projected statement of financial position in business plan

• Business Planning

Business Plan Financial Projections

Written by Dave Lavinsky

Financial projections are forecasted analyses of your business’ future that include income statements, balance sheets and cash flow statements. We have found them to be an crucial part of your business plan for the following reasons:

• They can help prove or disprove the viability of your business idea. For example, if your initial projections show your company will never make a sizable profit, your venture might not be feasible. Or, in such a case, you might figure out ways to raise prices, enter new markets, or streamline operations to make it profitable. 
• Financial projections give investors and lenders an idea of how well your business is likely to do in the future. They can give lenders the confidence that you’ll be able to comfortably repay their loan with interest. And for equity investors, your projections can give them faith that you’ll earn them a solid return on investment. In both cases, your projections can help you secure the funding you need to launch or grow your business.
• Financial projections help you track your progress over time and ensure your business is on track to meet its goals. For example, if your financial projections show you should generate $500,000 in sales during the year, but you are not on track to accomplish that, you’ll know you need to take corrective action to achieve your goal.

Below you’ll learn more about the key components of financial projections and how to complete and include them in your business plan.

What Are Business Plan Financial Projections?

Financial projections are an estimate of your company’s future financial performance through financial forecasting. They are typically used by businesses to secure funding, but can also be useful for internal decision-making and planning purposes. There are three main financial statements that you will need to include in your business plan financial projections:

1. Income Statement Projection

The income statement projection is a forecast of your company’s future revenues and expenses. It should include line items for each type of income and expense, as well as a total at the end.

There are a few key items you will need to include in your projection:

• Revenue: Your revenue projection should break down your expected sales by product or service, as well as by month. It is important to be realistic in your projections, so make sure to account for any seasonal variations in your business.
• Expenses: Your expense projection should include a breakdown of your expected costs by category, such as marketing, salaries, and rent. Again, it is important to be realistic in your estimates.
• Net Income: The net income projection is the difference between your revenue and expenses. This number tells you how much profit your company is expected to make.

Sample Income Statement

2. Cash Flow Statement & Projection

The cash flow statement and projection are a forecast of your company’s future cash inflows and outflows. It is important to include a cash flow projection in your business plan, as it will give investors and lenders an idea of your company’s ability to generate cash.

There are a few key items you will need to include in your cash flow projection:

• The cash flow statement shows a breakdown of your expected cash inflows and outflows by month. It is important to be realistic in your projections, so make sure to account for any seasonal variations in your business.
• Cash inflows should include items such as sales revenue, interest income, and capital gains. Cash outflows should include items such as salaries, rent, and marketing expenses.
• It is important to track your company’s cash flow over time to ensure that it is healthy. A healthy cash flow is necessary for a successful business.

Sample Cash Flow Statements

3. Balance Sheet Projection

The balance sheet projection is a forecast of your company’s future financial position. It should include line items for each type of asset and liability, as well as a total at the end.

A projection should include a breakdown of your company’s assets and liabilities by category. It is important to be realistic in your projections, so make sure to account for any seasonal variations in your business.

It is important to track your company’s financial position over time to ensure that it is healthy. A healthy balance is necessary for a successful business.

Sample Balance Sheet

How to Create Financial Projections

Creating financial projections for your business plan can be a daunting task, but it’s important to put together accurate and realistic financial projections in order to give your business the best chance for success.  

Cost Assumptions

When you create financial projections, it is important to be realistic about the costs your business will incur, using historical financial data can help with this. You will need to make assumptions about the cost of goods sold, operational costs, and capital expenditures.

It is important to track your company’s expenses over time to ensure that it is staying within its budget. A healthy bottom line is necessary for a successful business.

Capital Expenditures, Funding, Tax, and Balance Sheet Items

You will also need to make assumptions about capital expenditures, funding, tax, and balance sheet items. These assumptions will help you to create a realistic financial picture of your business.

Capital Expenditures

When projecting your company’s capital expenditures, you will need to make a number of assumptions about the type of equipment or property your business will purchase. You will also need to estimate the cost of the purchase.

When projecting your company’s funding needs, you will need to make a number of assumptions about where the money will come from. This might include assumptions about bank loans, venture capital, or angel investors.

When projecting your company’s tax liability, you will need to make a number of assumptions about the tax rates that will apply to your business. You will also need to estimate the amount of taxes your company will owe.

Balance Sheet Items

When projecting your company’s balance, you will need to make a number of assumptions about the type and amount of debt your business will have. You will also need to estimate the value of your company’s assets and liabilities.

Financial Projection Scenarios

Write two financial scenarios when creating your financial projections, a best-case scenario, and a worst-case scenario. Use your list of assumptions to come up with realistic numbers for each scenario.

Presuming that you have already generated a list of assumptions, the creation of best and worst-case scenarios should be relatively simple. For each assumption, generate a high and low estimate. For example, if you are assuming that your company will have $100,000 in revenue, your high estimate might be $120,000 and your low estimate might be $80,000.

Once you have generated high and low estimates for all of your assumptions, you can create two scenarios: a best case scenario and a worst-case scenario. Simply plug the high estimates into your financial projections for the best-case scenario and the low estimates into your financial projections for the worst-case scenario.

Conduct a Ratio Analysis

A ratio analysis is a useful tool that can be used to evaluate a company’s financial health. Ratios can be used to compare a company’s performance to its industry average or to its own historical performance.

There are a number of different ratios that can be used in ratio analysis. Some of the more popular ones include the following:

• Gross margin ratio
• Operating margin ratio
• Return on assets (ROA)
• Return on equity (ROE)

To conduct a ratio analysis, you will need financial statements for your company and for its competitors. You will also need industry average ratios. These can be found in industry reports or on financial websites.

Once you have the necessary information, you can calculate the ratios for your company and compare them to the industry averages or to your own historical performance. If your company’s ratios are significantly different from the industry averages, it might be indicative of a problem.

Be Realistic

When creating your financial projections, it is important to be realistic. Your projections should be based on your list of assumptions and should reflect your best estimate of what your company’s future financial performance will be. This includes projected operating income, a projected income statement, and a profit and loss statement.

Your goal should be to create a realistic set of financial projections that can be used to guide your company’s future decision-making.

Sales Forecast

One of the most important aspects of your financial projections is your sales forecast. Your sales forecast should be based on your list of assumptions and should reflect your best estimate of what your company’s future sales will be.

Your sales forecast should be realistic and achievable. Do not try to “game” the system by creating an overly optimistic or pessimistic forecast. Your goal should be to create a realistic sales forecast that can be used to guide your company’s future decision-making.

Creating a sales forecast is not an exact science, but there are a number of methods that can be used to generate realistic estimates. Some common methods include market analysis, competitor analysis, and customer surveys.

Create Multi-Year Financial Projections

When creating financial projections, it is important to generate projections for multiple years. This will give you a better sense of how your company’s financial performance is likely to change over time.

It is also important to remember that your financial projections are just that: projections. They are based on a number of assumptions and are not guaranteed to be accurate. As such, you should review and update your projections on a regular basis to ensure that they remain relevant.

Creating financial projections is an important part of any business plan. However, it’s important to remember that these projections are just estimates. They are not guarantees of future success.

Business Plan Financial Projections FAQs

What is a business plan financial projection.

A business plan financial projection is a forecast of your company's future financial performance. It should include line items for each type of asset and liability, as well as a total at the end.

What are annual income statements? 

The Annual income statement is a financial document and a financial model that summarize a company's revenues and expenses over the course of a fiscal year. They provide a snapshot of a company's financial health and performance and can be used to track trends and make comparisons with other businesses.

What are the necessary financial statements?

The necessary financial statements for a business plan are an income statement, cash flow statement, and balance sheet.

How do I create financial projections?

You can create financial projections by making a list of assumptions, creating two scenarios (best case and worst case), conducting a ratio analysis, and being realistic.

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How To Create Financial Projections for Your Business Plan

Building a financial projection as you write out your business plan can help you forecast how much money your business will bring in.

Planning for the future, whether it’s with growth in mind or just staying the course, is central to being a business owner. Part of this planning effort is making financial projections of sales, expenses, and—if all goes well—profits.

Even if your business is a startup that has yet to open its doors, you can still make projections. Here’s how to prepare your business plan financial projections, so your company will thrive.

What are business plan financial projections?

Business plan financial projections are a company’s estimates, or forecasts, of its financial performance at some point in the future. For existing businesses, draw on historical data to detail how your company expects metrics like revenue, expenses, profit, and cash flow to change over time.

Companies can create financial projections for any span of time, but typically they’re for between one and five years. Many companies revisit and amend these projections at least annually. 

Creating financial projections is an important part of building a business plan . That’s because realistic estimates help company leaders set business goals, execute financial decisions, manage cash flow , identify areas for operational improvement, seek funding from investors, and more.

What are financial projections used for? 

Financial forecasting serves as a useful tool for key stakeholders, both within and outside of the business. They often are used for:

Business planning

Accurate financial projections can help a company establish growth targets and other goals . They’re also used to determine whether ideas like a new product line are financially feasible. Future financial estimates are helpful tools for business contingency planning, which involves considering the monetary impact of adverse events and worst-case scenarios. They also provide a benchmark: If revenue is falling short of projections, for example, the company may need changes to keep business operations on track.

Projections may reveal potential problems—say, unexpected operating expenses that exceed cash inflows. A negative cash flow projection may suggest the business needs to secure funding through outside investments or bank loans, increase sales, improve margins, or cut costs.

When potential investors consider putting their money into a venture, they want a return on that investment. Business projections are a key tool they will use to make that decision. The projections can figure in establishing the valuation of your business, equity stakes, plans for an exit, and more. Investors may also use your projections to ensure that the business is meeting goals and benchmarks.

Loans or lines of credit 

Lenders rely on financial projections to determine whether to extend a business loan to your company. They’ll want to see historical financial data like cash flow statements, your balance sheet , and other financial statements—but they’ll also look very closely at your multi-year financial projections. Good candidates can receive higher loan amounts with lower interest rates or more flexible payment plans.

Lenders may also use the estimated value of company assets to determine the collateral to secure the loan. Like investors, lenders typically refer to your projections over time to monitor progress and financial health.

What information is included in financial projections for a business?

Before sitting down to create projections, you’ll need to collect some data. Owners of an existing business can leverage three financial statements they likely already have: a balance sheet, an annual income statement , and a cash flow statement .

A new business, however, won’t have this historical data. So market research is crucial: Review competitors’ pricing strategies, scour research reports and market analysis , and scrutinize any other publicly available data that can help inform your projections. Beginning with conservative estimates and simple calculations can help you get started, and you can always add to the projections over time.

One business’s financial projections may be more detailed than another’s, but the forecasts typically rely on and include the following:

True to its name, a cash flow statement shows the money coming into and going out of the business over time: cash outflows and inflows. Cash flows fall into three main categories:

Income statement

Projected income statements, also known as projected profit and loss statements (P&Ls), forecast the company’s revenue and expenses for a given period.

Generally, this is a table with several line items for each category. Sales projections can include the sales forecast for each individual product or service (many companies break this down by month). Expenses are a similar setup: List your expected costs by category, including recurring expenses such as salaries and rent, as well as variable expenses for raw materials and transportation.

This exercise will also provide you with a net income projection, which is the difference between your revenue and expenses, including any taxes or interest payments. That number is a forecast of your profit or loss, hence why this document is often called a P&L.

Balance sheet

A balance sheet shows a snapshot of your company’s financial position at a specific point in time. Three important elements are included as balance sheet items:

• Assets. Assets are any tangible item of value that the company currently has on hand or will in the future, like cash, inventory, equipment, and accounts receivable. Intangible assets include copyrights, trademarks, patents and other intellectual property .
• Liabilities. Liabilities are anything that the company owes, including taxes, wages, accounts payable, dividends, and unearned revenue, such as customer payments for goods you haven’t yet delivered.
• Shareholder equity. The shareholder equity figure is derived by subtracting total liabilities from total assets. It reflects how much money, or capital, the company would have left over if the business paid all its liabilities at once or liquidated (this figure can be a negative number if liabilities exceed assets). Equity in business is the amount of capital that the owners and any other shareholders have tied up in the company.

They’re called balance sheets because assets always equal liabilities plus shareholder equity. 

5 steps for creating financial projections for your business

• Identify the purpose and timeframe for your projections
• Collect relevant historical financial data and market analysis
• Forecast expenses
• Forecast sales
• Build financial projections

The following five steps can help you break down the process of developing financial projections for your company:

1. Identify the purpose and timeframe for your projections

The details of your projections may vary depending on their purpose. Are they for internal planning, pitching investors, or monitoring performance over time? Setting the time frame—monthly, quarterly, annually, or multi-year—will also inform the rest of the steps.

2. Collect relevant historical financial data and market analysis

If available, gather historical financial statements, including balance sheets, cash flow statements, and annual income statements. New companies without this historical data may have to rely on market research, analyst reports, and industry benchmarks—all things that established companies also should use to support their assumptions.

3. Forecast expenses

Identify future spending based on direct costs of producing your goods and services ( cost of goods sold, or COGS) as well as operating expenses, including any recurring and one-time costs. Factor in expected changes in expenses, because this can evolve based on business growth, time in the market, and the launch of new products.

4. Forecast sales

Project sales for each revenue stream, broken down by month. These projections may be based on historical data or market research, and they should account for anticipated or likely changes in market demand and pricing.

5. Build financial projections

Now that you have projected expenses and revenue, you can plug that information into Shopify’s cash flow calculator and cash flow statement template . This information can also be used to forecast your income statement. In turn, these steps inform your calculations on the balance sheet, on which you’ll also account for any assets and liabilities .

Business plan financial projections FAQ

What are the main components of a financial projection in a business plan.

Generally speaking, most financial forecasts include projections for income, balance sheet, and cash flow.

What’s the difference between financial projection and financial forecast?

These two terms are often used interchangeably. Depending on the context, a financial forecast may refer to a more formal and detailed document—one that might include analysis and context for several financial metrics in a more complex financial model.

Do I need accounting or planning software for financial projections?

Not necessarily. Depending on factors like the age and size of your business, you may be able to prepare financial projections using a simple spreadsheet program. Large complicated businesses, however, usually use accounting software and other types of advanced data-management systems.

What are some limitations of financial projections?

Projections are by nature based on human assumptions and, of course, humans can’t truly predict the future—even with the aid of computers and software programs. Financial projections are, at best, estimates based on the information available at the time—not ironclad guarantees of future performance.

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Table of contents, how financial projections shape a business plan.

• 2 May, 2024

Importance of Financial Projections

Financial projections play a vital role in shaping a business plan, providing valuable insights into future performance and serving as a basis for decision making. Understanding the significance of financial projections is essential for any business or entrepreneur.

Insight into Future Performance

Financial projections provide a glimpse into the future of a business by outlining expected revenues, expenses, and profitability. They serve as a roadmap, guiding business owners and stakeholders in understanding the financial health and potential growth of the company.

By analyzing projected financial statements, such as the income statement, cash flow statement, and balance sheet, business owners can assess how their business is expected to perform over a specific period of time. This insight enables them to make informed decisions regarding budgeting, resource allocation, and strategic planning.

Financial projections also help identify potential areas of risk or concern. By comparing projected figures with actual results, business owners can assess the accuracy of their initial assumptions and make necessary adjustments to improve future performance.

Basis for Decision Making

Financial projections serve as a foundation for decision making within a business. They provide crucial financial data and analysis that guide owners and managers in making informed choices about various aspects of their operations.

For instance, financial projections assist in determining the feasibility of new projects or expansions. By analyzing projected revenues, costs, and returns, business owners can assess the viability of their ideas and make decisions based on the potential financial outcomes.

Financial projections also aid in securing funding for a business. When seeking loans or investments, lenders and investors often require a detailed understanding of a company’s financial future. By presenting well-prepared financial projections, business owners can demonstrate to potential financiers how their business plans to generate revenue, repay loans, and achieve growth.

Additionally, financial projections act as an early warning system, providing insights into potential challenges or opportunities. By regularly reviewing and updating projections, businesses can identify trends, anticipate expenses, and strategize major financial decisions.

In conclusion, financial projections are a fundamental component of a business plan, providing insights into future performance and serving as a basis for decision making. By analyzing and utilizing financial projections effectively, businesses can better understand their financial landscape, make informed choices, and drive their success.

Developing Financial Projections

When creating a comprehensive business plan, financial projections play a crucial role in shaping the future of the business. This section focuses on the process of developing financial projections, including determining the time frame and components, as well as ensuring realism and accuracy.

Time Frame & Components

Financial projections typically cover the first 3-5 years of a business, although some projections may extend up to a 10-year forecast. It is important to develop projections on a short and mid-term basis, broken down month by month. While exact details are not expected for new businesses, projections should be educated guesses based on market trends, research, and similar businesses ( FreshBooks ).

To create comprehensive financial projections, several key components should be included:

• Income Statement : The income statement, also known as the profit and loss statement, provides an overview of the business’s revenue, expenses, and profitability over a specific period. It helps assess the viability and potential profitability of the business.
• Cash Flow Statement : The cash flow statement tracks the inflow and outflow of cash in the business. It provides insights into the liquidity of the business, ensuring that it has sufficient cash to meet its financial obligations.
• Balance Sheet : The balance sheet presents a snapshot of the business’s financial position at a specific point in time. It includes assets, liabilities, and equity, providing a clear picture of the business’s financial health.

Additional components that can enhance financial projections include sales projections and expense projections. Sales projections estimate future sales based on market research, customer analysis, and competitive analysis ( FreshBooks ). Expense projections provide an estimate of the costs associated with running the business, including fixed and variable expenses.

Realism and Accuracy

When developing financial projections, it is crucial to ensure realism and accuracy. Investors and stakeholders can spot unrealistic projections, so it is essential to present projections that are grounded in reality. While it may be tempting to create impressive projections, a realistic and conservative approach is preferred.

To ensure the realism and accuracy of financial projections, consider the following:

• Thorough Research: Conduct in-depth research to gather data and insights regarding market trends, industry benchmarks, and competitors. This research provides a foundation for realistic projections.
• Key Assumptions: Clearly define the key assumptions underlying the financial projections. Forecasted sales volumes, cost of sales, general administration expenses, and other critical factors should be documented and explained ( Alberta.ca ).
• Start-up Costs: Estimate start-up costs by thoroughly researching the capital required to launch the business. This includes gathering data on potential suppliers for pricing of supplies and materials, as well as exploring borrowing expenses and terms for capital needs ( Alberta.ca ).
• Cash Flow Projections: Cash flow projections are essential for predicting the timing and amount of expected cash inflows and outflows. They help manage working capital, determine the need for additional financing, and ensure the business’s financial stability ( Alberta.ca ).

By developing financial projections that are realistic and accurate, businesses can gain a deeper understanding of their financial outlook and make informed decisions. These projections serve as a guide for setting financial goals, securing funding, and monitoring the performance of the business over time.

Elements of Financial Projections

Financial projections are an integral part of a business plan, providing a clear picture of a company’s expected financial performance. These projections are typically based on forecasting for three key financial statements: the income statement, cash flow statement, and balance sheet. Let’s take a closer look at each of these elements.

Income Statement

The income statement, also known as the profit and loss statement, provides a summary of a company’s revenues, expenses, and net income over a specific period. It showcases the profitability of the business and helps determine its financial viability. Key components of the income statement include:

• Revenue : This represents the total income generated from sales of products or services.
• Cost of Goods Sold (COGS) : This includes the direct costs associated with producing or delivering the products or services.
• Gross Profit : It is calculated by subtracting COGS from the revenue.
• Operating Expenses : These consist of various costs incurred to operate the business, such as salaries, rent, utilities, and marketing expenses.
• Net Income : It is the final figure representing the company’s total profit or loss after deducting all expenses from revenue.

Cash Flow Statement

The cash flow statement provides insights into a company’s cash inflows and outflows over a specified period. It tracks the movement of cash and helps assess a company’s liquidity and ability to meet its financial obligations. The cash flow statement is divided into three sections:

• Operating Activities : This section includes the cash flows resulting from the core operations of the business, such as cash received from customers and cash paid to suppliers and employees.
• Investing Activities : It accounts for the cash flows related to the purchase or sale of long-term assets, investments, or acquisitions.
• Financing Activities : This section reflects the cash flows associated with raising capital, such as issuing or repaying debt, issuing or buying back shares, and distributing dividends.

The net cash flow from these three sections provides the company’s overall change in cash during the specified period.

Balance Sheet

The balance sheet provides a snapshot of a company’s financial position at a specific point in time, showcasing its assets, liabilities, and shareholders’ equity. It offers insights into the company’s solvency, liquidity, and overall financial health. Key elements of the balance sheet include:

• Assets : These represent the resources owned by the company, including cash, accounts receivable, inventory, property, plant, and equipment.
• Liabilities : Liabilities include the company’s debts and financial obligations, such as accounts payable, loans, and accrued expenses.
• Shareholders’ Equity : It represents the residual interest in the company’s assets after deducting liabilities. Shareholders’ equity consists of common stock, retained earnings, and additional paid-in capital.

The balance sheet follows the fundamental accounting equation: Assets = Liabilities + Shareholders’ Equity. This equation ensures that the balance sheet remains balanced.

By including these three elements in the financial projections of a business plan, entrepreneurs can provide potential investors, partners, and stakeholders with a comprehensive understanding of the company’s expected financial performance and its ability to generate profits and manage cash effectively.

Utilization of Financial Projections

Financial projections play a vital role in the business planning process by providing valuable insights into the future financial performance of a company. They serve as a guide for making informed financial decisions and are instrumental in securing funding. Let’s explore how financial projections are utilized in these two important aspects of business.

Financial Decisions

Financial projections are an indispensable tool for making informed financial decisions within a business. By analyzing projected revenues, expenses, and profitability, business owners can evaluate the financial feasibility of various strategies and initiatives. These projections provide a clear picture of the potential financial impact of different courses of action, helping decision-makers prioritize investments, allocate resources, and plan for growth.

Whether it’s assessing the viability of new product development, evaluating the profitability of entering new markets, or determining the financial implications of different pricing strategies, financial projections provide valuable insights to support these critical decisions. By utilizing financial projections, businesses can make well-informed choices that align with their strategic objectives and financial goals.

Securing Funding

Financial projections are a crucial component of any business plan when seeking funding from investors, lenders, or other sources. They provide potential funders with a clear understanding of the company’s financial health, growth potential, and return on investment. Financial projections demonstrate the ability of the business to generate revenue, manage expenses, and generate profits.

Investors and lenders rely on financial projections to assess the viability and sustainability of a business. These projections help them gauge the company’s ability to meet its financial obligations, generate a return on investment, and repay borrowed funds. By providing realistic and accurate financial projections, businesses can enhance their credibility and increase their chances of securing the necessary funding to support their growth plans.

Including detailed financial statements such as the income statement, cash flow statement, and balance sheet in the business plan is essential to substantiate the projected financial performance. These statements provide a comprehensive overview of the financial position, cash flow, and profitability of the business. They help potential funders evaluate the company’s financial stability, assess risks, and make informed funding decisions.

In conclusion, financial projections are not only essential for making internal financial decisions but also crucial for securing funding from external sources. By utilizing accurate and insightful financial projections, businesses can make informed financial decisions and present a compelling case to potential funders. These projections provide a roadmap for financial success and contribute to the overall effectiveness of a business plan.

Team Effort in Financial Planning

When it comes to financial planning in a business, it is often a team effort that involves the input of various stakeholders. These stakeholders play an essential role in developing accurate and realistic financial projections that shape the business plan. Two key aspects of stakeholder involvement are stakeholder involvement itself and stakeholder importance.

Stakeholder Involvement

The development of financial planning documents for a business requires collaboration and input from different stakeholders. These stakeholders may include internal and external accountants, the management team, government staff, and the business owner ( Alberta.ca ). Each stakeholder brings their expertise and perspective to the table, contributing to a comprehensive and well-rounded financial plan.

By involving stakeholders in the financial planning process, businesses can benefit from diverse insights and ideas. Stakeholders with financial expertise can provide valuable input on forecasting methods, assumptions, and financial analysis techniques. The management team, on the other hand, can contribute their knowledge of the business’s goals, strategies, and operational considerations.

The involvement of stakeholders also helps ensure that the financial projections align with the overall business objectives. By collaborating with stakeholders, businesses can create financial plans that are tailored to their specific needs and goals, enhancing the accuracy and relevance of the projections.

Stakeholder Importance

Stakeholders play a crucial role in financial planning as they bring different perspectives and expertise to the table. Each stakeholder has unique insights and knowledge that contribute to the development of accurate and realistic financial projections.

The importance of stakeholders in financial planning extends beyond their expertise. Stakeholders, such as potential investors or partners, may also have a vested interest in the financial success of the business. Their involvement in the financial planning process ensures that their concerns are addressed, and their goals are aligned with the business’s financial objectives.

Moreover, stakeholders provide a level of accountability and oversight in financial planning. As they have a vested interest in the business’s success, they can help monitor and benchmark the financial activities of the business on an ongoing basis. This accountability ensures that the financial projections remain accurate and relevant, allowing the business to make informed decisions and take appropriate actions.

In conclusion, financial planning in a business is a team effort that involves the input of various stakeholders. Their involvement brings diverse perspectives, expertise, and accountability to the development of financial projections. By collaborating with stakeholders, businesses can create accurate and realistic financial plans that align with their goals and facilitate better decision-making.

To learn more about financial planning and its role in creating a comprehensive business plan, check out our articles on how to create a business plan, business plan for startups, competitive analysis in a business plan, and market analysis in a business plan.

Business Planning with Financial Projections

Financial projections play a vital role in the overall business planning process, providing valuable insights and helping shape the direction of a business. Two key aspects where financial projections are integral are feasibility assessment and attracting investors or partners.

Feasibility Assessment

When developing a business plan, conducting a feasibility assessment is crucial to determine the viability of the proposed venture. Financial projections are an essential component of this assessment. By analyzing cash inflows and outlays, income, and balance sheet forecasts, entrepreneurs can gain a clear understanding of the financial feasibility of their business idea.

Financial projections help identify potential shortfalls, assess financing needs, and build a case for business loans. By including different scenarios, such as likely, optimistic, and pessimistic, entrepreneurs can anticipate the financial impact of various strategies and make informed decisions to mitigate risks and optimize outcomes ( BDC ).

Attracting Investors or Partners

Financial projections are vital when seeking external funding or attracting potential investors or partners. They provide projected financial data that creditors and investors can use to evaluate the financial health and growth potential of the business.

Investors and partners rely on financial projections to assess the return on investment and the overall viability of the business. Detailed forecasts of cash inflows and outlays, income, and balance sheets help demonstrate how loans will be repaid, the allocation of funds, and plans for growth ( BDC ).

By presenting well-prepared and realistic financial projections, entrepreneurs can instill confidence in potential investors or partners and showcase their strategic planning and financial management capabilities. These projections assist in effective resource allocation, clear objective setting, and demonstrating a solid foundation for the business ( CFO Selections ).

In summary, financial projections serve as a critical tool for business planning. They aid in conducting feasibility assessments, identifying financing needs, optimizing pricing, planning production, and monitoring cash flow. Moreover, they are instrumental in attracting investors or partners, helping showcase the financial viability and growth potential of the business. By incorporating accurate and well-structured financial projections into a business plan, entrepreneurs can make informed decisions and increase their chances of success.

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Balance Sheet Forecast in a Business Plan

The balance sheet forecast is one of the three main statements for business plan financials, and is sometimes referred to as the statement of financial position.

The balance sheet is in effect a representation of the two sides of the accounting equation . On one side of the balance sheet are the assets (property, plant, equipment, accounts receivables, cash etc.), and on the other side are the methods by which those assets are funded, which can either be liabilities (debt finance, accounts payable etc.) or equity (shareholder capital, and profits retained within the business).

There are many balance sheet formats, the layout below acts as a quick reference, and sets out the most commonly encountered accounting terms when dealing with a business plan balance sheet forecast.

As an example, the annual report for apple shows a typical balance sheet layout.

Use of the Projected Balance Sheet Forecast

The business plan financial section for most businesses tends to concentrate on the income statement and fails to get to grips with the accounting balance sheet. Our financial projections template  always includes the balance sheet template.

• Management should use the projected balance sheet forecast to help identify whether the need for working capital (inventory plus accounts receivable less accounts payable) is growing, and how that need is being funded (cash, overdraft, loans etc).
• They are used by trade suppliers to decide on whether credit is given as they identify the net assets and cash position of the business.
• Bank managers utilise the balance sheet forecast, as they base their lending ratios on certain aspects of it, for example the current ratio = current assets / current liabilities is used to determine liquidity and the risk of non repayment of a loan.
• Balance sheet forecasts are used by investors to decide whether to invest or not and at what price. For example they will look at the debt / equity ratio to determine the level of risk involved

Any number of people could be using your balance sheet forecast to make decisions about your business. It is important that you have an understanding of what information the balance sheet forecast is providing and what that information is telling you.

About the Author

Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.

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Free Financial Projection and Forecasting Templates

By Andy Marker | January 3, 2024

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We’ve collected the top free financial projection and forecasting templates. These templates enable business owners, CFOs, accountants, and financial analysts to plan future growth, manage cash flow, attract investors, and make informed decisions.  On this page, you'll find many helpful, free, customizable financial projection and forecasting templates, including a  1 2-month financial projection template , a  startup financial projection template , a  3-year financial projection template , and a  small business financial forecast template , among others. You’ll also find details on the  elements in a financial projection template ,  types of financial projection and forecasting templates , and  related financial templates .

Simple Financial Projection Template

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Small business owners and new entrepreneurs are the ideal users for this simple financial projection template. Just input your expected revenues and expenses. This template stands out due to its ease of use and focus on basic, straightforward financial planning, making it perfect for small-scale or early-stage businesses. Available with or without sample text, this tool offers clear financial oversight, better budget management, and informed decision-making regarding future business growth. 

Looking for help with your business plan? Check out these  free financial templates for a business plan to streamline the process of organizing your business's financial information and presenting it effectively to stakeholders.

Financial Forecast Template

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This template is perfect for businesses that require a detailed and all-encompassing forecast. Users can input various financial data, such as projected revenues, costs, and market trends, to generate a complete financial outlook. Available with or without example text, this template gives you a deeper understanding of your business's financial trajectory, aiding in strategic decision-making and long-term financial stability. 

These  free cash-flow forecast templates help you predict your business’s future cash inflows and outflows, allowing you to manage liquidity and optimize financial planning.

12-Month Financial Projection Template

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Use this 12-month financial projection template for better cash-flow management, more accurate budgeting, and enhanced readiness for short-term financial challenges and opportunities. Input estimated monthly revenues and expenses, tracking financial performance over the course of a year. Available with or without sample text, this template is ideal for business owners who need to focus on short-term financial planning. This tool allows you to respond quickly to market shifts and plan effectively for the business's crucial first year. 

Download  free sales forecasting templates to help your business predict future sales, enabling better inventory management, resource planning, and decision-making.

Startup Financial Projection Template

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This dynamic startup financial projection template is ideal for startup founders and entrepreneurs, as it's designed specifically for the unique needs of startups. Available with or without example text, this template focuses on clearly outlining a startup's initial financial trajectory, an essential component for attracting investors. Users can input projected revenues, startup costs, and funding sources to create a comprehensive financial forecast.

3-Year Financial Projection Template

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This three-year financial projection template is particularly useful for business strategists and financial planners who are looking for a medium-term financial planning tool. Input data such as projected revenues, expenses, and growth rates for the next three years. Available with or without sample text, this template lets you anticipate financial challenges and opportunities in the medium term, aiding in strategic decision-making and ensuring sustained business growth.

5-Year Financial Forecasting Template

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CFOs and long-term business planners can use this five-year financial forecasting template to get a clear, long-range financial vision. Available with or without example text, this template allows you to plan strategically and invest wisely, preparing your business for future market developments and opportunities. This unique tool offers an extensive outlook for your business’s financial strategy. Simply input detailed financial data spanning five years, including revenue projections, investment plans, and expected market growth. Visually engaging bar charts of key metrics help turn data into engaging narratives.

Small Business Financial Forecast Template

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The small business financial forecast template is tailored specifically for the scale and specific requirements of small enterprises. Business owners and financial managers can simply input data such as projected sales or expenses. Available with or without sample text, this tool offers the ability to do the following: envision straightforward financial planning; anticipate future financial needs and challenges; make informed decisions; and steer the business toward steady growth.

Elements in a Financial Projection Template

The elements in a financial projection template include future sales, costs, profits, and cash flow. This template illustrates expected receivables, payables, and break-even dates. This tool helps you plan for your business's financial future and growth.   

Here are the standard elements in a financial projection template:   

• Revenue Projection: This estimates future income from various sources over a specific period.
• Expense Forecast: This predicts future costs, including both fixed and variable expenses.
• Profit and Loss Forecast:  This projects the profit or loss by subtracting projected expenses from projected revenues.
• Cash-Flow Projection: This assesses the inflows and outflows of cash, indicating liquidity over time.
• Balance Sheet Projection: This predicts the future financial position, showing assets, liabilities, and equity.
• Break-Even Analysis: This calculates the point at which total revenues equal total costs.
• Capital Expenditure Forecast: This estimates future spending on fixed assets such as equipment or property.
• Debt Repayment Plan: This outlines the schedule for paying back any borrowed funds.
• Sales Forecast:  This predicts future sales volume, often broken down by product or service.
• Gross Margin Analysis:  This looks at the difference between revenue and cost of goods sold.

Types of Financial Projection and Forecasting Templates

There are many types of financial projection and forecasting templates: basic templates for small businesses; detailed ones for big companies; special ones for startup businesses; and others. There are also sales forecasts, cash-flow estimates, and profit and loss projections. 

In addition, financial projection and forecasting templates include long-term planning templates, break-even analyses, budget forecasts, and templates made for specific industries such as retail or manufacturing. 

Each template serves different financial planning needs. Determine which one best suits your requirements based on the scale of your business, the complexity of its financial structure, and the specific department that you want to analyze.

Here's a list of the top types of financial projection and forecasting templates:  

• Basic Financial Projection Template: Ideal for small businesses or startups, this template provides a straightforward approach to forecasting revenue, expenses, and cash flow.
• Detailed Financial Projection Template: Best for larger businesses or those with complex financial structures, this template offers in-depth projections, including balance sheets, income statements, and cash-flow statements.
• Startup Financial Projection Template: Tailored for startups, this template focuses on funding requirements and early-stage revenue forecasts, both crucial for attracting investors and planning initial operations. 
• Sales Forecasting Template:  Used by sales and marketing teams to predict future sales, this template helps you set targets and plan marketing strategies. 
• Cash-Flow Forecast Template: Essential for financial managers who need to monitor the liquidity of the business, this template projects cash inflows and outflows over a period. 
• Profit and Loss Forecast Template (P&L):  Useful for business owners and financial officers who need to anticipate profit margins, this template enables you to forecast revenues and expenses.  
• Three-Year / Five-Year Financial Projection Template: Suitable for long-term business planning, these templates provide a broader view of your company’s financial future, improving your development strategy and investor presentations. 
• Break-Even Analysis Template:  Used by business strategists and financial analysts, this template helps you determine when your business will become profitable. 
• Budget Forecasting Template:  Designed for budget managers, this template uses historical financial data to help you plan your future spending. 
• Sector-Specific Financial Projection Template:  Designed for specific industries (such as retail or manufacturing), these templates take into account industry-specific factors and benchmarks.

Related Financial Templates

Check out this list of free financial templates related to financial projections and forecasting. You'll find templates for budgeting, tracking profits and losses, planning your finances, and more. These tools help keep your company’s money matters organized and clear.

Free Project Budget Templates

Use one of these  project budget templates to maintain control over project finances, ensuring costs stay aligned with the allocated budget and improving overall financial management.

Free Monthly Budget Templates

Use one of these  monthly budget templates to effectively track and manage your business’s income and expenses, helping you plan financially and save money.

Free Expense Report Templates

Use one of these  expense report templates to systematically track and document all business-related expenditures, ensuring accurate reimbursement and efficient financial record-keeping.

Free Balance Sheet Templates

Use one of these  balance sheet templates to summarize your company's financial position at a given time.

Free Cash-Flow Forecast Templates

Use one of these  cash-flow forecast templates to predict future cash inflows and outflows, helping you manage liquidity and make informed financial decisions.

Free Cash-Flow Statement Templates

Use one of these  cash-flow statement templates to track the movement of cash in and out of your business, so you can assess your company’s level of liquidity and financial stability.

Free Discounted Cash-Flow (DCF) Templates

Use one of these  discounted cash-flow (DCF) templates to evaluate the profitability of investments or projects by calculating their present value based on future cash flows.

Free Financial Dashboard Templates

Use one of these  financial dashboard templates to get an at-a-glance view of key financial metrics, so you can make decisions quickly and manage finances effectively.

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Free financial planning templates.

Use one of these  financial planning templates to strategically organize and forecast future finances, helping you set realistic financial goals and ensure long-term business growth.

Free Profit and Loss (P&L) Templates

Use one of these  profit and loss (P&L) templates to systematically track income and expenses, giving you a clear picture of your company's profitability over a specific period.

Free Billing and Invoice Templates

Use one of these  billing and invoice templates to streamline the invoicing process and ensure that you bill clients accurately and professionally for services or products.

Plan and Manage Your Company’s Financial Future with Financial Projection and Forecasting Templates from Smartsheet

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What Is a Projected Balance Sheet and How Do You Create One?

Last Updated August 28, 2024

Planning for future growth is an obvious critical component of running a business, but how to do this effectively is not quite as obvious.

This is where a projected balance sheet comes into play. This document is a great tool for forecasting future financial position, anticipating financial needs, managing cash flow , and making more informed, strategic decisions down the line.

This guide will help you understand what a projected balance sheet is, why it’s so essential, and how to create a projected balance sheet as you ultimately learn how to build a reliable and accurate financial forecast.

What Is a Projected Balance Sheet?

A projected balance sheet, also known as a pro forma balance sheet, estimates a company’s future financial position. Unlike a standard balance sheet that reflects past performance, it forecasts assets, liabilities, and equity based on expected financial activities.

This balance sheet projection includes current and long-term assets (like cash and property), liabilities (such as accounts payable and loans), and equity (owners’ interest after liabilities).

Projected balance sheets help businesses anticipate financial needs, manage cash flow, and plan for growth. They provide valuable insights for investors, lenders, and management. Pro forma balance sheets are an essential tool for strategic planning, budgeting, and financial management. They offer a snapshot of a company’s anticipated financial health.

Why Creating a Balance Sheet Forecast Is Important

A balance sheet forecast helps businesses anticipate future financial conditions and prepare for potential challenges and opportunities. By projecting assets, liabilities, and equity, companies can better manage cash flow, plan for investments, and appropriately allocate resources.

A balance sheet forecast provides valuable insights for stakeholders, such as investors and lenders. It demonstrates the company’s financial stability and growth potential. The document assists in securing funding by showcasing the expected financial health of the business.

Moreover, forecasting supports strategic decision-making, which means management can set realistic goals and make informed choices. It identifies potential financial shortfalls and surpluses and guides corrective actions and strategic initiatives. Overall, a balance sheet forecast is a proactive tool for financial planning and sustainable business growth.

Considerations to Ensure Maximum Accuracy for Your Projected Balance Sheet

For a projected balance sheet to offer valuable insights, it must be accurate. Here are some key factors to keep in mind:

Historical Data Analysis

Start with a thorough analysis of historical financial data. This includes examining past balance sheets, income statements, and cash flow statements . These historical trends and patterns in assets, liabilities, and equity provide the needed information for making accurate projections. Use this data to establish a baseline for future estimates.

Integration With Financial Statements

A robust balance sheet forecast should not be created in isolation. Ensure your projections align with forecasts for the income statement and cash flow statement. The income statement influences net income, which affects earnings. Meanwhile, the cash flow statement shows changes in cash and cash equivalents.

Scenario Planning and Sensitivity Analysis

Conduct scenario planning to stimulate various strategic moves and market conditions. This helps assess potential impacts on your financial health. Additionally, perform sensitivity analysis to understand how changes in key assumptions affect your projections. This allows for adjustments based on different economic or business scenarios.

Incorporate Strategic Initiatives

Factor in any known future events such as acquisitions, divestitures, or capital expenditures. These strategic plans can significantly impact the structure of your balance sheet. Ensure these initiatives accurately reflect your projects to provide a realistic financial outlook.

Regular Review and Adjustment

Balance sheet forecasting is an iterative process. Regularly compare actual outcomes to your forecast to refine assumptions and methodologies. This review process ensures that your projects remain realistic and accurate over time.

Consistency and Reasonableness

Critically evaluate your projected balance sheet for consistency and reasonableness. This is an important key to maintaining credibility and accuracy.

What to Include on Your Projected Balance Sheet

When creating a projected balance sheet, include all relevant categories that reflect the company’s anticipated financial position. These categories are typically divided into assets, liabilities, and equity.

Below, we detail what each of these categories should include, along with examples.

Assets are resources owned by the company that are expected to provide future economic benefits. They are divided into current and long-term assets.

• Cash and Cash Equivalents: Liquid assets like cash in hand or bank accounts.
• Accounts Receivable: Money owed to the company by customers for goods or services delivered.
• Inventory: Goods available for sale or raw materials used in production.
• Prepaid Expenses: Payments made in advance for services to be received in the future, such as insurance premiums.
• Property, Plant, and Equipment (PP&E): Tangible assets like buildings, machinery, and equipment.
• Intangible Assets: Non-physical assets such as patents, trademarks, and goodwill.
• Long-Term Investments: Investments that the company intends to hold for more than one year, such as stocks and bonds.

Related: Fixes Assets vs. Current Assets

Liabilities

Liabilities are obligations that the company must pay in the future. They are divided into current and long-term liabilities.

• Accounts Payable: Money owed to suppliers for goods or services received.
• Short-Term Debt: Loans or borrowings that need to be repaid within a year.
• Accrued Expenses: Expenses that have been incurred but not yet paid, such as wages and utilities.
• Deferred Revenue: Money received for goods or services that have not yet been delivered.
• Long-Term Debt: Loans or bonds payable over a period longer than one year.
• Deferred Tax Liabilities: Taxes owed in the future due to temporary differences between accounting and tax treatment of assets and liabilities.
• Lease Obligations: Long-term lease agreements for property or equipment.

Equity represents the owners’ residual interest in the company after liabilities have been deducted from assets. It includes:

• Common Stock: The par value of common shares issued.
• Additional Paid-In Capital: The amount received from shareholders in excess of the par value of the stock.
• Retained Earnings: Accumulated net income that has been retained in the company rather than distributed as dividends.
• Treasury Stock: The value of shares that the company has repurchased and holds in its treasury.

How to Make a Projected Balance Sheet

There are several key steps to creating an accurate and comprehensive projected balance sheet. This process helps businesses anticipate future financial positions and plan accordingly.

Here’s a step-by-step guide to making a projected balance sheet.

1. Gather Historical Data

Start by collecting historical financial statements, including past balance sheets, income statements , and cash flow statements . Analyze these documents to understand trends and patterns in assets, liabilities, and equity. This historical context forms the baseline for your future projections .

2. Forecast Revenue and Expenses

Next, project future sales and expenses based on market research, industry trends, and internal data. Consider factors like seasonality, economic conditions, and competitive landscape. Accurate revenue and expense forecasts impact many balance sheet items, including accounts receivable, inventory, and accounts payable .

3. Estimate Future Asset Values

Forecast the values of current and long-term assets. For current assets, such as cash, accounts receivable, and inventory, use projected sales and production levels. Adjust long-term assets, like property and equipment, for depreciation and anticipated investments.

4. Predict Liabilities

Estimate future obligations by considering expected business activities and financial commitments. Project accounts payable, short-term debt, and accrued expenses based on historical trends and anticipated changes. For long-term liabilities, factor in repayment schedules for existing loans and potential new debt .

5. Calculate Shareholders’ Equity

Determine changes in shareholders’ equity by forecasting retained earnings, additional capital contributions, and dividends. This involves projecting net income from the income statement and deciding on dividend payouts based on historical patterns or strategic goals.

6. Review and Adjust

Finally, critically evaluate your projected balance sheet for accuracy and consistency. Regularly compare it to actual outcomes and adjust assumptions as needed. Conduct sensitivity analysis to understand how changes in key variables affect your projections. This iterative process helps refine your forecast and maintain its reliability.

In-Summary: What Is a Projected Balance Sheet?

An important aspect of business accounting is not just reviewing past and current performance but planning ahead.

A projected balance sheet, or pro forma balance sheet, forecasts a company’s future financial position, detailing expected assets, liabilities, and equity. It differs from historical balance sheets by focusing on anticipated future performance based on assumptions and financial projections.

Essential for strategic planning, it helps businesses manage cash flow, secure funding, and make informed decisions by providing insights into their future financial health. This tool integrates with the other essential financial statements to ensure a comprehensive view of the company’s projected financial status .

Projected Balance Sheet FAQs

What is the difference between a projected and an estimated balance sheet.

A projected balance sheet is a detailed financial statement that forecasts a company’s future financial position based on specific assumptions and planned activities. In contrast, an estimated balance sheet approximates future financial conditions using simpler, less detailed calculations. The projected balance sheet is generally more precise and is used for strategic planning, while the estimated balance sheet provides a rough approximation for immediate needs .

What is financial modeling?

Financial modeling involves creating a detailed representation of a company’s financial performance, often using spreadsheets. It includes forecasting future revenues, expenses, assets, liabilities, and equity. These models help businesses assess the impact of various scenarios and decisions on their financial health. Financial modeling is essential for budgeting, investment analysis, and strategic planning .

What factors should you consider when making financial projections?

When making financial projections, consider factors such as historical financial data, market trends, economic conditions, and business strategies. Account for potential changes in revenue, expenses, and capital expenditures. Incorporate assumptions about growth rates, cost structures, and external factors like regulatory changes. Regularly review and adjust these projections based on actual performance.

What are balance sheet forecast methods?

Balance sheet forecast methods include historical trend analysis, the percentage of sales method, and driver-based modeling. Historical trend analysis uses past data to predict future values. The percentage of sales method projects balance sheet items as a percentage of forecasted sales. Driver-based modeling links balance sheet items to specific business drivers, such as production volumes or market conditions.

Michael McCareins is the Content Marketing Associate at altLINE, where he is dedicated to creating and managing optimal content for readers. Following a brief career in media relations, Michael has discovered a passion for content marketing through developing unique, informative content to help audiences better understand ideas and topics such as invoice factoring and A/R financing.

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