheet.

Because liquidity and solvency it is at least as important as forecast profit and loss when it comes to assessing your business plan. Their number one priority for banks, creditors and investors will be your forecast for working capital.

Why Shareholders Funds are a Liability

Shareholders funds represent paid up capital and profits after tax that have been retained in the business. 

In law, a company has an identity that is completely distinct from its shareholders. The funds represent investments in the company that have been made by its shareholders, which are therefore due to them. That is why shareholder funds are recorded in the balance sheet as a liability.

Forecast Working Capital

Net current assets (current assets less current liabilities) describes working capital which in turn describes liquidity; the sole source of cash flow from core trading activity.

Net current means trading assets such as accounts receiveable and stock that will reasonably be expected to be turned into cash within a year (plus cash) less debt scheduled to be paid within a year.

Forecast Fixed Assets

Cost less depreciation describes the net book value of fixed assets in the balance sheet. That represents the residual value of their forecast working life in the business, not their estimated fair market values.

This is an important distinction. Depreciated net book values for fixed assets are invariably significantly lower than what could reasonably be expected to be realised if put up for sale. In the event of a forced sale (which is how bank managers will view their value) that realisable value will be lower still.

Fixed assets play no part in defining liquidity other than depleting it upon their acquisition; regardless of asset financing.

Discounting the Value of non-Current Assets

Fixed assets represent the bulk of non-current assets and while their value may be relatively substantial, they are not a reliable guide to liquidity or solvency.

Fixed asset value is mostly a technical appraisal of their residual useful working life over however many years that may be. It has nothing to do with fair value which is almost always very much lower.

Capitalised Expenditure

It is also possible for some fixed assets to have never had cash value from the day they entered the balance sheet, despite often being supported by debt.

That is known as capitalisation, in effect creating a notional fixed asset, the sole purpose of which is to record expenditure that is chargeable against profit and loss over a number of years in line with their useful working life.

It is only appropriate in the case of a going concern and the amounts have to be affordable.Such capitalised expenditure was behind the collapse of Jamie Oliver's restaurant group, Jamies Italian ltd.

Jamies Italian - Fixed Assets Without Value

The company's first restaurant opened in 2008 and expanded rapidly, showing profits in every year. By the beginning of 2016 the balance sheet showed net assets net assts / equity as follows:

Net Assets £   Equity £
Non-Current Assets 67,811,024   Share Capital 100
Net Current Liabilities -9,255,555   Share Premium 6,948,987
Long Term Debt -34,614,635   Retained Profits 16,991,737
Total Net Assets 23,940,834   Total Equity 23,940,834

While equity looked healthy net current liabilities meant a working capital deficit and the reason for that lay in fixed assets, in particular an item labelled improvements to leasehold properties.

Jamies Italian - How not to Run a Business

The problem with improvements to leassehold properties, is that they revert to the landlords without charge upon the termination of the lease.

The sole reason they Jamies Italian capitalised them was to spread their cost to profits over twenty five years. In cash terms they actually represented zero value.

Improvements to Leaseholds  £
Improvements B/Fwd 55,848,487
Additions 6,971,719
Total Improvements 62,820,206
Depreciation B/Fwd -8,187,975
Depreciation for the Period -2,660,853
Total Depreciation -10.848,828
Net Book Value C/Fwd 51,971,378

Ordinarily spreading the cost of such improvements is perfectly acceptable practice, as long as they do not dominate assets in the balance sheet.

In the case of Jamies Italian though they did dominate and that is why the company, despite apparent profits had negative working capital and was actually insolvent: i.e. Take Improvements C/Fwd away from equity and you get a balance sheet deficit of £28,030,544.

Planning Overheads and the Balance Sheet

The What-If Calculator and Planner makes it possible for you to update / change forecasts in real time. Here it has been used to improve working capital and cash by reducing forecast wages and fixed overheads - Each by increments of 5%

Year 1 less Fixed O/Heads & Wages Pre-Tax Profit Equity Working Capital Increase / Decrease Borrowings Bank Year End
0% 430,000 94,381 105,052 59,993 53,854 -35,439
5% 408,500 116,779 123,911 81,165 33,488 -13,261
10% 387,000 138,712 141,677 98,931 9,962 8,452

Cash flow problems can always be temporarily resolved by increasing borrowings but all that does is buy you time. In the long run increased external debt cannot cure cash flow insolvency.

Planning Fixed Assets and Overheads

Improved working capital and cash flow are also affected by investment in new fixed assets. Their cost plus any new debt associated with financing always reduces balance sheet liquidity.

For example, in this sample forecast £30,000 of new main pool assets (e.g. plant and machinery, fixtures, equipment, trucks and vans) and £25,000 for company cars have been entered, a total of £55,000. Seventy percent of that is financed over 24 months.

The table below shows how that £55,000 will affect liquidity (working capital) and cash flows, followed by what happens to these if first the £25,000 for new cars is removed followed by the £30,000 of new main pool assets.

Despite these assets being 70% financed, the liquidity and cash flow improvements are significant.

Fixed Asset Acquisitions Fixed Overheads Interest Charges Equity Working Capital   Increase / Decrease Borrowings Bank Year End
55,000 430,000 5,062 105,052 59,993 53,854 -35,439
30,000 408,500 3,104 127,097 100,956 5,616 -691
0 387,000 1,488 143,371 135,789 -48,780 69,719

While asset finance underwrites the acquisition of fixed assets it simply one source of external finance. Therefore short term debt associated with it (i.e. payable within 12 months) will be a charge against liquidity.

What is Balance Sheet Insolvency

Negative equity, also known as negative net worth occurs when the value of net assets are in deficit.

This defines an insolvent balance sheet. If your Figurewizard balance sheet forecast shows negative net assets / equity you must change the plan for your business. Using the What-If Calculator Planner is recommended for this.

Increasing borrowings while continuing to trade with an insolvent balance sheet carries the very real risk of action for wrongful trading if the company subsequently goes into liquidation.

Paying Current Liabilities on Time

Resolving cash flow problems by delaying payments for current liabilities only makes a bad situation worse.

Financial penalties for late payment of taxes are bad enough but the inevitable loss of confidence in your business that goes with late payment to suppliers will be worse still by putting commercial credit and therefore operating cash flows at risk.

Producing this Balance Sheet Forecast

No intervention by a user is called for to calculate this balance sheet forecast. Figurewizard will automatically produce it just from your forecast sales, margins, overheads, investment and simple cash ratios.

Plan to Avoid Business Failure Using Figurewizard

With your first attempt at forecasting with Figurewizard there are likely to be areas of profit, cash, and balance sheet value that you will want to change. This is what the What-If Calculator and Planner is for.

For example it allows you to address deficits for profits, working capital and cash flow by amending your original figures such as profit margin, overheads, year-end stock, investments and financing , all with single clicks of the mouse. 

As you do so, the calculator, which displays the key features of your forecasts such as operating profits, profit after tax, cash flow, bank balances, working capital and net worth all change too, again in real time.

What-If Calculator and Factoring / Supply Chain Financing

You can also use the What-If Calculator to select factoring / supply chain financing.  Once again all this takes are single clicks to select the percentage of invoicing to be factored and the rate of interest to be charged. Once more as you do so, everything changes in real time.

Subscribing to Figurewizard costs just £30 a year. There are no extra charges.

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