Projected Balance Sheet
& P&L Account

Whether you’re launching a startup or expanding an existing company, two essential tools can guide your way: the Projected Balance Sheet and the Profit and Loss (P&L) Account. They provide the quantitative backbone for your business plan.

What is a Projected Balance Sheet?

While an actual balance sheet provides a snapshot of a company’s financial position at a specific point in the past, a projected balance sheet offers a forward-looking view. It forecasts how the company’s assets, liabilities, and equity will change based on anticipated future activities.

• Assets: Cash, inventory, equipment, accounts receivable, etc.
• Liabilities: Loans, accounts payable, credit lines.
• Equity: Owner’s capital, retained earnings.

What is a Profit and Loss Account?

The Profit and Loss Account, also called the income statement, shows your company’s performance over a forecasted period (monthly, quarterly, or annually). It summarizes your revenues, costs, and expenses to determine the bottom line.

• Revenue/Sales: Total income from goods or services sold.
• Cost of Goods Sold (COGS): Direct costs of production.
• Gross Profit: Revenue minus COGS.
• Net Profit or Loss: What remains after operating expenses are deducted.

Why Are Financial Projections Important?

1. Financial Planning and Budgeting: Creating these projections helps you allocate resources effectively. You’ll know how much cash you’ll have, how much credit you can manage, and how much you can afford to invest.
2. Attracting Investors and Lenders: No investor or bank will fund your business without understanding your future financial health. Projections demonstrate you have a clear plan.
3. Risk Management: Forecast cash flow problems before they arise. If you notice a potential shortfall six months from now, you can act early.
4. Measuring Performance: Comparing actual results to these historical projections helps you understand if your business is on track.

How to Create Projections

Limitations: While projected balance sheets are valuable tools, they rely heavily on assumptions and forecasts, which may not always be 100% accurate. External market shocks can impact their reliability.