Report name: Sample Forecast

How the Balance Sheet Forecast is Calculated

This example shows how Figurewizard calculates your balance sheet forecast. Liquidity, solvency and operating cash flow all derive from the balance sheet.

How to Read the Balance Sheet Forecast

You do not need to know how to calculate this balance sheet forecast. Figurewizard produces it simply from your projected figures and a few simple ratios.

Its 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 ranks as the most important.

Why Working Capital is Important

Current assets less current liabilities reurns net current assets. That measures the ability of a business to generate enough cash from its normal trading operations to meet its 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 payable within twelve months, regardless of whether or not they are concerned with core trading operations.

If your balance sheet forecast shows working caopital in deficit, you will have to revise your budgets to correct it. What follows shows how this can be easily and quickly done using Figurewizard.

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%

Cash flow problems can always be temporarily resolved by increasing borrowings but all that does is to buy you time. In the long run an increase in external debt is not a cure for insolvency.

Planning Fixed Assets and Overheads

Improved working capital and cash flow also rely on sustainable expenditure for investment in new fixed assets. Their cost, regardless of financing will always affect balance sheet liquidity.

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 haave 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.

While asset finance underwrites the acquisition of fixed assets, short term debt associated with it (payable within 12 months) will be a charge against liquidity.

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.

Fixed Assets and Depreciation

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.

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 yo do so, everything changes in real time.

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