To do your financial projections well, you need to start the balance sheet and then adjust it according to assumptions in the cash flow. How you start your balance sheet depends on what numbers you have.
For an Ongoing Company
If you’re an existing or ongoing company, your starting balances for next year’s plan are derived from this year’s plan. The following illustration shows what Garrett’s Projected Balance Sheet looks like at the beginning of next year’s plan. Let’s pretend Garrett’s bicycle shop is an ongoing business. Instead of estimating startup costs, he would start his annual plan for this coming year in October of last year. He would have started it with the last two columns of his planned balance sheet from the previous year’s plan, as shown:
For a Startup
However, Garrett’s bicycle store is a new startup business, so he plans for startup costs. He uses the startup worksheet in this illustration:
And his Projected Balance Sheet has a column for starting balances:
You might notice that the startup has a loss at the beginning. In this case it’s a loss of $3,150. Almost all startups begin with an initial tax loss equal to the startup expenses (don’t be disappointed; that’s the way almost all startups begin. That loss means you’re keeping track of expenses so you can deduct them from taxable income later, when you make a profit).