How to stick to your balance sheet forecast

Writing a business plan, checking out competitors, defining the company’s budget… As every entrepreneur knows, there are many administrative and financial steps involved in starting a business. Including preparing a balance sheet forecast.

What’s a balance sheet forecast? It’s one of the key documents you’ll use to manage your company. Why do you need one? How do you use it in your daily finance management? And more importantly, how should you compare your actual expenses with your theoretical projections? We cover it all in this article with the help of Thomas Jeanneau, Founder of essentiel.io.

Managing a company isn’t just about tracking your revenue. In fact, there are more fitting indicators to get a detailed picture of your company’s financial health. Among these is the balance sheet forecast.

As its name would suggest, a balance sheet forecast sets the stage for the forecasts an entrepreneur makes for their business. These forecasts are predictive assumptions made about the business’s development, usually plotted out over a span of several years. A balance sheet forecast is composed of two parts: active assets - the resources the company owns - and passive assets - where these resources come from.

A company’s balance sheet forecast is, effectively, a summarized financial table. You can view your company’s key figures at a glance. It includes, most notably, an income statement projection. This financial table lists the company’s income and expenses over a fiscal year. The result is either positive - meaning profits - or negative - which conversely represents a loss for the business.

When should you create your balance sheet forecast? You almost always create one when launching a company, of course. Particularly to make sure your project is going to be profitable. That’s not the only time, however: you’ll want to write up a new balance sheet forecast at the close of each financial year.

As we mentioned earlier, a balance sheet forecast is a snapshot of the company’s total assets at a given time. It’s composed of two columns: in one column, you have the active assets, which are the inflow of resources to the company, and in the other column, you have the passive assets, which translates to the outflow of resources from the company. The total balance of the two halves must reconcile (i.e. cancel each other out): that’s the mark of a balanced financial forecast.

Active assets include:

• fixed assets,
• account receivables and stock,
• bank accounts and cash flow.

Learn more about how to create your balance sheet forecast in this detailed article.

The balance sheet is not something you simply create for your business plan. It can actually serve as a financial management tool you use at every stage of your company’s lifespan.

There are several benefits to using a balance sheet forecast:

• It helps you assess the overall coherence of your business project and ensure its profitability. Before even launching your company, you’ll have an idea of the company’s revenue streams and the balance you’ll need to generate profits.
• It gives you a clear idea of the goals to meet and, once your business is launched, it can offer you checkpoints to measure year after year. With a balance sheet forecast, you can view your key financial indicators, keep an eye on your cash flow, and make fully informed strategic decisions, all at a glance. Then you can rework your balance sheet forecast at the close of each fiscal year. That way, you can update your key figures and projections and check how your actual revenue matches up with your predictions.
• It offers you the opportunity to identify your funding needs. You can use these financial tables to attract investors or loans. First you can determine what your company requires in terms of funding - figures your forecast will have helped you suss out. Then, once your bank or potential investors will have read your balance sheet forecast, they can evaluate whether your project has legs.

As you may have gathered, a balance sheet forecast is more than just a part of your business plan you lay aside once your business is launched. It’s a tool you can use daily to manage your company’s finances.

Need help creating your balance sheet forecast? Sometimes it can be hard to build it out on your own. This is where guidance from a professional can be helpful. We recently put together a repository of partner accounting firms (in French) to support you in this process.

At this point your balance sheet forecast should be ready. Well done. But now, how do you make sure your projections match up with your actual expenses? Thanks to automatic reports, you can get a real-time view of your finances with minimal effort.

How? Thomas uses several tools: Qonto’s API, which allows him to retrieve his banking data (such as dates, receipts, amounts and VAT rates, balance, categories, and labels) combined with Zapier, and Google Sheets.

Thomas also used a Slack integration to automatically receive a weekly financial report of his expenses, revenue, and how much these figures differed from what had been forecasted. If you want to find out more about the technical aspects of Thomas’s integration, check out his article (in French).

You, too, can create custom finance automations using Qonto’s API. Or, choose from ready-to-use Integrations and Partnerships.

Ready to simplify your accounting? Open a business account on Qonto in 10 minutes.