I stood foot-deep in an empty field, wondering where nearly a million dollars’ worth of fertilizer we had purchased had disappeared. The field looked like nothing. By this point, it was impossible to tell whether anything had actually been “disposed” of here or whether it had been sold off. Either way, it was a straight loss for the company.

And we missed it. Yes, you could blame inventory controls (and we did), but the deeper issue was finance. We had no real supply chain budget, no true balance sheet overview because we had simply “taken the numbers.” That disconnect meant our balance sheet never acted as a check.

It’s a topic rarely discussed in FP&A, mostly because teams spend their time buried in expenses rather than working capital. But budgeting a balance sheet and building a supply chain overview are critical to managing uncertainty. And, in this time where tariffs are changing, supply chains are shifting, the last thing you want to be is flat-footed having to write off millions in inventory mistakes.

And yes, it can be quite difficult because of course the balance sheet is a snapshot in time. This means that timing differences can cause things to be wonky when inventory is late, cash is received at a later time, or you pay a key supplier early. But, that doesn’t mean that you shouldn’t be able to plan it and explain the differences at least once a quarter.

If you decide not to budget for the balance sheet, then you can still do a similar analysis. But frankly, it's hard to improve without planning. And, if you haven’t done it before, there is a high chance you will find low hanging fruit.

Let’s get to work.

1. Why budget the balance sheet?

You want to prove that you are working well as a company. The income statement is only one part of the equation and doesn’t even give you a true cash flow. By projecting the balance sheet, you can focus on working capital to prove the engine is working. When you do you can take a better look at:

• Liquidity. Building the balance sheet so all drivers reconcile to cash helps you maintain an accurate cash forecast.

• Working capital management. Link AR, AP, and inventory to operational cadence to surface any hiccups and ward off future income statement issues.

• Debt and financing decisions. Time cash troughs and covenant headroom so you raise debt when leverage is best.

• Risk management. Monitor covenant metrics on the balance sheet to avoid existential risks early.

• Three statement integrity. Tie income, cash flow, and balance sheet so that you have a holistic view of the company.

Yes, it is harder. Timing is trickier than the P&L, but doing this makes the business leaner and reduces surprises.

Tip: Separate by currency to isolate foreign currency effects.

2. Link demand, production, and sales

The balance sheet is primarily driven by a couple of key things like inventory, and receivables that are based on the same operational factors. So:

• Build a working capital schedule. Produce it alongside the P&L on the same cadence, reconcile opening to closing balances, and tie changes back to cash flow.

• Get detailed in inventory, receivables, and payables. Track days, terms, aging, and expected write-offs, and show the trade-offs so you can see how inventory moves through the process.

• Build a clear driver tree with timing. Focus on the few drivers that matter and show how they add up to the balance sheet.

• Work through the timing. Map purchase to receipt to sale to cash, set targets for DIO, DSO, and DPO, and add realistic buffers.

• Run scenarios. Test shocks like a 23 percent supplier delay or a demand spike and quantify the impact on liquidity and covenants.

Focus on what really moves cash and estimate the rest with sensible buffers.

Tip: Spend extra time on seasonality. Use monthly profiles, compare year over year, and pressure test inventory and receivable peaks.

3. Commit to improvements

You have the budgeted balance sheet. Now turn it into action by prioritizing improvements that release cash and reduce risk throughout the year. Some possible steps:

• Measure the Cash Conversion Cycle (CCC). Link target CCC to liquidity runway and covenant headroom, and assign owners for days inventory outstanding, days sales outstanding, and days payable outstanding.

• Diversify suppliers on critical inputs. Qualify a second source for key materials and allocating a standing share so you can switch without delay.

• Assess onshoring and nearshoring. Measure with a total landed cost model that includes transport volatility, tariffs, lead times, and a resilience premium.

• Hedge commodity and currency exposures. Create clear thresholds, hedge ratios, and tenors tied to forecasted volumes and accounting treatment.

• Shape demand. This can include promotions, lead-time quotes, and allocations to protect service levels when supply is tight.

• Quantify your cost of capital. And work to lower it. You should use it to price inventory and payment terms so decisions reflect true cash cost.

This will vary by industry, but the process is the same: test, measure, and scale what works.

4. Simplify with metrics

Boil your balance sheet down to the few basics that really drive cash, and make each one actionable.

• Days in Inventory on Hand. Set a target range by SKU family, compare to industry and cash runway, and publish a weekly exception list with owners and next actions.

• Cash Conversion Cycle. Calculate CCC = DIO + DSO − DPO in every pack, set a target band and work to improve over time.

• Aged inventory and E&O reserve. Produce an aged inventory report that flags when any of your goods could be coming close to expiry.

• Service levels. Track stockouts and fill rates, tie service SLAs to operating reviews, and budget explicit penalties or lost sales when levels dip.

• Working capital turnover. Use Revenue ÷ Net Working Capital, set targets linked to liquidity needs.

Just like the income statement, you want to link operational and financial metrics to make things actionable.

Tip: Start with a one page dashboard of these six, then link to the schedules for detail.

5. Continuously improve

Like the P&L, keep reviewing actuals every cycle and close the loop between forecast and results.

• Build quarterly joint reviews. Finance and Supply Chain should score forecast accuracy, align stock targets, and show the balance sheet impact.

• Run a short post mortem upon misses. Such as after major disruptions to capture which assumptions failed, update driver ranges and lead times.

• Set up an inventory overview. Make a clear real time inventory, cash, and supplier performance dashboard with thresholds, alerts, and a named owner for each metric.

• Track cash forecast accuracy. You should be within 1-2% a month out and 5% three months out

• Maintain a rolling forecast. You can tie this into cash so that you have a 12 to 18 months for P&L, Balance Sheet, and Cash Flow plus a 13-week direct cash view.

Early cycles may be off, but repetition sharpens the model and the operating rhythm, which improves results.

Conclusion

Finance cannot afford to just “take the balance sheet numbers,” the team must model working capital and embed operational realities into planning. Controlling your balance sheet is critical during times of uncertainty.