Solvency and the Balance Sheet

Maintaining positive balance sheet equity is crucial if a business is to stay solvent. The same applies to working capital.

Capital and Reserves

Of all the forecasts that Figurewizad produces the balance sheet describing the forecast financial position of your business is the most important.

Capital and reserves describe a company's equity which will always balance against total net assets. If equity goes into deficit there can be no question that a company is insolvent. In practice though insolvency rarely waits on negative equity.

Working Capital and Cash Flow Insolvency

Cash and cash convertibles such as accounts receivable and stock for resale realisable within twelve months (current assets) less all liabilities payable within twelve months (current liabilities) describes net current assets. A bank overdraft, which is repayable on demand is itself a current liability and therefore always a charge to net current assets.

This is the working capital of the business which broadly describes liquidity without which cash flow to be generated by a company through core trading activity is impossible.

In the short term only, long term debt or increased paid up share capital will temporarily eliminate a working capital deficit. To effectively solve the problem for the longer term though cutting back on expenditure on overheads is the usual remedy.

Run Out of Cash and Go Out of Business

A positive balance sheet is no defence against cash flow insolvency therefore. If the working capital of a company is in deficit the time must come when it is unable to generate sufficient cash to pay its bills on time. That's when the process of insolvecy starts to kick in.

Planning Liquidity and Solvency

Successfully keeping a business's cash flow postive depends on forecasting to plan and budget for the year or years ahead. This is what Figurewizard does but however you go about it; do it you must.

The links below will take you to interactive working examples of the key liquidity and cash flow forecasts we produce simply using your estimated figures for sales, margins, overheads and investment - Essential for planning solvency as well as for ensuring profitability.

Corporation Tax and Marginal Relief From 2023 Deferred Income Explained What is a Monthly Cash Flow Forecast What is Pretax Profit How does a balance sheet balance? Lockdown Recovery: Forecasting Profits, Cash and Finance. How to Apply for Business Interruption Scheme with Figurewizard How to calculate liquidity and short-term liquidity How to calculate markup and margin The Truth about Monarch Airlines Labour's Spending over 10 years from 2000 How to make profits and not run out of cash Credit Checking - How to Read Micro or Short Form Accounts Amortisation of Arrangement Fees for Long Term Loans BHS Profits Performance 2010 - 2014 BHS profits, liquidity and cash flows 2009 - 2014 How to Calculate a Free Cash Flow Forecast Campari: How to apply for a bank business loan What are Current Liabilities What are Current Assets Late Payers and Cash Flow What is Operating Cash Flow? What is Working Capital How to Read a Balance Sheet Business Planning Cash Flow Calculator Short Term Liquidity Business Liquidity Corporation Tax is not Calculated on Net Profit Small Business Corporation Tax Cash Flow Calculator Using Figurewizard - VAT Using Figurewizard - Sales by Month Using Figurewizard - HP or Instalment Plan Budgets Using Figurewizard - How the budgeted cash flow forecast is calculated Using Figurewizard - Fixed Asset Budgets Using Figurewizard - Calculate Purchase of Goods Using Figurewizard - Forecasting Payments to Suppliers Using Figurewizard - How to Forecast Cash Collection Solvency and the Balance Sheet Property in the Balance Sheet Why Equity is a Liability Asset Management and Liquidity Selling Fixed Assets Contracts: Invitation to Treat What is Deferred Income Loss on the Sale of Fixed Assets Calculating Gross Profit Margin Profit and Loss Statement What is Operating Profit What is Net Operating Revenue What is Equity Profit on the Sale of Fixed Assets How Taxable Profit is Calculated What are Operating Overheads Overheads - Provisions How Depreciation is Calculated What is Business Operating Activity What are Fixed Assets Liquidity and Cash Flow Balance Sheet Liabilities and Leases Stock or Inventory Control What is Distressed Stock or Inventory What is Interest Suspense Account Product Safety Laws What is a Bill of Exchange What is Payment at Sight What is a Pro Forma Invoice What is a Bill of Lading What is a packing note What is Demurrage Cash Flow Forecasts and Planning Factoring: Invoice Discounting and Cash Flow How Does VAT Work Figurewizard as a Sales Aid for Factoring and Invoice Discounting