In order to prepare financial forecasts, based on the double-entry method, transactions are entered in the Budget table. Indicate origin and destination accounts for each one. The program has the information necessary to prepare Balance Sheets and Income statements, that will however relate to the future and not the past.
When one is planning with Excel, the Income statement is set up first, then the revenues and costs are listed. Generally, the liquidity and investment plan is prepared only later and on separate sheets.
When making forecasts with the double-entry method, we proceed instead as if we were keeping an accounting for the future. All the transactions that are expected to occur will be listed. The program will then automatically prepare the Balance Sheet and Profit and Loss account for the indicated period.
Structuring of budget transactions
For the preparation of a financial plan, we generally proceed by listing the different elements in the following order:
- Capital injections.
- Third party capital injections.
- Setting up expenses.
In furniture, equipment.
- Recurring fixed costs.
Rent, staff, social security charges, energy, subscriptions.
- Recurring revenues.
- Variable revenues
The turnover which is typically seasonal.
- Variable costs.
Commissions, costs of the goods sold and others, which are related to the expected volume of revenues.
- Year-end transactions.
Depreciation, taxes, interest on loans, dividends.
By the time you enter sales and variable costs, you already have the cost and capital structure. It will be possible to know instantly, whether the expected turnover will allow the company to generate sufficient profits and liquidity to guarantee its sustainability over time.
Amount and Formula column
As a rule, to prepare a budget, simply use the Amount column.
For more elaborate estimates, there is the possibility of indicating quantities, unit prices, or a formula. The program will automatically calculate the value in the Amount column.
With the double-entry method, thanks to the possibility of indicating each operation in detail, it becomes easier to update and improve the forecast. Initially, estimates of different costs or investments will be entered. As you get closer to the operational phase and there will be more precise data, just replace the existing ones. Even when the activity has started and exact elements are known, the forecast can be updated easily. Precise and reliable indications on profitability and liquidity are thus available.