Balance Sheet Forecasting

Traditionally, few CFOs have taken the time to forecast their balance sheets, preferring to rely on their P&Ls to monitor their cash levels. This is primarily due to the difficulty – i.e. near impossibility – of trying to do it in Excel. But the balance sheet provides critical details that you could easily miss in your P&L. 

Assume you know your company has earned $1 million in revenue for a month, and has $800K in expenses. Your P&L would indicate that you have $200K in cash on hand when in fact, that may not be the case at all. Your sales team may have offered unusually long payment terms for a client, meaning you won’t realize a chunk of revenue until some point in the future. And although you’ve incurred $800K in expenses, your own payment terms may mean you don’t need to pay an invoice immediately or all at once.