Business Plan Balance Sheet Secrets


A business plan balance sheet is a snapshot of a company’s financial position at a particular point in time. It’s a useful tool for evaluating a company’s financial health, comparing one company with another, or for figuring out the financial condition of a company before you buy stock. A balance sheetOpens in a new tab. can be used to determine the profitability of a business. It also shows whether a company is paying off its debts.

For those who are new to the concept of balance sheets, it is the summary of all your company’s property, liabilities, and ownership equity at a specific time. A standard balance sheet will have five major line items:

  • Assets: Your company’s total claimed ownership in monetary value
  • Liabilities: The number of debts that your company owes to others by the date on the balance sheet
  • Equity: The total value of investments that your coworkers or outside party have invested in your company, minus any debts. It is also largely considered a representation of net worth
  • Current Assets: Liquid-type assets that can be turned into cash within a short period.

Business Plan Balance Sheet Example

Here is a sample of a business plan balance sheet. Assets Current assets include cash, investments, accounts receivable, prepaid expenses, and inventory. Non-current assets include real estate, plants, machinery, furniture, and equipment. Total Assets = Current Assets + Non-current Assets Liabilities.

Current Liabilities include debt owed to banks, vendors, suppliers, and customers. Non-current Liabilities include accounts payable and other liabilities owed to creditors.

Total Liabilities = Current Liabilities + Non-current Liabilities Stockholders’ Equity.

The Stockholders’ Equity line item shows owners’ interest in the company. It consists of current and non-current shares of common stock and preferred stock.

 

Pro Forma Balance Sheet
Year 1Year 2Year 3
Current Assets
Cash$188,439$425,797781,604
Accounts Receivable97,000143,370180,238
Other current Assets000
Total Current Assets285,439569,167961,841
Long Term Assets
Long Term Assets000
Accumulated Depreciation000
Total Long Term Assets000
Total Assets285,439569,167961,841
Liabilities and CapitalYear 1Year 2Year 3
Current Liabilities
Accounts Payable32,72037,75150,469
Current Borrowing30000120,000270000
Other Current Liabilities94,720234,720410,720
Subtotal Current Liabilities157,440392,471731,189
Long Term Liabilities49,40059,40059,400
Total Liabilities206,840451,871790,589
Paid in Capital58,00058,00058,000
Retained Earnings020,60059,269
Earnings20,60038,69653,956
Total Capital78,600117,269171,252
Total Liabilities and Capital285,439569,167961,841
Net Worth78,600117,296171,252

What’s included in assets?

The asset section of a business plan balance sheet includes everything that’s owned by your company, including the following: Cash in the bank, plus any investments that your company has made (in other words, it’s the value of what you own that’s not yet being used to pay for expenses).

Inventory: Any goods or materials you plan to sell in the future. This includes raw materials, as well as finished goods. This includes things like clothing, food, or furniture. This also includes any products you plan to manufacture in the future.

Equipment: Anything your company needs to run its operations, like computers, phones, office furniture, etc. This can include office equipment like printers, computers, and phones.

Goods in transit: Any goods that you’re planning to ship to customers. This includes products in transit, like raw materials, or finished products.

What’s included in liabilities?

Current liabilities in a business plan balance sheet are the financial obligations you have to pay in the next year or less. They’re called “current” because they are still being paid, but it won’t be much longer before they are paid off.  Long-term liabilities are items that will be paid over a period of time. They’re known as “long-term” because the time between when you owe them and when you’ll pay them is a long time. 

For example, you have a mortgage, which is a long-term liability. You might have to pay back a loan that you took out to buy a car, like a car loan. That’s a long-term liability.  Long-term obligations are things that are due to you in the future, but they haven’t yet been paid off. They’re called “long-term” because the time between when you owe them and when you’ll pay them is a long time. 

What’s included inequity?

Equity is the amount of money you own in a business. The term comes from the Latin ‘Equitas’, meaning fairness, balance, or proportion. The concept of equity is usually expressed as the ratio of a company’s net assets to its total assets or the ratio of shareholders’ funds to the firm’s total assets.

Importance of a Business Plan Balance Sheet.

A balance sheet is a fundamental tool in evaluating any company. A balance sheet is a financial snapshot of your company at a specific point in time. The balance sheet shows how much money you have in assets, how much you owe in liabilities, and how much equity you have in the company.

A balance sheet is an important tool for evaluating a company’s financial health, comparing one company with another, or for figuring out the financial condition of a company before you buy stock.

For Investors to determine if your business is a good financial investment, their go-to statements are the balance sheet.

They say that “the numbers don’t lie,” and this is true more for financial analysis than anything else. Balance sheets are important for many reasons. When companies consider merging, looking for a buyer, looking for debt refinancing, deciding to sell some assets to reduce debt, or considering an investment, these are all situations in which financial analysis comes in handy.

A company’s balance sheet records a company’s assets, cash flow, current liabilities, and long-term liabilities.

Fundamental analysts attempt to identify companies that will achieve higher returns than the average return of similar investments. By using traditional valuation techniques such as earnings yield, price/earnings ratio, dividend payout ratio, etc., fundamental analysts measure the performance of a company.

Once a company’s characteristics are known, the analyst determines the probability of the company’s growth. Fundamental analysis relies on financial data and generally takes into account long-term trends. Fundamental analysts tend to be conservative, focusing on sound fundamentals, such as stable cash flow, steady revenues, low operating expenses, and solid profit margins. They try to avoid companies with uncertain or unstable business prospects, such as those that depend heavily on fluctuating consumer demand.

This method is appropriate for large-scale investors, such as pension funds and mutual funds. For small Business Investors, fundamental analysis is too costly.

In modern times, the balance sheet is the basic financial statement that any company uses to evaluate its financial position. It is used to show how much money a company owes to its creditors, how much it has in cash, what it owns, and what its current liabilities are.

Many financial advisors, especially accountants, disagree. To them, the most important area on a balance sheet is capital. This is the value of the total amount of assets. The total value of a firm’s assets represents the long-term value of a company, in contrast to the value of short-term investments and the liabilities on a balance sheet. Capital is the key measure of a firm’s value.

James Ndungu

James is a one-on-one business consultant who helps CEOs, executives, and solopreneurs build their personal and professional branding.

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