How to Prepare Projected Balance Sheet for Bank Loan

What is Projected Balance Sheet

A projected balance sheet can be referred as a pro forma balance sheet, which consists of company assets, equity capital and the liabilities for a specific time period. It is a useful tool that can be used to expand the business operations by raising funds that are required for various business activities.

Purpose of Projected balance sheet

A projected balance sheet indicates the expected future changes in the financial statements by considering the future investments, equity financing and the remaining liabilities. Usually businesses tend to prepare projected balance sheet in order to make strategic decisions. When moving towards organizations long term objectives, they may want to expand their businesses and, therefore, they may require huge investments. As a result, they consider about acquiring bank loans to fulfill their requirements. So in order to reveal the requirements of the funds, organizations prepare projected financial statements.

Financial institutions who are lending loans for the business organizations are highly concerned about the current ratio of the company as it indicates the ability of repaying the liabilities with the available assets. Therefore, the projected balance sheet is one of the most important key element that is prepared by an accountant.

When preparing projected balance sheet, businesses make certain assumptions like the increase in future sales income and reducing the expenses. Sales revenue is linked with inventory, accounts receivables and payables and, therefore, projections can be made in those relating to the projected sales revenue. Other items in the balance sheet, particularly fixed assets, debt and equity may vary in accordance with the business’s policies and various senior managerial decisions.