| forecast for year beginning the 1st. | May 2017 | May 2018 | May 2019 |
| Fixed Assets | 56,624 | 54,081 | 77,791 |
| Current Assets | 217,675 | 261,733 | 506,750 |
| Total Assets | 274,298 | 315,813 | 584,540 |
| Current Liabilities | 154,652 | 125,407 | 181,003 |
| Long Term Liabilities | 13,878 | 4,095 | 11,648 |
| Total Liabilities | 168,530 | 129,502 | 192,651 |
Net Current Assets (Working Capital) | 63,022 | 136,326 | 325,747 |
| Net Assets | 105,768 | 186,311 | 391,890 |
| Capital | 5,000 | 5,000 | 5,000 |
Retained Profits Bfwd | 20,000 | 100,768 | 181,311 |
add: Profit / Loss after Tax | 80,768 | 80,543 | 205,578 |
less: Dividend | 0 | 0 | 0 |
Retained Profits C/Fwd | 100,768 | 181,311 | 386,890 |
Capital and Reserves (Equity) | 105,768 | 186,311 | 391,890 |
A balance sheet forecast describes the financial condition of your business arising from your predicted sales, margins, overheads and so on. That’s why it matters.
More so than profit and loss, balance sheets rank first in importance with banks, creditors and investors where the assessment of business plans is concerned.
The two most important elements are equity, forecasting balance sheet solvency and net current assets (working capital) forecasting liquidity. Of the two, the working capital forecast is far and away the most important.
Current assets less current liabilities return net current assets or working capital. That measures liquidity - i.e. Cash generated from normal trading operations to meet current liabilities as and when they fall due for payment.
Assets that are concerned exclsuively with core tading activity (operations) that are cash convertible within twelve months are termed as current assets. Apart for cash itself these will include accounts receivable, stock and prepayments.
Current liabilities represents all debt deemed to be payable within twelve months, regardless of whether or not they are concerned with core trading operations.
If your balance sheet forecast shows working capital in deficit, revising your budgets to correct it will be essential. What follows shows how this is easily and quickly done using Figurewizard without breaking the bank.
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.
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.
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.
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.
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.
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.
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.
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 yo do so, everything changes in real time.
Subscribing to Figurewizard costs just £30 a year. There are no extra charges.