Proforma Balance Sheet

Your Proforma Balance Sheet is a statement of anticipated net financial position of the business at certain points in the future. It tells the reader of your business plan what you expect your business to be worth after you have been operating for a specified period of time.

Your net financial position is calculated by deducting all of the liabilities from the assets of the business. The difference between your assets and your liabilities equals the investment you have made in the business plus any profits you have made from trading.

The information in your balance presents the following basic accounting equation:

Assets minus Liabilities equals Owners Equity

Although the Balance Sheet is very useful for evaluating the financial performance of a small business, they do have some limitations.

• They present a picture of the business as at a specific date, rather than over time.
• The assets values reported in the Balance Sheet do not necessarily reflect the current or market value. This is because generally the historical cost of an asset, less accumulated depreciation, is used as the basis for valuing and reporting assets.
• While depreciation of long-term assets is a generally accepted practice, the converse is not true. Appreciation or enhancement of assets is generally not recognized in the Balance Sheet unless the assets are formally re-valued or the asset is altered in a material way.
• There may be some items that have a financial value that are not included in the Balance Sheet because of the difficulty of assigning an objective value. An obvious example of this would be the human resources of the business.

What does a Balance Sheet Look Like?

Most balance sheets are presented in a one of two standard formats based on the equation above. The first format follows the equation exactly, and will look a bit like the sample balance sheet below.

The second format is based on a variation of the equation and can be expressed as:

Liabilities plus Owner's Equity equals Assets.

The data in these Balance Sheets is generally presented in two columns, Assets on one side and Liabilities and Equity on the other.

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