How this calculator works
Additional funds needed, or AFN, starts with the extra assets a growth plan requires, such as receivables, inventory and equipment. Spontaneous liabilities that rise with sales, such as trade payables and accrued wages, and the profit retained in the business both fund part of that increase. Whatever is left must come from outside sources such as a loan or new equity. Enter each change for the same forecast period.
Formula
AFN = change in assets - change in spontaneous liabilities - addition to retained earnings. A positive result is funding to raise; a negative result is surplus cash.
Worked example
Assets rise by $50,000, payables and accruals rise by $20,000 and retained earnings rise by $15,000. AFN = 50,000 - 20,000 - 15,000 = $15,000 of external funding. If retained earnings rise by $40,000 instead, AFN = -$10,000, leaving a $10,000 surplus.
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Frequently asked questions
What are spontaneous liabilities?
They are short-term liabilities that grow automatically with sales, such as accounts payable and wages payable. Debt and equity are not spontaneous because they are deliberate financing decisions.
Does AFN include interest on the new debt?
No. This simple version treats the funding as a single forecast amount. If the new borrowing is large, its interest cost reduces retained earnings and raises AFN a little, so a second pass is more accurate.
Can I use the percentage-of-sales method?
Yes. Convert each balance to a percentage of sales, multiply the sales growth by those percentages and subtract the forecast addition to retained earnings. The result is the same AFN formula with changes expressed as growth.