How to Balance Your Forecasted Balance Sheet

A few months ago, I spoke with a financial analyst who didn’t know how to efficiently balance a forecasted balance sheet. It’s a common challenge, so I thought I’d share a simple approach that might help those diving into 3-statement modeling.

The key? 𝗦𝘁𝗮𝗿𝘁 𝘄𝗶𝘁𝗵 𝗮 𝗯𝗮𝗹𝗮𝗻𝗰𝗲𝗱 𝗯𝗮𝗹𝗮𝗻𝗰𝗲 𝘀𝗵𝗲𝗲𝘁 𝗮𝗻𝗱 𝗯𝘂𝗶𝗹𝗱 𝘀𝘁𝗲𝗽 𝗯𝘆 𝘀𝘁𝗲𝗽, rather than trying to fix one that is unbalanced.

Here’s how:
1️⃣ 𝗦𝘁𝗮𝗿𝘁 𝘄𝗶𝘁𝗵 𝗮 𝗯𝗮𝗹𝗮𝗻𝗰𝗲𝗱 𝗯𝗮𝗹𝗮𝗻𝗰𝗲 𝘀𝗵𝗲𝗲𝘁: Set the forecast equal to the prior period. If actuals are correct, total assets should equal total liabilities and equity.
2️⃣ 𝗦𝗲𝘁 𝘂𝗽 𝗮 𝗯𝗹𝗮𝗻𝗸 𝗰𝗮𝘀𝗵 𝗳𝗹𝗼𝘄 𝘀𝘁𝗮𝘁𝗲𝗺𝗲𝗻𝘁: Beginning cash should match the prior period’s ending cash. Since the statement is blank initially, ending cash will equal beginning cash to start.
3️⃣ 𝗖𝗼𝗻𝗻𝗲𝗰𝘁 𝗰𝗮𝘀𝗵 𝗳𝗹𝗼𝘄 𝗮𝗻𝗱 𝗯𝗮𝗹𝗮𝗻𝗰𝗲 𝘀𝗵𝗲𝗲𝘁: Cash on the balance sheet should be linked to ending cash on the cash flow statement.
4️⃣ 𝗙𝗼𝗿𝗲𝗰𝗮𝘀𝘁 𝗼𝗻𝗲 𝗹𝗶𝗻𝗲 𝗶𝘁𝗲𝗺: Either add a forecasted line item to the balance sheet and ensure it’s reflected on the cash flow statement, or vice versa.
5️⃣ 𝗖𝗵𝗲𝗰𝗸 𝗮𝗻𝗱 𝗿𝗲𝗽𝗲𝗮𝘁: Verify the balance sheet balances after each adjustment. If it doesn’t, ensure that the accounting is correct until it balances.

It’s that simple. Check out the video for a simplified example.