Balance Sheet Roll Forwards as a Tool in Financial Planning

A balance sheet roll forward, simply put, is when the ending balance from one period is rolled over to the next period, subsequently making the previous ending balance the next period’s starting balance. A roll forward report effectively breaks down all the debit, credit, and cash activity from the previous fiscal period, coming out with an ending balance that can be transferred into the next fiscal year. This process is usually completed as part of the year-end closing and can help to better inform the financial planning for the upcoming fiscal year.

While the concept of a balance sheet roll forward is fairly simple, several factors are necessary to come out with an accurate ending balance to be rolled over into the next fiscal year. Notably, the final balance sheet must be completed after all previous fiscal year costs have been accounted for, and then must be pooled with a conglomeration of all the profit and loss accounts from that fiscal year.

For example, a manufacturing company would use the following formula to calculate their fiscal year’s final balance:

Beginning inventory balance + Purchases/Manufacturing costs + Inventory costs – Cost of sold goods = Ending Balance

Balance sheet roll forwards can also often be used as a form of reconciliation. With proper documentation of profits, costs, losses, etc., a company can match internal finances with external financing, such as a partnering bank. This is a crucial way to ensure that finances are accounted for and tracked for audit purposes.

How can balance sheet roll forwards be used in financial forecasting?

Financial forecasting, at its core, relies on making educated assumptions about the state of a company’s finances in the future based on their past financial decisions. Balance sheets are cumulative of all the profits and losses from the previous fiscal year, thus providing an in-depth look at how a business has fared financially – where the most money was spent, how money was split between accounts, etc.

By analyzing how money was used in the previous fiscal year and having an exact starting balance for the upcoming fiscal year, a company can make educated financial choices, whether that be spending more on hiring new talent, choosing a more cost-effective manufacturer, or raising the price on consumer products.

Strategic iQ is committed to providing precise, accurate, and thorough solutions for all your financial planning needs. From designing your planning system, to implementing it within your unique company, Strategic iQ can ensure your business runs smoothly and effectively based on careful analysis and can guarantee you’re prepared to tackle any tax provision hurdle you encounter.