Equity Method of Forecasting

Abstract

Projecting financial performance into the future is an important task for any business venture, and this is particularly true for new startups that have no track record. This paper examines the common pedagogy of “Percent of Sales Method” forecasting and suggests a new approach using initial equity rather than sales as the starting point for startups without a great deal of historical data. Using an unknown estimate like sales to forecast the remaining unknown values of the balance sheet and income statement is fraught with difficulties. Using a known value such as initial equity might allow the entrepreneur or other financial professionals to develop proforma statements which will be more realistic and perhaps more believable to outside stakeholders.