How to Create a Financial Forecast for Your Startup Business Plan

financial forecasting for small business

Ratio analysis is an advanced step, so just keep moving if you’re satisfied with the analysis you got in step three. Just like every good movie, start with a dream sequence (wait, what?). Actually take out a piece of paper and a pen, or make a vision board, or write a letter to your future self to articulate where you see your business.

financial forecasting for small business

Budgeting is the action plan of finances driven by managers and goals for the company. Financial forecasting is predicting the economic conditions and performance of the company in the future. What you’re selling has to cost something, and this budget is where you need to show your expenses. These include the cost to your business of the units being sold in addition to overhead. It’s a good idea to break down your expenses by fixed costs and variable costs. For example, certain expenses will be the same or close to the same every month, including rent, insurance, and others.

Budget planning

Depending on the forecasting software, companies can model cashflow, costs, and other key metrics based on their financial data and business goals. By analyzing different potential scenarios, you will create a dynamic business plan that you can adjust as conditions change. We help you create financial forecasts that are easy, understandable, and actionable. A projected income statement shows how much you expect in revenue and profit—as well as your estimated expenses and losses—over a specific time in the future. Like a standard income statement, elements on a projection include revenue, COGS, and expenses that you’ll calculate to determine figures such as the business’s gross profit margin and net income. Creating financial projections may be a necessary exercise for many businesses, particularly those that do not have sufficient cash flow or need to rely on customer credit to maintain operations.

The only difference is that you prepare pro forma statements in advance, for future months and years. Start by taking two or three years of historical financial statements and analyzing the results. An accountant who is familiar with your industry will know the average expenses, sales, and profits a well-run business can expect.


In this case, many entrepreneurs make their predictions using industry trends, market analysis demonstrating the population of potential customers and consumer trends. A sales forecast shows investors and lenders that you have a solid understanding of your target market and a clear vision of who will buy your product or service. Easily import your data from QBO and you’ll soon be planning, budgeting, and forecasting in Profit Frog. You’ll be able to generate dynamic forecasts of future financial performance and profitability under different scenarios. The first step for a financial forecast starts with projecting your business’s sales, which are typically derived from past revenue as well as industry research.

As previously mentioned, financial forecasting helps to make informed decisions, as well as back critical business decisions with real numbers fetched from the business’s historical data. financial forecast for startups A sales forecast typically breaks down monthly sales by unit and price point. Beyond year two of being in business, the sales forecast can be shown quarterly, instead of monthly.

Income Statement Calculations

Forecasting is fundamental to Finance and FP&A and is used by organizations across the globe as the basis for decision-making. FP&A typically works with the c-suite and the broader business to gather data, determine market trends and shifts, and ultimately develop forecasts. Take SCORE’s online course on-demand on financial projections or connect with a SCORE mentor online or in your community today. If you’re putting together a forecast as part of a loan application, the lender will tell you how far to project.

financial forecasting for small business

When you’re running a small business, you need a map that keeps you on the right road to reach your goals. For instance, if the previous year’s growth rate was 15%, straight-line forecasting anticipates a continued 15% growth for the upcoming year. At the end of the day, you want to choose a forecasting method that works for you and your small business. Forecasting shouldn’t be a dreaded exercise, but an embraced tool to help you run your business effectively. Running a business can be uncertain in normal times; add a global pandemic to the mix, and it may be impossible to tell how your business will fare in a week, let alone a year. Lower fixed costs mean less risk, which might be theoretical in business schools but are very concrete when you have rent and payroll checks to sign.

Without cash flow forecasting, a business may not know when cash is expected to come in or leave, and how much capital they have left to work with in the meantime. Cash flow forecasting helps small and medium-sized businesses plan for cash flow gaps and sustain business operations, even during sudden financial setbacks. Thousands of people have transformed the way they plan their business through our ground-breaking financial forecasting software. Creating a financial forecast is an essential step for any business looking to achieve its goals and remain financially stable. However, for new businesses or those launching new products, it can be challenging to create a forecast without any historical data to refer to. In this blog post, we will explore how ChatGPT can be used for financial forecasting, a crucial component of any comprehensive business strategy.

financial forecasting for small business

Effective forecasting relies on pairing quantitative insight with creative evaluation. Taking what you know and what you believe could happen near term, you can plan for what comes next. Oracle PCBS is suited to large enterprises that combine financial and operational planning and have existing investments in Oracle solutions. Oracle Hyperion Planning is built for large organizations looking for an enterprise-grade performance planning management solution integrated with other Oracle solutions. Planful and Anaplan are both tailored toward larger companies with an affinity for engaging implementation consultants and support. Planful is better for FP&A teams looking to expand their influence in decision-making and business strategy.

A fractional CFO is an experienced CFO who provides services for organizations in a part-time, retainer, or contract arrangement. This offers a company the experience and expertise of a high-end CFO without the in-house cost—salary, benefits, and bonuses—of a… The difference between a complete and accurate forecast compared to an incomplete or inaccurate one are astronomical.

  • While the intrigue behind a project is what gets business owners through the door, no investor wants to write a check based on a hope and a prayer.
  • Your company can utilize seven key financial forecasting methods, each with unique nuances that can help create a visual for your financial future.
  • In its simplest form, it involves calculating changes based on historical financial statements.
  • Some forecasting methods take intensive data collection and analysis, and are usually conducted once per year, or when there is economic upheaval (such as a global pandemic).
  • Slack said to create forecasts for different scenarios – for instance, a forecast for a nationwide pandemic recovery and one that plans for more shutdowns and restrictions.

Compiling financial information, knowing your market, and understanding what your potential investors are looking for can enable you to make intelligent decisions about your assets and resources. It’s important to consider both the pros and cons of using ChatGPT for financial forecasting and planning, and to evaluate whether it is the right tool for your business needs. There are a few key differences between budgeting and financial forecasting, but smart business owners understand and use both to increase profits. Budgeting and financial forecasting should impact one another for maximum effect. Just like budgets, financial forecasts can be created for specific purposes—sales, capital, demand. The needs of your company and the goals you’re pursuing dictate the data you use and formulas you construct to create meaning for your business.

Sales forecasting

Many companies may lack an in-house CFO with the tools or knowledge to create a financial forecast and to keep the forecast accurate and updated. However, by utilizing an outsourced CFO, businesses regardless of their existing financial team can experience the massive positive impact of a financial forecast. This cost can be significantly reduced through accurate financial forecasting. For example, if you change your sales forecast, you can immediately see how that will impact your profitability and cash flow. If your business has inventory, you can see how changes in inventory levels impact your balance sheet.

How do small businesses make financial projections?

  1. Start With A Sales Projection. For starters, you'll need to project how much your business will make in sales.
  2. Create Your Expense Projection.
  3. Create Your Balance Sheet Projection.
  4. Make Your Income Statement Projection.
  5. Finally, Create Your Cash Flow Projection.