The Balance Sheet Forecast may look like a meaningless mass of numbers but bear with me and together we will impress your bank manager.

Going for a Loan

If you’re going for a loan, there’s a good reason for your bank manager to ask for what’s known as a “3-way forecast”. This contains a Profit and Loss Forecast, a Balance Sheet Forecast and a Cashflow Forecast. Why are all 3 required? Because none of them, on its own, tells you all you need to know about the health of a business.

What’s the story then?

The Profit & Loss tells you when you’re making money (or not). The Cashflow Forecast predicts when you’ll have money in the bank (or not). The Balance Sheet Forecast summarises both of those but adds in a whole lot more to give a rounded perspective of the business.
The best place to start when reading it is at the beginning. I’m sorry I couldn’t resist that.

The first column, the Opening Balance, shows where you are now. The others project forward from there and you will see patterns emerge as you go down the rows. Some rows, like Fixed Assets and depreciation, won’t change as they generally only get updated by your accountant at the end of the year.

The interesting lines to look at are the bank (always interesting!), your receivables and payables (see how they go up and down depending on the seasonality of your business), your GST and payroll accounts and, right down near the bottom you’ll see Current Earnings (or something similar) – that’s your year to date profit, which completes the circle round to the Profit & Loss forecast.

Starting a Conversation

Do you know one of the best uses of this report? Sit down with your bookkeeper or accountant and talk to them about it. The movements in your Balance Sheet can have a big impact on your cashflow so they’re important when you’re planning the future. Just think about those payments you make for GST and other taxes on a regular basis.

The Balance Sheet Forecast may not be a fashionable report but it’s an important one for your business.