Starting balances are only relevant for existing businesses. If your plan is for a new venture, you don't need to set starting balances in the forecast. (If you need to enter start-up costs in your plan, read this article.) However, if you are the owner of an up-and-running business, you need to provide your balances as of the start of the LivePlan forecast, so your cash on hand and other balance sheet accounts don’t just start from zero and the accumulating totals take those initial balances into account.
Entering starting balances to your financial plan will also ensure that the forecast accurately reflects your performance going forward. For example, the money that you are owed from past sales on credit in month 1 also needs to include any outstanding credit sales due at the start of the plan.
Note that starting balances are currently the only element of past performance that we track, rather than including, say, the profit and loss statements from past years for reference. This is pretty typical. As always, though, if that is a feature you would like to see added, please contact us and let us know.
Setting starting balances
Once you enter your starting balances, a new column will appear in the balance sheet before the first month of the forecast. That is, starting balances effectively becomes the “month 0” column in the balance sheet.
To begin entering your starting balances:
- Click Forecast, and then Balance Sheet:
- Next, click the Set Starting Balances button:
- At the top of the Starting Balances overlay, you'll see an equation expressing that the sum of your liabilities and equity must equal your assets. As you enter or edit values in the overlay, the steps will update to show the current totals:
- Those totals are always in balance. As new values are saved, the retained earnings value (and thus the equity total) is adjusted to ensure that balance.
Note: You can click on Total Assets, Total Liabilities, or Total Equity in the equation to switch to that step of the starting balances process:
Step 1: Total assets
Assets are property that a business owns, including cash and investments, accounts receivable, inventory, office equipment, plant and equipment, etc. While short-term assets (those that can be converted to cash within one year) are entered into the Assets section of the forecast, any long-term assets you owned prior to starting your forecast will be entered here in starting balances. Long-term assets are tangible assets for long-term use, such as equipment, machinery, vehicles, land and buildings, furniture and fixtures.
Long-term (or fixed) assets that you owned prior to starting your forecast are handled a bit differently than those that you plan to purchase in the future. LivePlan adds any new or future assets on "day 0" at the beginning of the forecast. But, the forecast doesn't know anything about assets that came before the beginning of the forecast. So, in this step, you need to tell us the full value of your long-term assets and any depreciation you've claimed on those assets so far.
To enter assets:
- Enter the amount of cash you have in the bank:
Enter the amount your customers owe you for past sales on credit (i.e., outstanding invoices):
From the list, choose how long it will take you to collect on the outstanding past sales on credit:
- Indicate how much your unsold inventory is worth (if you have inventory):
- Enter the full value of your fixed (long-term) assets:
Note: Fixed assets include things that will have a long standing value, such as land or equipment.
- Indicate how much depreciation you've claimed on these assets:
Note: Depreciation is an accounting and tax concept used to estimate the loss in value of an asset over time. Assets depreciate due to wear and tear or by being replaced by newer models/technology. The older an asset gets, the more it depreciates in value. For example, cars depreciate with use and age.
- Enter the number of years over which you'd like to depreciate the remaining value of your fixed assets:
- Click Next to move onto the Total Liabilities step.
Step 2: Total liabilities
Liabilities are debts; money that must be paid back. Usually a liability that you pay back in less than five years is called a short-term debt, and a liability that will take longer than five years to pay back is a long-term debt.
- Enter the amount you owe your vendors for past purchases on credit:
Note: Accounts payable are bills to be paid as part of the normal course of business. This is one of the most common liabilities, which normally appears in the Balance Sheet listing of liabilities. When your business receives goods or services from a vendor, you receive an invoice, and until that invoice is paid, the amount is recorded as part of your Accounts Payable.
- From the list, choose how long it will take you to pay off your past purchases on credit:
- Enter the amount you have saved up to pay your next corporate tax bill:
- Enter the amount of cash you have on hand that is sales tax revenue you'll need to pay to the government:
- LivePlan will automatically calculate your short-term and long-term debt:
Click Next to move on to the Total Equity step.
Step 3: Total equity
- Enter the amount of money that you or others have invested in the business in exchange for equity:
Paid-in capital is money paid into the company as investments. This is not to be confused with par value of stock, or market value of stock. This is actual money paid into the company as equity investments by owners.
- LivePlan calculates your retained earnings automatically, and they are displayed here:
Note: Retained earnings (or losses) are those that have been reinvested into the company, not paid out as dividends to the owners. When retained earnings are negative, the company has accumulated losses. This can also be referred to as "shareholder's equity." If you are a sole proprietor or other pass-through tax entity, “retained earnings” doesn’t really apply to you—your retained earnings will always equal zero, as all profits and losses are passed through to the owners and not rolled over or retained like they are in a corporation.
- Click Save & Close. The Projected Balance Sheet will be updated to display the information you entered.
Editing starting balances
To edit your starting balances, click the Balance Sheet link, and then click the Set Starting Balances button to access your original entries:
Remember, you can go directly to any of the steps in the overlay by clicking on the equation at the top:
Update any entries you need to change in the three sections, and then click Save & Close.