how to write a financial forecast for a business plan

• Start free trial

Start selling with Shopify today

Start your free trial with Shopify today—then use these resources to guide you through every step of the process.

How To Create Financial Projections for Your Business Plan

Building a financial projection as you write out your business plan can help you forecast how much money your business will bring in.

Planning for the future, whether it’s with growth in mind or just staying the course, is central to being a business owner. Part of this planning effort is making financial projections of sales, expenses, and—if all goes well—profits.

Even if your business is a startup that has yet to open its doors, you can still make projections. Here’s how to prepare your business plan financial projections, so your company will thrive.

What are business plan financial projections?

Business plan financial projections are a company’s estimates, or forecasts, of its financial performance at some point in the future. For existing businesses, draw on historical data to detail how your company expects metrics like revenue, expenses, profit, and cash flow to change over time.

Companies can create financial projections for any span of time, but typically they’re for between one and five years. Many companies revisit and amend these projections at least annually. 

Creating financial projections is an important part of building a business plan . That’s because realistic estimates help company leaders set business goals, execute financial decisions, manage cash flow , identify areas for operational improvement, seek funding from investors, and more.

What are financial projections used for? 

Financial forecasting serves as a useful tool for key stakeholders, both within and outside of the business. They often are used for:

Business planning

Accurate financial projections can help a company establish growth targets and other goals . They’re also used to determine whether ideas like a new product line are financially feasible. Future financial estimates are helpful tools for business contingency planning, which involves considering the monetary impact of adverse events and worst-case scenarios. They also provide a benchmark: If revenue is falling short of projections, for example, the company may need changes to keep business operations on track.

Projections may reveal potential problems—say, unexpected operating expenses that exceed cash inflows. A negative cash flow projection may suggest the business needs to secure funding through outside investments or bank loans, increase sales, improve margins, or cut costs.

When potential investors consider putting their money into a venture, they want a return on that investment. Business projections are a key tool they will use to make that decision. The projections can figure in establishing the valuation of your business, equity stakes, plans for an exit, and more. Investors may also use your projections to ensure that the business is meeting goals and benchmarks.

Loans or lines of credit 

Lenders rely on financial projections to determine whether to extend a business loan to your company. They’ll want to see historical financial data like cash flow statements, your balance sheet , and other financial statements—but they’ll also look very closely at your multi-year financial projections. Good candidates can receive higher loan amounts with lower interest rates or more flexible payment plans.

Lenders may also use the estimated value of company assets to determine the collateral to secure the loan. Like investors, lenders typically refer to your projections over time to monitor progress and financial health.

What information is included in financial projections for a business?

Before sitting down to create projections, you’ll need to collect some data. Owners of an existing business can leverage three financial statements they likely already have: a balance sheet, an annual income statement , and a cash flow statement .

A new business, however, won’t have this historical data. So market research is crucial: Review competitors’ pricing strategies, scour research reports and market analysis , and scrutinize any other publicly available data that can help inform your projections. Beginning with conservative estimates and simple calculations can help you get started, and you can always add to the projections over time.

One business’s financial projections may be more detailed than another’s, but the forecasts typically rely on and include the following:

True to its name, a cash flow statement shows the money coming into and going out of the business over time: cash outflows and inflows. Cash flows fall into three main categories:

Income statement

Projected income statements, also known as projected profit and loss statements (P&Ls), forecast the company’s revenue and expenses for a given period.

Generally, this is a table with several line items for each category. Sales projections can include the sales forecast for each individual product or service (many companies break this down by month). Expenses are a similar setup: List your expected costs by category, including recurring expenses such as salaries and rent, as well as variable expenses for raw materials and transportation.

This exercise will also provide you with a net income projection, which is the difference between your revenue and expenses, including any taxes or interest payments. That number is a forecast of your profit or loss, hence why this document is often called a P&L.

Balance sheet

A balance sheet shows a snapshot of your company’s financial position at a specific point in time. Three important elements are included as balance sheet items:

• Assets. Assets are any tangible item of value that the company currently has on hand or will in the future, like cash, inventory, equipment, and accounts receivable. Intangible assets include copyrights, trademarks, patents and other intellectual property .
• Liabilities. Liabilities are anything that the company owes, including taxes, wages, accounts payable, dividends, and unearned revenue, such as customer payments for goods you haven’t yet delivered.
• Shareholder equity. The shareholder equity figure is derived by subtracting total liabilities from total assets. It reflects how much money, or capital, the company would have left over if the business paid all its liabilities at once or liquidated (this figure can be a negative number if liabilities exceed assets). Equity in business is the amount of capital that the owners and any other shareholders have tied up in the company.

They’re called balance sheets because assets always equal liabilities plus shareholder equity. 

5 steps for creating financial projections for your business

• Identify the purpose and timeframe for your projections
• Collect relevant historical financial data and market analysis
• Forecast expenses
• Forecast sales
• Build financial projections

The following five steps can help you break down the process of developing financial projections for your company:

1. Identify the purpose and timeframe for your projections

The details of your projections may vary depending on their purpose. Are they for internal planning, pitching investors, or monitoring performance over time? Setting the time frame—monthly, quarterly, annually, or multi-year—will also inform the rest of the steps.

2. Collect relevant historical financial data and market analysis

If available, gather historical financial statements, including balance sheets, cash flow statements, and annual income statements. New companies without this historical data may have to rely on market research, analyst reports, and industry benchmarks—all things that established companies also should use to support their assumptions.

3. Forecast expenses

Identify future spending based on direct costs of producing your goods and services ( cost of goods sold, or COGS) as well as operating expenses, including any recurring and one-time costs. Factor in expected changes in expenses, because this can evolve based on business growth, time in the market, and the launch of new products.

4. Forecast sales

Project sales for each revenue stream, broken down by month. These projections may be based on historical data or market research, and they should account for anticipated or likely changes in market demand and pricing.

5. Build financial projections

Now that you have projected expenses and revenue, you can plug that information into Shopify’s cash flow calculator and cash flow statement template . This information can also be used to forecast your income statement. In turn, these steps inform your calculations on the balance sheet, on which you’ll also account for any assets and liabilities .

Business plan financial projections FAQ

What are the main components of a financial projection in a business plan.

Generally speaking, most financial forecasts include projections for income, balance sheet, and cash flow.

What’s the difference between financial projection and financial forecast?

These two terms are often used interchangeably. Depending on the context, a financial forecast may refer to a more formal and detailed document—one that might include analysis and context for several financial metrics in a more complex financial model.

Do I need accounting or planning software for financial projections?

Not necessarily. Depending on factors like the age and size of your business, you may be able to prepare financial projections using a simple spreadsheet program. Large complicated businesses, however, usually use accounting software and other types of advanced data-management systems.

What are some limitations of financial projections?

Projections are by nature based on human assumptions and, of course, humans can’t truly predict the future—even with the aid of computers and software programs. Financial projections are, at best, estimates based on the information available at the time—not ironclad guarantees of future performance.

Keep up with the latest from Shopify

Get free ecommerce tips, inspiration, and resources delivered directly to your inbox.

By entering your email, you agree to receive marketing emails from Shopify.

popular posts

The point of sale for every sale.

Subscribe to our blog and get free ecommerce tips, inspiration, and resources delivered directly to your inbox.

Unsubscribe anytime. By entering your email, you agree to receive marketing emails from Shopify.

Latest from Shopify

Jul 18, 2024

Jul 17, 2024

Jul 16, 2024

Learn on the go. Try Shopify for free, and explore all the tools you need to start, run, and grow your business.

Try Shopify for free, no credit card required.

How to Write a Financial Plan for a Business Plan

Noah Parsons

4 min. read

Updated July 11, 2024

Creating a financial plan for a business plan is often the most intimidating part for small business owners.

It’s also one of the most vital. Businesses with well-structured and accurate financial statements are more prepared to pitch to investors, receive funding, and achieve long-term success.

Thankfully, you don’t need an accounting degree to successfully create your budget and forecasts.

Here is everything you need to include in your business plan’s financial plan, along with optional performance metrics, funding specifics, mistakes to avoid , and free templates.

• Key components of a financial plan in business plans

A sound financial plan for a business plan is made up of six key components that help you easily track and forecast your business financials. They include your:

Sales forecast

What do you expect to sell in a given period? Segment and organize your sales projections with a personalized sales forecast based on your business type.

Subscription sales forecast

While not too different from traditional sales forecasts—there are a few specific terms and calculations you’ll need to know when forecasting sales for a subscription-based business.

Expense budget

Create, review, and revise your expense budget to keep your business on track and more easily predict future expenses.

How to forecast personnel costs

How much do your current, and future, employees’ pay, taxes, and benefits cost your business? Find out by forecasting your personnel costs.

Profit and loss forecast

Track how you make money and how much you spend by listing all of your revenue streams and expenses in your profit and loss statement.

Cash flow forecast

Manage and create projections for the inflow and outflow of cash by building a cash flow statement and forecast.

Balance sheet

Need a snapshot of your business’s financial position? Keep an eye on your assets, liabilities, and equity within the balance sheet.

What to include if you plan to pursue funding

Do you plan to pursue any form of funding or financing? If the answer is yes, you’ll need to include a few additional pieces of information as part of your business plan’s financial plan example.

Highlight any risks and assumptions

Every entrepreneur takes risks with the biggest being assumptions and guesses about the future. Just be sure to track and address these unknowns in your plan early on.

Plan your exit strategy

Investors will want to know your long-term plans as a business owner. While you don’t need to have all the details, it’s worth taking the time to think through how you eventually plan to leave your business.

• Financial ratios and metrics

With your financial statements and forecasts in place, you have all the numbers needed to calculate insightful financial ratios.

While including these metrics in your financial plan for a business plan is entirely optional, having them easily accessible can be valuable for tracking your performance and overall financial situation.

Key financial terms you should know

It’s not hard. Anybody who can run a business can understand these key financial terms. And every business owner and entrepreneur should know them.

Common business ratios

Unsure of which business ratios you should be using? Check out this list of key financial ratios that bankers, financial analysts, and investors will want to see.

Break-even analysis

Do you want to know when you’ll become profitable? Find out how much you need to sell to offset your production costs by conducting a break-even analysis.

How to calculate ROI

How much could a business decision be worth? Evaluate the efficiency or profitability by calculating the potential return on investment (ROI).

• How to improve your financial plan

Your financial statements are the core part of your business plan’s financial plan that you’ll revisit most often. Instead of worrying about getting it perfect the first time, check out the following resources to learn how to improve your projections over time.

Common mistakes with business forecasts

I was glad to be asked about common mistakes with startup financial projections. I read about 100 business plans per year, and I have this list of mistakes.

How to improve your financial projections

Learn how to improve your business financial projections by following these five basic guidelines.

Brought to you by

Create a professional business plan

Using ai and step-by-step instructions.

Secure funding

Validate ideas

Build a strategy

• Financial plan templates and tools

Download and use these free financial templates and calculators to easily create your own financial plan.

Sales forecast template

Download a free detailed sales forecast spreadsheet, with built-in formulas, to easily estimate your first full year of monthly sales.

Download Template

Accurate and easy financial forecasting

Get a full financial picture of your business with LivePlan's simple financial management tools.

Get Started

Noah is the COO at Palo Alto Software, makers of the online business plan app LivePlan. He started his career at Yahoo! and then helped start the user review site Epinions.com. From there he started a software distribution business in the UK before coming to Palo Alto Software to run the marketing and product teams.

Table of Contents

• What to include for funding

Related Articles

24 Min. Read

The 10 AI Prompts You Need to Write a Business Plan

3 Min. Read

What to Include in Your Business Plan Appendix

6 Min. Read

How to Write Your Business Plan Cover Page + Template

10 Min. Read

How to Write a Competitive Analysis for Your Business Plan

The Bplans Newsletter

The Bplans Weekly

Subscribe now for weekly advice and free downloadable resources to help start and grow your business.

We care about your privacy. See our privacy policy .

The quickest way to turn a business idea into a business plan

Fill-in-the-blanks and automatic financials make it easy.

No thanks, I prefer writing 40-page documents.

Discover the world’s #1 plan building software

• Business Planning

Business Plan Financial Projections

Written by Dave Lavinsky

Financial projections are forecasted analyses of your business’ future that include income statements, balance sheets and cash flow statements. We have found them to be an crucial part of your business plan for the following reasons:

• They can help prove or disprove the viability of your business idea. For example, if your initial projections show your company will never make a sizable profit, your venture might not be feasible. Or, in such a case, you might figure out ways to raise prices, enter new markets, or streamline operations to make it profitable. 
• Financial projections give investors and lenders an idea of how well your business is likely to do in the future. They can give lenders the confidence that you’ll be able to comfortably repay their loan with interest. And for equity investors, your projections can give them faith that you’ll earn them a solid return on investment. In both cases, your projections can help you secure the funding you need to launch or grow your business.
• Financial projections help you track your progress over time and ensure your business is on track to meet its goals. For example, if your financial projections show you should generate $500,000 in sales during the year, but you are not on track to accomplish that, you’ll know you need to take corrective action to achieve your goal.

Below you’ll learn more about the key components of financial projections and how to complete and include them in your business plan.

What Are Business Plan Financial Projections?

Financial projections are an estimate of your company’s future financial performance through financial forecasting. They are typically used by businesses to secure funding, but can also be useful for internal decision-making and planning purposes. There are three main financial statements that you will need to include in your business plan financial projections:

1. Income Statement Projection

The income statement projection is a forecast of your company’s future revenues and expenses. It should include line items for each type of income and expense, as well as a total at the end.

There are a few key items you will need to include in your projection:

• Revenue: Your revenue projection should break down your expected sales by product or service, as well as by month. It is important to be realistic in your projections, so make sure to account for any seasonal variations in your business.
• Expenses: Your expense projection should include a breakdown of your expected costs by category, such as marketing, salaries, and rent. Again, it is important to be realistic in your estimates.
• Net Income: The net income projection is the difference between your revenue and expenses. This number tells you how much profit your company is expected to make.

Sample Income Statement

2. Cash Flow Statement & Projection

The cash flow statement and projection are a forecast of your company’s future cash inflows and outflows. It is important to include a cash flow projection in your business plan, as it will give investors and lenders an idea of your company’s ability to generate cash.

There are a few key items you will need to include in your cash flow projection:

• The cash flow statement shows a breakdown of your expected cash inflows and outflows by month. It is important to be realistic in your projections, so make sure to account for any seasonal variations in your business.
• Cash inflows should include items such as sales revenue, interest income, and capital gains. Cash outflows should include items such as salaries, rent, and marketing expenses.
• It is important to track your company’s cash flow over time to ensure that it is healthy. A healthy cash flow is necessary for a successful business.

Sample Cash Flow Statements

3. Balance Sheet Projection

The balance sheet projection is a forecast of your company’s future financial position. It should include line items for each type of asset and liability, as well as a total at the end.

A projection should include a breakdown of your company’s assets and liabilities by category. It is important to be realistic in your projections, so make sure to account for any seasonal variations in your business.

It is important to track your company’s financial position over time to ensure that it is healthy. A healthy balance is necessary for a successful business.

Sample Balance Sheet

How to Create Financial Projections

Creating financial projections for your business plan can be a daunting task, but it’s important to put together accurate and realistic financial projections in order to give your business the best chance for success.  

Cost Assumptions

When you create financial projections, it is important to be realistic about the costs your business will incur, using historical financial data can help with this. You will need to make assumptions about the cost of goods sold, operational costs, and capital expenditures.

It is important to track your company’s expenses over time to ensure that it is staying within its budget. A healthy bottom line is necessary for a successful business.

Capital Expenditures, Funding, Tax, and Balance Sheet Items

You will also need to make assumptions about capital expenditures, funding, tax, and balance sheet items. These assumptions will help you to create a realistic financial picture of your business.

Capital Expenditures

When projecting your company’s capital expenditures, you will need to make a number of assumptions about the type of equipment or property your business will purchase. You will also need to estimate the cost of the purchase.

When projecting your company’s funding needs, you will need to make a number of assumptions about where the money will come from. This might include assumptions about bank loans, venture capital, or angel investors.

When projecting your company’s tax liability, you will need to make a number of assumptions about the tax rates that will apply to your business. You will also need to estimate the amount of taxes your company will owe.

Balance Sheet Items

When projecting your company’s balance, you will need to make a number of assumptions about the type and amount of debt your business will have. You will also need to estimate the value of your company’s assets and liabilities.

Financial Projection Scenarios

Write two financial scenarios when creating your financial projections, a best-case scenario, and a worst-case scenario. Use your list of assumptions to come up with realistic numbers for each scenario.

Presuming that you have already generated a list of assumptions, the creation of best and worst-case scenarios should be relatively simple. For each assumption, generate a high and low estimate. For example, if you are assuming that your company will have $100,000 in revenue, your high estimate might be $120,000 and your low estimate might be $80,000.

Once you have generated high and low estimates for all of your assumptions, you can create two scenarios: a best case scenario and a worst-case scenario. Simply plug the high estimates into your financial projections for the best-case scenario and the low estimates into your financial projections for the worst-case scenario.

Conduct a Ratio Analysis

A ratio analysis is a useful tool that can be used to evaluate a company’s financial health. Ratios can be used to compare a company’s performance to its industry average or to its own historical performance.

There are a number of different ratios that can be used in ratio analysis. Some of the more popular ones include the following:

• Gross margin ratio
• Operating margin ratio
• Return on assets (ROA)
• Return on equity (ROE)

To conduct a ratio analysis, you will need financial statements for your company and for its competitors. You will also need industry average ratios. These can be found in industry reports or on financial websites.

Once you have the necessary information, you can calculate the ratios for your company and compare them to the industry averages or to your own historical performance. If your company’s ratios are significantly different from the industry averages, it might be indicative of a problem.

Be Realistic

When creating your financial projections, it is important to be realistic. Your projections should be based on your list of assumptions and should reflect your best estimate of what your company’s future financial performance will be. This includes projected operating income, a projected income statement, and a profit and loss statement.

Your goal should be to create a realistic set of financial projections that can be used to guide your company’s future decision-making.

Sales Forecast

One of the most important aspects of your financial projections is your sales forecast. Your sales forecast should be based on your list of assumptions and should reflect your best estimate of what your company’s future sales will be.

Your sales forecast should be realistic and achievable. Do not try to “game” the system by creating an overly optimistic or pessimistic forecast. Your goal should be to create a realistic sales forecast that can be used to guide your company’s future decision-making.

Creating a sales forecast is not an exact science, but there are a number of methods that can be used to generate realistic estimates. Some common methods include market analysis, competitor analysis, and customer surveys.

Create Multi-Year Financial Projections

When creating financial projections, it is important to generate projections for multiple years. This will give you a better sense of how your company’s financial performance is likely to change over time.

It is also important to remember that your financial projections are just that: projections. They are based on a number of assumptions and are not guaranteed to be accurate. As such, you should review and update your projections on a regular basis to ensure that they remain relevant.

Creating financial projections is an important part of any business plan. However, it’s important to remember that these projections are just estimates. They are not guarantees of future success.

Business Plan Financial Projections FAQs

What is a business plan financial projection.

A business plan financial projection is a forecast of your company's future financial performance. It should include line items for each type of asset and liability, as well as a total at the end.

What are annual income statements? 

The Annual income statement is a financial document and a financial model that summarize a company's revenues and expenses over the course of a fiscal year. They provide a snapshot of a company's financial health and performance and can be used to track trends and make comparisons with other businesses.

What are the necessary financial statements?

The necessary financial statements for a business plan are an income statement, cash flow statement, and balance sheet.

How do I create financial projections?

You can create financial projections by making a list of assumptions, creating two scenarios (best case and worst case), conducting a ratio analysis, and being realistic.

AI ASSISTANTS

Upmetrics AI Your go-to AI-powered business assistant

AI Writing Assist Write, translate, and refine your text with AI

AI Financial Assist Automated forecasts and AI recommendations

TOP FEATURES

AI Business Plan Generator Create business plans faster with AI

Financial Forecasting Make accurate financial forecasts faster

INTEGRATIONS

QuickBooks (Coming soon...) Sync and compare with your QuickBooks data

Strategic Planning Develop actionable strategic plans on-the-go

AI Pitch Deck Generator Use AI to generate your investor deck

Xero Sync and compare with your Xero data

See how easy it is to plan your business with Upmetrics: Take a Tour  →

AI-powered business planning software

Very useful business plan software connected to AI. Saved a lot of time, money and energy. Their team is highly skilled and always here to help.

- Julien López

BY USE CASE

Secure Funding, Loans, Grants Create plans that get you funded

Starting & Launching a Business Plan your business for launch and success

Validate Your Business Idea Discover the potential of your business idea

E2 Visa Business Plan Create a business plan to support your E2 - Visa

Business Consultant & Advisors Plan with your team members and clients

Incubators & Accelerators Empowering startups for growth

Business Schools & Educators Simplify business plan education for students

Students & Learners Your e-tutor for business planning

• Sample Plans

WHY UPMETRICS?

Reviews See why customers love Upmetrics

Customer Success Stories Read our customer success stories

Blogs Latest business planning tips and strategies

Strategic Planning Templates Ready-to-use strategic plan templates

Business Plan Course A step-by-step business planning course

Help Center Help & guides to plan your business

Ebooks & Guides A free resource hub on business planning

Business Tools Free business tools to help you grow

How to Prepare a Financial Plan for Startup Business (w/ example)

Free Financial Statements Template

Ajay Jagtap

• December 7, 2023

13 Min Read

If someone were to ask you about your business financials, could you give them a detailed answer?

Let’s say they ask—how do you allocate your operating expenses? What is your cash flow situation like? What is your exit strategy? And a series of similar other questions.

Instead of mumbling what to answer or shooting in the dark, as a founder, you must prepare yourself to answer this line of questioning—and creating a financial plan for your startup is the best way to do it.

A business plan’s financial plan section is no easy task—we get that.

But, you know what—this in-depth guide and financial plan example can make forecasting as simple as counting on your fingertips.

Ready to get started? Let’s begin by discussing startup financial planning.

What is Startup Financial Planning?

Startup financial planning, in simple terms, is a process of planning the financial aspects of a new business. It’s an integral part of a business plan and comprises its three major components: balance sheet, income statement, and cash-flow statement.

Apart from these statements, your financial section may also include revenue and sales forecasts, assets & liabilities, break-even analysis , and more. Your first financial plan may not be very detailed, but you can tweak and update it as your company grows.

Key Takeaways

• Realistic assumptions, thorough research, and a clear understanding of the market are the key to reliable financial projections.
• Cash flow projection, balance sheet, and income statement are three major components of a financial plan.
• Preparing a financial plan is easier and faster when you use a financial planning tool.
• Exploring “what-if” scenarios is an ideal method to understand the potential risks and opportunities involved in the business operations.

Why is Financial Planning Important to Your Startup?

Poor financial planning is one of the biggest reasons why most startups fail. In fact, a recent CNBC study reported that running out of cash was the reason behind 44% of startup failures in 2022.

A well-prepared financial plan provides a clear financial direction for your business, helps you set realistic financial objectives, create accurate forecasts, and shows your business is committed to its financial objectives.

It’s a key element of your business plan for winning potential investors. In fact, YC considered recent financial statements and projections to be critical elements of their Series A due diligence checklist .

Your financial plan demonstrates how your business manages expenses and generates revenue and helps them understand where your business stands today and in 5 years.

Makes sense why financial planning is important to your startup, doesn’t it? Let’s cut to the chase and discuss the key components of a startup’s financial plan.

Say goodbye to old-school excel sheets & templates

Make accurate financial plan faster with AI

Plans starting from $7/month

Key Components of a Startup Financial Plan

Whether creating a financial plan from scratch for a business venture or just modifying it for an existing one, here are the key components to consider including in your startup’s financial planning process.

Income Statement

An Income statement , also known as a profit-and-loss statement(P&L), shows your company’s income and expenditures. It also demonstrates how your business experienced any profit or loss over a given time.

Consider it as a snapshot of your business that shows the feasibility of your business idea. An income statement can be generated considering three scenarios: worst, expected, and best.

Your income or P&L statement must list the following:

• Cost of goods or cost of sale
• Gross margin
• Operating expenses
• Revenue streams
• EBITDA (Earnings before interest, tax, depreciation , & amortization )

Established businesses can prepare annual income statements, whereas new businesses and startups should consider preparing monthly statements.

Cash flow Statement

A cash flow statement is one of the most critical financial statements for startups that summarize your business’s cash in-and-out flows over a given time.

This section provides details on the cash position of your business and its ability to meet monetary commitments on a timely basis.

Your cash flow projection consists of the following three components:

✅ Cash revenue projection: Here, you must enter each month’s estimated or expected sales figures.

✅ Cash disbursements: List expenditures that you expect to pay in cash for each month over one year.

✅ Cash flow reconciliation: Cash flow reconciliation is a process used to ensure the accuracy of cash flow projections. The adjusted amount is the cash flow balance carried over to the next month.

Furthermore, a company’s cash flow projections can be crucial while assessing liquidity, its ability to generate positive cash flows and pay off debts, and invest in growth initiatives.

Balance Sheet

Your balance sheet is a financial statement that reports your company’s assets, liabilities, and shareholder equity at a given time.

Consider it as a snapshot of what your business owns and owes, as well as the amount invested by the shareholders.

This statement consists of three parts: assets , liabilities, and the balance calculated by the difference between the first two. The final numbers on this sheet reflect the business owner’s equity or value.

Balance sheets follow the following accounting equation with assets on one side and liabilities plus Owner’s equity on the other:

Here is what’s the core purpose of having a balance-sheet:

• Indicates the capital need of the business
• It helps to identify the allocation of resources
• It calculates the requirement of seed money you put up, and
• How much finance is required?

Since it helps investors understand the condition of your business on a given date, it’s a financial statement you can’t miss out on.

Break-even Analysis

Break-even analysis is a startup or small business accounting practice used to determine when a company, product, or service will become profitable.

For instance, a break-even analysis could help you understand how many candles you need to sell to cover your warehousing and manufacturing costs and start making profits.

Remember, anything you sell beyond the break-even point will result in profit.

You must be aware of your fixed and variable costs to accurately determine your startup’s break-even point.

• Fixed costs: fixed expenses that stay the same no matter what.
• Variable costs: expenses that fluctuate over time depending on production or sales.

A break-even point helps you smartly price your goods or services, cover fixed costs, catch missing expenses, and set sales targets while helping investors gain confidence in your business. No brainer—why it’s a key component of your startup’s financial plan.

Having covered all the key elements of a financial plan, let’s discuss how you can create a financial plan for your startup.

How to Create a Financial Section of a Startup Business Plan?

1. determine your financial needs.

You can’t start financial planning without understanding your financial requirements, can you? Get your notepad or simply open a notion doc; it’s time for some critical thinking.

Start by assessing your current situation by—calculating your income, expenses , assets, and liabilities, what the startup costs are, how much you have against them, and how much financing you need.

Assessing your current financial situation and health will help determine how much capital you need for your startup and help plan fundraising activities and outreach.

Furthermore, determining financial needs helps prioritize operational activities and expenses, effectively allocate resources, and increase the viability and sustainability of a business in the long run.

Having learned to determine financial needs, let’s head straight to setting financial goals.

2. Define Your Financial Goals

Setting realistic financial goals is fundamental in preparing an effective financial plan. So, it would help to outline your long-term strategies and goals at the beginning of your financial planning process.

Let’s understand it this way—if you are a SaaS startup pursuing VC financing rounds, you may ask investors about what matters to them the most and prepare your financial plan accordingly.

However, a coffee shop owner seeking a business loan may need to create a plan that appeals to banks, not investors. At the same time, an internal financial plan designed to offer financial direction and resource allocation may not be the same as previous examples, seeing its different use case.

Feeling overwhelmed? Just define your financial goals—you’ll be fine.

You can start by identifying your business KPIs (key performance indicators); it would be an ideal starting point.

3. Choose the Right Financial Planning Tool

Let’s face it—preparing a financial plan using Excel is no joke. One would only use this method if they had all the time in the world.

Having the right financial planning software will simplify and speed up the process and guide you through creating accurate financial forecasts.

Many financial planning software and tools claim to be the ideal solution, but it’s you who will identify and choose a tool that is best for your financial planning needs.

Create a Financial Plan with Upmetrics in no time

Enter your Financial Assumptions, and we’ll calculate your monthly/quarterly and yearly financial projections.

Start Forecasting

4. Make Assumptions Before Projecting Financials

Once you have a financial planning tool, you can move forward to the next step— making financial assumptions for your plan based on your company’s current performance and past financial records.

You’re just making predictions about your company’s financial future, so there’s no need to overthink or complicate the process.

You can gather your business’ historical financial data, market trends, and other relevant documents to help create a base for accurate financial projections.

After you have developed rough assumptions and a good understanding of your business finances, you can move forward to the next step—projecting financials.

5. Prepare Realistic Financial Projections

It’s a no-brainer—financial forecasting is the most critical yet challenging aspect of financial planning. However, it’s effortless if you’re using a financial planning software.

Upmetrics’ forecasting feature can help you project financials for up to 7 years. However, new startups usually consider planning for the next five years. Although it can be contradictory considering your financial goals and investor specifications.

Following are the two key aspects of your financial projections:

Revenue Projections

In simple terms, revenue projections help investors determine how much revenue your business plans to generate in years to come.

It generally involves conducting market research, determining pricing strategy , and cash flow analysis—which we’ve already discussed in the previous steps.

The following are the key components of an accurate revenue projection report:

• Market analysis
• Sales forecast
• Pricing strategy
• Growth assumptions
• Seasonal variations

This is a critical section for pre-revenue startups, so ensure your projections accurately align with your startup’s financial model and revenue goals.

Expense Projections

Both revenue and expense projections are correlated to each other. As revenue forecasts projected revenue assumptions, expense projections will estimate expenses associated with operating your business.

Accurately estimating your expenses will help in effective cash flow analysis and proper resource allocation.

These are the most common costs to consider while projecting expenses:

• Fixed costs
• Variable costs
• Employee costs or payroll expenses
• Operational expenses
• Marketing and advertising expenses
• Emergency fund

Remember, realistic assumptions, thorough research, and a clear understanding of your market are the key to reliable financial projections.

6. Consider “What if” Scenarios

After you project your financials, it’s time to test your assumptions with what-if analysis, also known as sensitivity analysis.

Using what-if analysis with different scenarios while projecting your financials will increase transparency and help investors better understand your startup’s future with its best, expected, and worst-case scenarios.

Exploring “what-if” scenarios is the best way to better understand the potential risks and opportunities involved in business operations. This proactive exercise will help you make strategic decisions and necessary adjustments to your financial plan.

7. Build a Visual Report

If you’ve closely followed the steps leading to this, you know how to research for financial projections, create a financial plan, and test assumptions using “what-if” scenarios.

Now, we’ll prepare visual reports to present your numbers in a visually appealing and easily digestible format.

Don’t worry—it’s no extra effort. You’ve already made a visual report while creating your financial plan and forecasting financials.

Check the dashboard to see the visual presentation of your projections and reports, and use the necessary financial data, diagrams, and graphs in the final draft of your financial plan.

Here’s what Upmetrics’ dashboard looks like:

8. Monitor and Adjust Your Financial Plan

Even though it’s not a primary step in creating a good financial plan, it’s quite essential to regularly monitor and adjust your financial plan to ensure the assumptions you made are still relevant, and you are heading in the right direction.

There are multiple ways to monitor your financial plan.

For instance, you can compare your assumptions with actual results to ensure accurate projections based on metrics like new customers acquired and acquisition costs, net profit, and gross margin.

Consider making necessary adjustments if your assumptions are not resonating with actual numbers.

Also, keep an eye on whether the changes you’ve identified are having the desired effect by monitoring their implementation.

And that was the last step in our financial planning guide. However, it’s not the end. Have a look at this financial plan example.

Startup Financial Plan Example

Having learned about financial planning, let’s quickly discuss a coffee shop startup financial plan example prepared using Upmetrics.

Important Assumptions

• The sales forecast is conservative and assumes a 5% increase in Year 2 and a 10% in Year 3.
• The analysis accounts for economic seasonality – wherein some months revenues peak (such as holidays ) and wanes in slower months.
• The analysis assumes the owner will not withdraw any salary till the 3rd year; at any time it is assumed that the owner’s withdrawal is available at his discretion.
• Sales are cash basis – nonaccrual accounting
• Moderate ramp- up in staff over the 5 years forecast
• Barista salary in the forecast is $36,000 in 2023.
• In general, most cafes have an 85% gross profit margin
• In general, most cafes have a 3% net profit margin

Projected Balance Sheet

Projected Cash-Flow Statement

Projected Profit & Loss Statement

Break Even Analysis

Start Preparing Your Financial Plan

We covered everything about financial planning in this guide, didn’t we? Although it doesn’t fulfill our objective to the fullest—we want you to finish your financial plan.

Sounds like a tough job? We have an easy way out for you—Upmetrics’ financial forecasting feature. Simply enter your financial assumptions, and let it do the rest.

So what are you waiting for? Try Upmetrics and create your financial plan in a snap.

Build your Business Plan Faster

with step-by-step Guidance & AI Assistance.

Frequently Asked Questions

How often should i update my financial projections.

Well, there is no particular rule about it. However, reviewing and updating your financial plan once a year is considered an ideal practice as it ensures that the financial aspirations you started and the projections you made are still relevant.

How do I estimate startup costs accurately?

You can estimate your startup costs by identifying and factoring various one-time, recurring, and hidden expenses. However, using a financial forecasting tool like Upmetrics will ensure accurate costs while speeding up the process.

What financial ratios should startups pay attention to?

Here’s a list of financial ratios every startup owner should keep an eye on:

• Net profit margin
• Current ratio
• Quick ratio
• Working capital
• Return on equity
• Debt-to-equity ratio
• Return on assets
• Debt-to-asset ratio

What are the 3 different scenarios in scenario analysis?

As discussed earlier, Scenario analysis is the process of ascertaining and analyzing possible events that can occur in the future. Startups or businesses often consider analyzing these three scenarios:

• base-case (expected) scenario
• Worst-case scenario
• best case scenario.

About the Author

Ajay is a SaaS writer and personal finance blogger who has been active in the space for over three years, writing about startups, business planning, budgeting, credit cards, and other topics related to personal finance. If not writing, he’s probably having a power nap. Read more

Reach Your Goals with Accurate Planning

Financial Forecasting

Preparing a prediction of the future

What is Financial Forecasting?

Financial forecasting is the process of estimating or predicting how a business will perform in the future. The most common type of financial forecast is an income statement; however, in a complete financial model, all three financial statements are forecasted. In this guide on how to build a financial forecast, we will complete the income statement model from revenue to operating profit or EBIT .

Forecasting Revenue

There are inherent tensions in model building between making your model realistic and keeping it simple and robust. The first-principles approach identifies various methods to model revenues with high degrees of detail and precision. For instance, when forecasting revenue for the retail industry, we can forecast the expansion rate and derive income per square meter.

When forecasting revenue for the telecommunications industry, we can predict the market size and use current market share and competitor analysis. When forecasting revenue for any service industries, we can estimate the headcount and use the income for customer trends.

On the other hand, the quick and dirty approach to robust models outlines how you can model revenues in a much more straightforward way, with the benefit that the model will be more simple and easy to use (although less accurate and detailed). With this approach, users predict future growth based on historical figures and trends.

Forecasting Gross Margin and SG&A Expenses

Once we finish forecasting revenues, we next want to forecast gross margin. Gross margin is usually forecast as a percent of revenues. Again, we can use historical figures or trends to forecast future gross margin.

However, it is advised to take a more detailed approach, considering factors such as the cost of input, economies of scale, and learning curve. This second approach will allow your model to be more realistic, but also make it harder to follow.

The next step is to forecast overhead costs: SG&A expenses . Forecasting Selling, General, and Administrative costs are often done as a percentage of revenues. Although these costs are fixed in the short term, they become increasingly variable in the long term.

Therefore, when forecasting over shorter periods (weeks and months), using revenues to predict SG&A may be inappropriate. Some models forecast gross and operating margins to leave SG&A as the balancing figure.

Financial Forecasting Example

Let’s go through an example of financial forecasting together and build the income statement forecast model in Excel. First off, you can see that all the forecast inputs are grouped in the same section, called “Assumptions and Drivers.”

I created separate output section groups for the income statement, balance sheet, and cash flow statement. I also created a “Supporting Schedules” section, where detailed processing calculations for PP&E and equity are broken down in order to make the model easier to follow and audit. In this article, we will only work on the assumptions and the income statement.

All income statement input assumptions from revenues down to EBIT can be found in rows 8-14. All expenses are being forecasted as a percentage of sales. Only the sales forecast is based on growth over the previous year. My inputs are also ordered in the order they appear on the income statement.

Now, let’s move to the “Income Statement” section, where we are going to work on Column D and move downwards. To forecast sales for the first forecast year (in this case 2017), I take the previous year (C42) and grow it by the sales growth assumption in the “Assumptions & Drivers” section. The “SalesGrowthPercent” assumption is located in cell “D8”. Therefore, the formula for the 2017 forecasted revenue is =C42*(1+D8).

I then calculated our Cost of Goods Sold. To calculate the first forecast year’s COGS, we put a minus sign in front of our forecast sales, then multiply by one minus the “GrossMargin” assumption located in cell D9. The formula reads =-D42*(1-D9).

I then sum forecasted sales and COGS to calculate “Gross Profit”, located in cell D44. The formula reads =SUM(D42:D43). A handy shortcut for summing is ALT + =.

Next, I forecast all the expenses in rows 45 to 48 as a percentage of sales. Let’s first start with “Distribution Expenses,” then copy the formula down to “Depreciation.” To calculate, we subtract the forecast sales and multiply by the appropriate assumption, which in this case is Distribution Expense as a Percent of Sales. The formula reads =D$42*D10. Be mindful of the $ sign because we want to make row 42 of cell D42 an absolute reference. I then copy this formula down, using the shortcut CTRL + D or fill down.

Then, over to the right, using the shortcut CTRL + R or fill right.

Finally, I net gross profit off with all the other operating expenses to calculate EBIT, using =SUM(D44:D48).

Additional Resources

Thank you for reading this guide to financial forecasting. CFI is a global provider of financial analyst training and career advancement for finance professionals. To learn more and expand your career, explore the additional relevant CFI resources below:

• Types of Financial Models
• 3 Statement Model
• Scenario Analysis
• Visibility in the Business Context
• See all financial modeling resources

Analyst Certification FMVA® Program

Below is a break down of subject weightings in the FMVA® financial analyst program. As you can see there is a heavy focus on financial modeling, finance, Excel, business valuation, budgeting/forecasting, PowerPoint presentations, accounting and business strategy.

A well rounded financial analyst possesses all of the above skills!

Additional Questions & Answers

CFI is the global institution behind the financial modeling and valuation analyst  FMVA® Designation . CFI is on a mission to enable anyone to be a great financial analyst and have a great career path. In order to help you advance your career, CFI has compiled many resources to assist you along the path.

In order to become a great financial analyst, here are some more  questions and answers  for you to discover:

• What is Financial Modeling?
• How Do You Build a DCF Model?
• What is Sensitivity Analysis?
• How Do You Value a Business?
• Share this article

Create a free account to unlock this Template

Access and download collection of free Templates to help power your productivity and performance.

Already have an account? Log in

Supercharge your skills with Premium Templates

Take your learning and productivity to the next level with our Premium Templates.

Upgrading to a paid membership gives you access to our extensive collection of plug-and-play Templates designed to power your performance—as well as CFI's full course catalog and accredited Certification Programs.

Already have a Self-Study or Full-Immersion membership? Log in

Access Exclusive Templates

Gain unlimited access to more than 250 productivity Templates, CFI's full course catalog and accredited Certification Programs, hundreds of resources, expert reviews and support, the chance to work with real-world finance and research tools, and more.

Already have a Full-Immersion membership? Log in

Hot Summer Savings ☀️ 60% Off for 4 Months. Buy Now & Save

60% Off for 4 Months Buy Now & Save

Wow clients with professional invoices that take seconds to create

Quick and easy online, recurring, and invoice-free payment options

Automated, to accurately track time and easily log billable hours

Reports and tools to track money in and out, so you know where you stand

Easily log expenses and receipts to ensure your books are always tax-time ready

Tax time and business health reports keep you informed and tax-time ready

Automatically track your mileage and never miss a mileage deduction again

Time-saving all-in-one bookkeeping that your business can count on

Track project status and collaborate with clients and team members

Organized and professional, helping you stand out and win new clients

Set clear expectations with clients and organize your plans for each project

Client management made easy, with client info all in one place

Pay your employees and keep accurate books with Payroll software integrations

• Team Management

FreshBooks integrates with over 100 partners to help you simplify your workflows

Send invoices, track time, manage payments, and more…from anywhere.

• Freelancers
• Self-Employed Professionals
• Businesses With Employees
• Businesses With Contractors
• Marketing & Agencies
• Construction & Trades
• IT & Technology
• Business & Prof. Services
• Accounting Partner Program
• Collaborative Accounting™
• Accountant Hub
• Reports Library
• FreshBooks vs QuickBooks
• FreshBooks vs HoneyBook
• FreshBooks vs Harvest
• FreshBooks vs Wave
• FreshBooks vs Xero
• Partners Hub
• Help Center
• 1-888-674-3175
• All Articles
• Productivity
• Project Management
• Bookkeeping

Resources for Your Growing Business

How to make financial projections for business.

Writing a solid business plan should be the first step for any business owner looking to create a successful business. 

As a small business owner, you will want to get the attention of investors, partners, or potential highly skilled employees. It is, therefore, important to have a realistic financial forecast incorporated into your business plan. 

We’ll break down a financial projection and how to utilize it to give your business the best start possible.

Key Takeaways

Accurate financial projections are essential for businesses to succeed. In this article, we’ll explain everything you need to know about creating financial projections for your business. Here’s what you need to know about financial projections:

• A financial projection is a group of financial statements that are used to forecast future performance
• Creating financial projections can break down into 5 simple steps: sales projections, expense projections, balance sheet projections, income statement projections, and cash flow projections
• Financial projections can offer huge benefits to your business, including helping with forecasting future performance, ensuring steady cash flow, and planning key moves around the growth of the business

Here’s What We’ll Cover:

What Is a Financial Projection?

How to Create a Financial Projection

What goes into a financial projection, what are financial projections used for.

Financial Projections Advantages

Frequently Asked Questions

What Is Financial Projection?

A financial projection is essentially a set of financial statements . These statements will forecast future revenues and expenses. 

Any projection includes your cash inflows and outlays, your general income, and your balance sheet. 

They are perfect for showing bankers and investors how you plan to repay business loans. They also show what you intend to do with your money and how you expect your business to grow. 

Most projections are for the first 3-5 years of business, but some include a 10-year forecast too.

Either way, you will need to develop a short and mid-term projection broken down month by month. 

As you are just starting out with your business, you won’t be expected to provide exact details. Most financial projections are rough guesses. But they should also be educated guesses based on market trends, research, and looking at similar businesses. 

It’s incredibly important for financial statements to be realistic. Most investors will be able to spot a fanciful projection from a mile away. 

In general, most people would prefer to be given realistic projections, even if they’re not as impressive.

Financial projections are created to help business owners gain insight into the future of their company’s financials. 

The question is, how to create financial projections? For business plan purposes, it’s important that you follow the best practices of financial projection closely. This will ensure you get accurate insight, which is vital for existing businesses and new business startups alike.

Here are the steps for creating accurate financial projections for your business.

1. Start With A Sales Projection

For starters, you’ll need to project how much your business will make in sales. If you’re creating a sales forecast for an existing business, you’ll have past performance records to project your next period. Past data can provide useful information for your financial projection, such as if your sales do better in one season than another.

Be sure also to consider external factors, such as the economy at large, the potential for added tariffs and taxes in the future, supply chain issues, or industry downturns. 

The process is almost the same for new businesses, only without past data to refer to. Business startups will need to do more research on their industry to gain insight into potential future sales.

2. Create Your Expense Projection

Next, create an expense projection for your business. In a sense, this is an easier task than a sales projection since it seems simpler to predict your own behaviors than your customers. However, it’s vital that you expect the unexpected.

Optimism is great, but the worst-case scenario must be considered and accounted for in your expense projection. From accidents in the workplace to natural disasters, rising trade prices, to unexpected supply disruptions, you need to consider these large expenses in your projection. 

Something always comes up, so we suggest you add a 10-15% margin on your expense projection.

3. Create Your Balance Sheet Projection

A balance sheet projection is used to get a clear look at your business’s financial position related to assets, liabilities , and equity, giving you a more holistic view of the company’s overall financial health. 

For startup businesses, this can prove to be a lot of work since you won’t have existing records of past performance to pull from. This will need to be factored into your industry research to create an accurate financial projection.

For existing businesses, it will be more straightforward. Use your past and current balance sheets to predict your business’s position in the next 1-3 years. If you use a cloud-based, online accounting software with the feature to generate balance sheets, such as the one offered by FreshBooks, you’ll be able to quickly create balance sheets for your financial projection within the app.

Click here to learn more about the features of FreshBooks accounting software.

4. Make Your Income Statement Projection

Next up, create an income statement projection. An income statement is used to declare the net income of a business after all expenses have been made. In other words, it states the profits of a business.

For currently operating businesses, you can use your past income statements and the changes between them to create accurate predictions for the next 1-3 years. You can also use accounting software to generate your income statements automatically. 

You’ll need to work on rough estimates for new businesses or those still in the planning phase. It’s vital that you stay realistic and do your utmost to create an accurate, good-faith projection of future income. 

5. Finally, Create Your Cash Flow Projection

Last but not least is to generate your projected cash flow statement. A cash flow projection forecasts the movement of all money to and from your business. It’s intertwined with a business’s balance sheet and income statement, which is no different when creating projections. 

If your business has been operating for six months or more, you can create a fairly accurate cash flow projection with your past cash flow financial statements. For new businesses, you’ll need to factor in this step of creating a financial forecast when doing your industry research. 

It needs to include five elements to ensure an accurate, useful financial forecast for your business. These financial statements come together to provide greater insight into the projected future of a business’s financial health. These include:

Income Statement

A standard income statement summarizes your company’s revenues and expenses over a period. This is normally done either quarterly or annually.

The income statement is where you will do the bulk of your forecasting. 

On any income statement, you’re likely to find the following:

• Revenue: Your revenue earned through sales. 
• Expenses: The amount you’ve spent, including your product costs and your overheads.
• Pre-Tax Earnings: This is your income before you’ve paid tax.
• Net Income: The total revenues minus your total expenses. 

Net income is the most important number. If the number is positive, then you’re earning a profit, if it’s negative, it means your expenses outweigh your revenue and you’re making a loss. 

Cash Flow Statement

Your cash flow statement will show any potential investor whether you are a good credit risk. It also shows them if you can successfully repay any loans you are granted.

You can break a cash flow statement into three parts:

• Cash Revenues: An overview of your calculated cash sales for a given time period. 
• Cash Disbursements: You list all the cash expenditures you expect to pay.
• Net Cash Revenue: Take the cash revenues minus your cash disbursements.

Balance Sheet

Your balance sheet will show your business’s net worth at a given time.

A balance sheet is split up into three different sections:

• Assets: An asset is a tangible object of value that your company owns. It could be things like stock or property such as warehouses or offices. 
• Liabilities: These are any debts your business owes.
• Equity: Your equity is the summary of your assets minus your liabilities.

Looking for an easy-to-use yet capable online accounting software? FreshBooks accounting software is a cloud-based solution that makes financial projections simple. With countless financial reporting features and detailed guides on creating accurate financial forecasts, FreshBooks can help you gain the insight you need to let your business thrive. Click here to give FreshBooks a try for free.

Financial projections have many uses for current business owners and startup entrepreneurs. Provided your financial forecasting follows the best practices for an accurate projection, your data will be used for:

• Internal planning and budgeting – Your finances will be the main factor in whether or not you’ll be able to execute your business plan to completion. Financial projections allow you to make it happen.
• Attracting investors and securing funding – Whether you’re receiving financing from bank loans, investors, or both, an accurate projection will be essential in receiving the funds you need.
• Evaluating business performance and identifying areas for improvement – Financial projections help you keep track of your business’s financial health, allowing you to plan ahead and avoid unwelcome surprises.
• Making strategic business decisions – Timing is important in business, especially when it comes to major expenditures (new product rollouts, large-scale marketing, expansion, etc.). Financial projections allow you to make an informed strategy for these big decisions.

Financial Projections Advantages 

Creating clear financial projections for your business startup or existing company has countless benefits. Focusing on creating (and maintaining) good financial forecasting for your business will:

• Help you make vital financial decisions for the business in the future
• Help you plan and strategize for growth and expansion
• Demonstrate to bankers how you will repay your loans 
• Demonstrate to investors how you will repay financing
• Identify your most essential financing needs in the future
• Assist in fine-tuning your pricing
• Be helpful when strategizing your production plan
• Be a useful tool for planning your major expenditures strategically
• Help you keep an eye on your cash flow for the future

Your financial forecast is an essential part of your business plan, whether you’re still in the early startup phases or already running an established business. However, it’s vital that you follow the best practices laid out above to ensure you receive the full benefits of comprehensive financial forecasting.  

If you’re looking for a useful tool to save time on the administrative tasks of financial forecasting, FreshBooks can help. With the ability to instantly generate the reports you need and get a birds-eye-view of your business’s past performance and overall financial help, it will be easier to create useful financial projections that provide insight into your financial future. 

FAQs on Financial Projections

More questions about financial forecasting, projections, and how these processes fit into your business plan? Here are some frequently asked questions by business owners.

Why are financial projections important?

Financial projections allow you to gain insight into your business’s economic trajectory. This helps business owners make financial decisions, secure funding, and more. Additionally, financial projections provide early warning of roadblocks and challenges that may lay ahead for the company, making it easier to plan for a clear course of action.

What is an example of a financial projection?

A projection is an overall look at a business’s forecasted performance. It’s made up of several different statements and reports, such as a cash flow statement, income statement, profit and loss statement, and sales statement. You can find free templates and examples of many of these reports via FreshBooks. Click here to view our selection of accounting templates.

Are financial forecasts and financial projections the same?

Technically, there is a difference between forecasting and projections, though many use the terms interchangeably. Financial forecasting often refers to shorter-term (<1 year) predictions of financial performance, while financial projections usually focus on a larger time scale (2-3 years).

What is the most widely used method for financial forecasting?

The most common method of accurate forecasting is the straight-line forecasting method. It’s most often used for projecting the growth of a business’s revenue growth over a set period. If you notice that your records indicate a 4% growth of revenue per year for five years running, it would be reasonable to assume that this will continue year-over-year. 

What is the purpose of a financial projection?

Projection aims to get deeper, more nuanced insight into a business’s financial health and viability. It allows business owners to anticipate expenses and profit growth, giving them the tools to secure funding and loans and strategize major business decisions. It’s an essential accounting process that all business owners should prioritize in their business plans.

Michelle Alexander, CPA

About the author

Michelle Alexander is a CPA and implementation consultant for Artificial Intelligence-powered financial risk discovery technology. She has a Master's of Professional Accounting from the University of Saskatchewan, and has worked in external audit compliance and various finance roles for Government and Big 4. In her spare time you’ll find her traveling the world, shopping for antique jewelry, and painting watercolour floral arrangements.

RELATED ARTICLES

Save Time Billing and Get Paid 2x Faster With FreshBooks

Want More Helpful Articles About Running a Business?

Get more great content in your Inbox.

By subscribing, you agree to receive communications from FreshBooks and acknowledge and agree to FreshBook’s Privacy Policy . You can unsubscribe at any time by contacting us at [email protected].

• Business Essentials
• Leadership & Management
• Credential of Leadership, Impact, and Management in Business (CLIMB)
• Entrepreneurship & Innovation
• Digital Transformation
• Finance & Accounting
• Business in Society
• For Organizations
• Support Portal
• Media Coverage
• Founding Donors
• Leadership Team

• Harvard Business School →
• HBS Online →
• Business Insights →

Business Insights

Harvard Business School Online's Business Insights Blog provides the career insights you need to achieve your goals and gain confidence in your business skills.

• Career Development
• Communication
• Decision-Making
• Earning Your MBA
• Negotiation
• News & Events
• Productivity
• Staff Spotlight
• Student Profiles
• Work-Life Balance
• AI Essentials for Business
• Alternative Investments
• Business Analytics
• Business Strategy
• Business and Climate Change
• Creating Brand Value
• Design Thinking and Innovation
• Digital Marketing Strategy
• Disruptive Strategy
• Economics for Managers
• Entrepreneurship Essentials
• Financial Accounting
• Global Business
• Launching Tech Ventures
• Leadership Principles
• Leadership, Ethics, and Corporate Accountability
• Leading Change and Organizational Renewal
• Leading with Finance
• Management Essentials
• Negotiation Mastery
• Organizational Leadership
• Power and Influence for Positive Impact
• Strategy Execution
• Sustainable Business Strategy
• Sustainable Investing
• Winning with Digital Platforms

7 Financial Forecasting Methods to Predict Business Performance

• 21 Jun 2022

Much of accounting involves evaluating past performance. Financial results demonstrate business success to both shareholders and the public. Planning and preparing for the future, however, is just as important.

Shareholders must be reassured that a business has been, and will continue to be, successful. This requires financial forecasting.

Here's an overview of how to use pro forma statements to conduct financial forecasting, along with seven methods you can leverage to predict a business's future performance.

Access your free e-book today.

What Is Financial Forecasting?

Financial forecasting is predicting a company’s financial future by examining historical performance data, such as revenue, cash flow, expenses, or sales. This involves guesswork and assumptions, as many unforeseen factors can influence business performance.

Financial forecasting is important because it informs business decision-making regarding hiring, budgeting, predicting revenue, and strategic planning . It also helps you maintain a forward-focused mindset.

Each financial forecast plays a major role in determining how much attention is given to individual expense items. For example, if you forecast high-level trends for general planning purposes, you can rely more on broad assumptions than specific details. However, if your forecast is concerned with a business’s future, such as a pending merger or acquisition, it's important to be thorough and detailed.

Forecasting with Pro Forma Statements

A common type of forecasting in financial accounting involves using pro forma statements . Pro forma statements focus on a business's future reports, which are highly dependent on assumptions made during preparation⁠, such as expected market conditions.

Because the term "pro forma" refers to projections or forecasts, pro forma statements apply to any financial document, including:

• Income statements
• Balance sheets
• Cash flow statements

These statements serve both internal and external purposes. Internally, you can use them for strategic planning. Identifying future revenues and expenses can greatly impact business decisions related to hiring and budgeting. Pro forma statements can also inform endeavors by creating multiple statements and interchanging variables to conduct side-by-side comparisons of potential outcomes.

Externally, pro forma statements can demonstrate the risk of investing in a business. While this is an effective form of forecasting, investors should know that pro forma statements don't typically comply with generally accepted accounting principles (GAAP) . This is because pro forma statements don't include one-time expenses—such as equipment purchases or company relocations—which allows for greater accuracy because those expenses don't reflect a company’s ongoing operations.

7 Financial Forecasting Methods

Pro forma statements are incredibly valuable when forecasting revenue, expenses, and sales. These findings are often further supported by one of seven financial forecasting methods that determine future income and growth rates.

There are two primary categories of forecasting: quantitative and qualitative.

Quantitative Methods

When producing accurate forecasts, business leaders typically turn to quantitative forecasts , or assumptions about the future based on historical data.

1. Percent of Sales

Internal pro forma statements are often created using percent of sales forecasting . This method calculates future metrics of financial line items as a percentage of sales. For example, the cost of goods sold is likely to increase proportionally with sales; therefore, it’s logical to apply the same growth rate estimate to each.

To forecast the percent of sales, examine the percentage of each account’s historical profits related to sales. To calculate this, divide each account by its sales, assuming the numbers will remain steady. For example, if the cost of goods sold has historically been 30 percent of sales, assume that trend will continue.

2. Straight Line

The straight-line method assumes a company's historical growth rate will remain constant. Forecasting future revenue involves multiplying a company’s previous year's revenue by its growth rate. For example, if the previous year's growth rate was 12 percent, straight-line forecasting assumes it'll continue to grow by 12 percent next year.

Although straight-line forecasting is an excellent starting point, it doesn't account for market fluctuations or supply chain issues.

3. Moving Average

Moving average involves taking the average—or weighted average—of previous periods⁠ to forecast the future. This method involves more closely examining a business’s high or low demands, so it’s often beneficial for short-term forecasting. For example, you can use it to forecast next month’s sales by averaging the previous quarter.

Moving average forecasting can help estimate several metrics. While it’s most commonly applied to future stock prices, it’s also used to estimate future revenue.

To calculate a moving average, use the following formula:

A1 + A2 + A3 … / N

Formula breakdown:

A = Average for a period

N = Total number of periods

Using weighted averages to emphasize recent periods can increase the accuracy of moving average forecasts.

4. Simple Linear Regression

Simple linear regression forecasts metrics based on a relationship between two variables⁠: dependent and independent. The dependent variable represents the forecasted amount, while the independent variable is the factor that influences the dependent variable.

The equation for simple linear regression is:

Y ⁠ = Dependent variable⁠ (the forecasted number)

B = Regression line's slope

X = Independent variable

A = Y-intercept

5. Multiple Linear Regression

If two or more variables directly impact a company's performance, business leaders might turn to multiple linear regression . This allows for a more accurate forecast, as it accounts for several variables that ultimately influence performance.

To forecast using multiple linear regression, a linear relationship must exist between the dependent and independent variables. Additionally, the independent variables can’t be so closely correlated that it’s impossible to tell which impacts the dependent variable.

Qualitative Methods

When it comes to forecasting, numbers don't always tell the whole story. There are additional factors that influence performance and can't be quantified. Qualitative forecasting relies on experts’ knowledge and experience to predict performance rather than historical numerical data.

These forecasting methods are often called into question, as they're more subjective than quantitative methods. Yet, they can provide valuable insight into forecasts and account for factors that can’t be predicted using historical data.

6. Delphi Method

The Delphi method of forecasting involves consulting experts who analyze market conditions to predict a company's performance.

A facilitator reaches out to those experts with questionnaires, requesting forecasts of business performance based on their experience and knowledge. The facilitator then compiles their analyses and sends them to other experts for comments. The goal is to continue circulating them until a consensus is reached.

7. Market Research

Market research is essential for organizational planning. It helps business leaders obtain a holistic market view based on competition, fluctuating conditions, and consumer patterns. It’s also critical for startups when historical data isn’t available. New businesses can benefit from financial forecasting because it’s essential for recruiting investors and budgeting during the first few months of operation.

When conducting market research, begin with a hypothesis and determine what methods are needed. Sending out consumer surveys is an excellent way to better understand consumer behavior when you don’t have numerical data to inform decisions.

Improve Your Forecasting Skills

Financial forecasting is never a guarantee, but it’s critical for decision-making. Regardless of your business’s industry or stage, it’s important to maintain a forward-thinking mindset—learning from past patterns is an excellent way to plan for the future.

If you’re interested in further exploring financial forecasting and its role in business, consider taking an online course, such as Financial Accounting , to discover how to use it alongside other financial tools to shape your business.

Do you want to take your financial accounting skills to the next level? Consider enrolling in Financial Accounting —one of three courses comprising our Credential of Readiness (CORe) program —to learn how to use financial principles to inform business decisions. Not sure which course is right for you? Download our free flowchart .

About the Author

• Search Search Please fill out this field.
• Building Your Business
• Becoming an Owner
• Business Plans

Writing a Business Plan—Financial Projections

Spell out your financial forecast in dollars and sense

Creating financial projections for your startup is both an art and a science. Although investors want to see cold, hard numbers, it can be difficult to predict your financial performance three years down the road, especially if you are still raising seed money. Regardless, short- and medium-term financial projections are a required part of your business plan if you want serious attention from investors.

The financial section of your business plan should include a sales forecast , expenses budget , cash flow statement , balance sheet , and a profit and loss statement . Be sure to follow the generally accepted accounting principles (GAAP) set forth by the Financial Accounting Standards Board , a private-sector organization responsible for setting financial accounting and reporting standards in the U.S. If financial reporting is new territory for you, have an accountant review your projections.

Sales Forecast

As a startup business, you do not have past results to review, which can make forecasting sales difficult. It can be done, though, if you have a good understanding of the market you are entering and industry trends as a whole. In fact, sales forecasts based on a solid understanding of industry and market trends will show potential investors that you've done your homework and your forecast is more than just guesswork.

In practical terms, your forecast should be broken down by monthly sales with entries showing which units are being sold, their price points, and how many you expect to sell. When getting into the second year of your business plan and beyond, it's acceptable to reduce the forecast to quarterly sales. In fact, that's the case for most items in your business plan.

Expenses Budget

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. Some costs likely will vary month by month such as advertising or seasonal sales help.

Cash Flow Statement

As with your sales forecast, cash flow statements for a startup require doing some homework since you do not have historical data to use as a reference. This statement, in short, breaks down how much cash is coming into your business on a monthly basis vs. how much is going out. By using your sales forecasts and your expenses budget, you can estimate your cash flow intelligently.

Keep in mind that revenue often will trail sales, depending on the type of business you are operating. For example, if you have contracts with clients, they may not be paying for items they purchase until the month following delivery. Some clients may carry balances 60 or 90 days beyond delivery. You need to account for this lag when calculating exactly when you expect to see your revenue.

Profit and Loss Statement

Your P&L statement should take the information from your sales projections, expenses budget, and cash flow statement to project how much you expect in profits or losses through the three years included in your business plan. You should have a figure for each individual year as well as a figure for the full three-year period.

Balance Sheet

You provide a breakdown of all of your assets and liabilities in the balances sheet. Many of these assets and liabilities are items that go beyond monthly sales and expenses. For example, any property, equipment, or unsold inventory you own is an asset with a value that can be assigned to it. The same goes for outstanding invoices owed to you that have not been paid. Even though you don't have the cash in hand, you can count those invoices as assets. The amount you owe on a business loan or the amount you owe others on invoices you've not paid would count as liabilities. The balance is the difference between the value of everything you own vs. the value of everything you owe.

Break-Even Projection

If you've done a good job projecting your sales and expenses and inputting the numbers into a spreadsheet, you should be able to identify a date when your business breaks even—in other words, the date when you become profitable, with more money coming in than going out. As a startup business, this is not expected to happen overnight, but potential investors want to see that you have a date in mind and that you can support that projection with the numbers you've supplied in the financial section of your business plan.

Additional Tips

When putting together your financial projections, keep some general tips in mind:

• Get comfortable with spreadsheet software if you aren't already. It is the starting point for all financial projections and offers flexibility, allowing you to quickly change assumptions or weigh alternative scenarios. Microsoft Excel is the most common, and chances are you already have it on your computer. You can also buy special software packages to help with financial projections.
• Prepare a five-year projection . Don’t include this one in the business plan, since the further into the future you project, the harder it is to predict. However, have the projection available in case an investor asks for it.
• Offer two scenarios only . Investors will want to see a best-case and worst-case scenario, but don’t inundate your business plan with myriad medium-case scenarios. They likely will just cause confusion.
• Be reasonable and clear . As mentioned before, financial forecasting is as much art as science. You’ll have to assume certain things, such as your revenue growth, how your raw material and administrative costs will grow, and how effective you’ll be at collecting on accounts receivable. It’s best to be realistic in your projections as you try to recruit investors. If your industry is going through a contraction period and you’re projecting revenue growth of 20 percent a month, expect investors to see red flags.

Everything that you need to know to start your own business. From business ideas to researching the competition.

Practical and real-world advice on how to run your business — from managing employees to keeping the books

Our best expert advice on how to grow your business — from attracting new customers to keeping existing customers happy and having the capital to do it.

Entrepreneurs and industry leaders share their best advice on how to take your company to the next level.

• Business Ideas
• Human Resources
• Business Financing
• Growth Studio
• Ask the Board

Looking for your local chamber?

Interested in partnering with us?

Run » finance, how to write a financial forecast for your business.

Financial projections help leaders visualize growth. Here’s how to create one.

Financial forecasting is a critical yet often underused tactic for small business owners. In its simplest form, it involves calculating changes based on historical financial statements. The straight-line forecasting method uses data to make quantitative predictions.

Another option is to make assumptions related to your business goals and activities using research-based financial forecasts. The qualitative method considers market trends, industry benchmarks and competitor analysis.

You can use both methods for financial modeling, where you simulate scenarios to see the impact on your company's financial health.

Learn how to make predictions by following these steps to write your financial forecast.

Gather your financial statements

Before looking ahead, it's important to understand your past. First, determine the reporting period for your financial forecast. For business-planning purposes, many business owners predict income for the upcoming year. In comparison, vendors, investors and lenders require financial forecasts for the next three years.

Next, improve accuracy by pulling three years of historical financial statements. Your bookkeeper, accountant or accounting software can generate the following financial statements :

• Balance sheet.
• Income statement.
• Cash flow statement.

Review historical financial statements

For a straight-line forecast, calculate the line item differences for each period. Typically, business owners start with their income statement, also known as a profit and loss (P&L) statement. Ultimately, you'll need a complete model using all three financial statements if you're looking for funding .

Financial planners often recommend creating financial forecasts for worst-, best- and average-case scenarios.

Crunch the numbers line by line to see how your revenue and expenses changed over time. A financial forecast template in Microsoft Excel or Google Sheets can make this process easier. The formula for calculating change finds the difference between two periods (Year Two minus Year One). Then divide the difference by the original number (Year One) to get a decimal. Multiply that figure by 100 to express the change as a percentage.

Here's a financial forecast example based on a fictional company:

• Flowers Inc. had a gross profit of $30,000 in 2017 (Year One), $50,000 in 2018 (Year Two), $65,000 in 2019 (Year Three) and $55,000 in 2020 (Year Four).
• Subtract $30,000 (Year One) from $50,000 (Year Two) to get the difference, which is $20,000.
• Divide $20,000 by $30,000 (Year One) to get the decimal of 0.67.
• Multiply the decimal by 100 to get the percentage of 67%.

In this example, Flowers Inc. showed growth in profit of 67% in 2018 and 30% in 2019, and a decline in profit of 23% in 2020. Complete this step for each line item on your income statement, balance sheet and cash flow statement

[Read more: Roadmap For Rebuilding: Financial Management ]

Make a financial forecast or straight-line prediction

For a straight-line prediction, look at your historical performance and find the average rate for each category. Apply this figure to future years for each section. However, if you're a numbers whiz or have an accountant , you can make assumptions for pro forma statements. A pro forma statement makes predictions that may differ from your historical data.

For example, Flowers Inc. may want 2020's figure to carry less weight than previous years. Plus, the company recently added a delivery service, increasing sales and expenses. Overall, Flowers Inc. expects to achieve a higher gross profit. Since a pro forma statement isn't required to follow generally accepted accounting principles (GAAP), Flowers Inc. can include these predictions on a pro forma statement.

Likewise, Flowers Inc. may also make assumptions about its cost of goods sold (COGS) based on market data and recent cost hikes. Financial planners often recommend creating financial forecasts for worst-, best- and average-case scenarios. Doing so gives you a range of potential outcomes, which helps when planning your overall budget

Start small, dream big

Once you have a basic financial forecast, it's time to play with the numbers and figure out how to reach your business goals. In addition, think about future debt payments or large expenditures that will impact your financial statements. From our example, Flowers Inc. will pay off its startup loan next year, significantly increasing cash flow and decreasing liabilities, so it can purchase a new vehicle for delivery without negatively affecting its balance sheet.

Factor each assumption into your financial forecast for accuracy. Don't forget to update your financial forecast regularly. Doing so allows you to catch potential cash flow problems or adjust expectations over time.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

Follow us on Instagram for more expert tips & business owners’ stories.

Applications are open for the CO—100! Now is your chance to join an exclusive group of outstanding small businesses. Share your story with us — apply today .

CO—is committed to helping you start, run and grow your small business. Learn more about the benefits of small business membership in the U.S. Chamber of Commerce, here .

Get recognized. Get rewarded. Get $25K.

Is your small business one of the best in America? Apply for our premier awards program for small businesses, the CO—100, today to get recognized and rewarded. One hundred businesses will be honored and one business will be awarded $25,000.

For more finance tips

Mastering mobile payments: top credit card payment apps for entrepreneurs, what is a secure payment system, what are qr code payments.

By continuing on our website, you agree to our use of cookies for statistical and personalisation purposes. Know More

Welcome to CO—

Designed for business owners, CO— is a site that connects like minds and delivers actionable insights for next-level growth.

U.S. Chamber of Commerce 1615 H Street, NW Washington, DC 20062

Social links

Looking for local chamber, stay in touch.

Free Financial Projection and Forecasting Templates

By Andy Marker | January 3, 2024

• Share on Facebook
• Share on LinkedIn

Link copied

We’ve collected the top free financial projection and forecasting templates. These templates enable business owners, CFOs, accountants, and financial analysts to plan future growth, manage cash flow, attract investors, and make informed decisions.  On this page, you'll find many helpful, free, customizable financial projection and forecasting templates, including a  1 2-month financial projection template , a  startup financial projection template , a  3-year financial projection template , and a  small business financial forecast template , among others. You’ll also find details on the  elements in a financial projection template ,  types of financial projection and forecasting templates , and  related financial templates .

Simple Financial Projection Template

Download a Sample Simple Financial Projection Template for 

Excel | Google Sheets  

Download a Blank Simple Financial Projection Template for 

Excel | Google Sheets    

Small business owners and new entrepreneurs are the ideal users for this simple financial projection template. Just input your expected revenues and expenses. This template stands out due to its ease of use and focus on basic, straightforward financial planning, making it perfect for small-scale or early-stage businesses. Available with or without sample text, this tool offers clear financial oversight, better budget management, and informed decision-making regarding future business growth. 

Looking for help with your business plan? Check out these  free financial templates for a business plan to streamline the process of organizing your business's financial information and presenting it effectively to stakeholders.

Financial Forecast Template

Download a Sample Financial Forecast Template for 

Download a Blank Financial Forecast Template for 

This template is perfect for businesses that require a detailed and all-encompassing forecast. Users can input various financial data, such as projected revenues, costs, and market trends, to generate a complete financial outlook. Available with or without example text, this template gives you a deeper understanding of your business's financial trajectory, aiding in strategic decision-making and long-term financial stability. 

These  free cash-flow forecast templates help you predict your business’s future cash inflows and outflows, allowing you to manage liquidity and optimize financial planning.

12-Month Financial Projection Template

Download a Sample 12-Month Financial Projection Template for 

Download a Blank 12-Month Financial Projection Template for 

Use this 12-month financial projection template for better cash-flow management, more accurate budgeting, and enhanced readiness for short-term financial challenges and opportunities. Input estimated monthly revenues and expenses, tracking financial performance over the course of a year. Available with or without sample text, this template is ideal for business owners who need to focus on short-term financial planning. This tool allows you to respond quickly to market shifts and plan effectively for the business's crucial first year. 

Download  free sales forecasting templates to help your business predict future sales, enabling better inventory management, resource planning, and decision-making.

Startup Financial Projection Template

Download a Sample Startup Financial Projection Template for 

Download a Blank Startup Financial Projection Template for 

This dynamic startup financial projection template is ideal for startup founders and entrepreneurs, as it's designed specifically for the unique needs of startups. Available with or without example text, this template focuses on clearly outlining a startup's initial financial trajectory, an essential component for attracting investors. Users can input projected revenues, startup costs, and funding sources to create a comprehensive financial forecast.

3-Year Financial Projection Template

Download a Sample 3-Year Financial Projection Template for 

Download a Blank 3-Year Financial Projection Template for 

This three-year financial projection template is particularly useful for business strategists and financial planners who are looking for a medium-term financial planning tool. Input data such as projected revenues, expenses, and growth rates for the next three years. Available with or without sample text, this template lets you anticipate financial challenges and opportunities in the medium term, aiding in strategic decision-making and ensuring sustained business growth.

5-Year Financial Forecasting Template

Download a Sample 5-Year Financial Forecasting Template for 

Download a Blank 5-Year Financial Forecasting Template for 

CFOs and long-term business planners can use this five-year financial forecasting template to get a clear, long-range financial vision. Available with or without example text, this template allows you to plan strategically and invest wisely, preparing your business for future market developments and opportunities. This unique tool offers an extensive outlook for your business’s financial strategy. Simply input detailed financial data spanning five years, including revenue projections, investment plans, and expected market growth. Visually engaging bar charts of key metrics help turn data into engaging narratives.

Small Business Financial Forecast Template

Download a Sample Small Business Financial Forecast Template for 

Download a Blank Small Business Financial Forecast Template for 

Excel | Google Sheets 

The small business financial forecast template is tailored specifically for the scale and specific requirements of small enterprises. Business owners and financial managers can simply input data such as projected sales or expenses. Available with or without sample text, this tool offers the ability to do the following: envision straightforward financial planning; anticipate future financial needs and challenges; make informed decisions; and steer the business toward steady growth.

Elements in a Financial Projection Template

The elements in a financial projection template include future sales, costs, profits, and cash flow. This template illustrates expected receivables, payables, and break-even dates. This tool helps you plan for your business's financial future and growth.   

Here are the standard elements in a financial projection template:   

• Revenue Projection: This estimates future income from various sources over a specific period.
• Expense Forecast: This predicts future costs, including both fixed and variable expenses.
• Profit and Loss Forecast:  This projects the profit or loss by subtracting projected expenses from projected revenues.
• Cash-Flow Projection: This assesses the inflows and outflows of cash, indicating liquidity over time.
• Balance Sheet Projection: This predicts the future financial position, showing assets, liabilities, and equity.
• Break-Even Analysis: This calculates the point at which total revenues equal total costs.
• Capital Expenditure Forecast: This estimates future spending on fixed assets such as equipment or property.
• Debt Repayment Plan: This outlines the schedule for paying back any borrowed funds.
• Sales Forecast:  This predicts future sales volume, often broken down by product or service.
• Gross Margin Analysis:  This looks at the difference between revenue and cost of goods sold.

Types of Financial Projection and Forecasting Templates

There are many types of financial projection and forecasting templates: basic templates for small businesses; detailed ones for big companies; special ones for startup businesses; and others. There are also sales forecasts, cash-flow estimates, and profit and loss projections. 

In addition, financial projection and forecasting templates include long-term planning templates, break-even analyses, budget forecasts, and templates made for specific industries such as retail or manufacturing. 

Each template serves different financial planning needs. Determine which one best suits your requirements based on the scale of your business, the complexity of its financial structure, and the specific department that you want to analyze.

Here's a list of the top types of financial projection and forecasting templates:  

• Basic Financial Projection Template: Ideal for small businesses or startups, this template provides a straightforward approach to forecasting revenue, expenses, and cash flow.
• Detailed Financial Projection Template: Best for larger businesses or those with complex financial structures, this template offers in-depth projections, including balance sheets, income statements, and cash-flow statements.
• Startup Financial Projection Template: Tailored for startups, this template focuses on funding requirements and early-stage revenue forecasts, both crucial for attracting investors and planning initial operations. 
• Sales Forecasting Template:  Used by sales and marketing teams to predict future sales, this template helps you set targets and plan marketing strategies. 
• Cash-Flow Forecast Template: Essential for financial managers who need to monitor the liquidity of the business, this template projects cash inflows and outflows over a period. 
• Profit and Loss Forecast Template (P&L):  Useful for business owners and financial officers who need to anticipate profit margins, this template enables you to forecast revenues and expenses.  
• Three-Year / Five-Year Financial Projection Template: Suitable for long-term business planning, these templates provide a broader view of your company’s financial future, improving your development strategy and investor presentations. 
• Break-Even Analysis Template:  Used by business strategists and financial analysts, this template helps you determine when your business will become profitable. 
• Budget Forecasting Template:  Designed for budget managers, this template uses historical financial data to help you plan your future spending. 
• Sector-Specific Financial Projection Template:  Designed for specific industries (such as retail or manufacturing), these templates take into account industry-specific factors and benchmarks.

Related Financial Templates

Check out this list of free financial templates related to financial projections and forecasting. You'll find templates for budgeting, tracking profits and losses, planning your finances, and more. These tools help keep your company’s money matters organized and clear.

Free Project Budget Templates

Use one of these  project budget templates to maintain control over project finances, ensuring costs stay aligned with the allocated budget and improving overall financial management.

Free Monthly Budget Templates

Use one of these  monthly budget templates to effectively track and manage your business’s income and expenses, helping you plan financially and save money.

Free Expense Report Templates

Use one of these  expense report templates to systematically track and document all business-related expenditures, ensuring accurate reimbursement and efficient financial record-keeping.

Free Balance Sheet Templates

Use one of these  balance sheet templates to summarize your company's financial position at a given time.

Free Cash-Flow Forecast Templates

Use one of these  cash-flow forecast templates to predict future cash inflows and outflows, helping you manage liquidity and make informed financial decisions.

Free Cash-Flow Statement Templates

Use one of these  cash-flow statement templates to track the movement of cash in and out of your business, so you can assess your company’s level of liquidity and financial stability.

Free Discounted Cash-Flow (DCF) Templates

Use one of these  discounted cash-flow (DCF) templates to evaluate the profitability of investments or projects by calculating their present value based on future cash flows.

Free Financial Dashboard Templates

Use one of these  financial dashboard templates to get an at-a-glance view of key financial metrics, so you can make decisions quickly and manage finances effectively.

Related Customer Stories

Free financial planning templates.

Use one of these  financial planning templates to strategically organize and forecast future finances, helping you set realistic financial goals and ensure long-term business growth.

Free Profit and Loss (P&L) Templates

Use one of these  profit and loss (P&L) templates to systematically track income and expenses, giving you a clear picture of your company's profitability over a specific period.

Free Billing and Invoice Templates

Use one of these  billing and invoice templates to streamline the invoicing process and ensure that you bill clients accurately and professionally for services or products.

Plan and Manage Your Company’s Financial Future with Financial Projection and Forecasting Templates from Smartsheet

Empower your people to go above and beyond with a flexible platform designed to match the needs of your team — and adapt as those needs change. 

The Smartsheet platform makes it easy to plan, capture, manage, and report on work from anywhere, helping your team be more effective and get more done. Report on key metrics and get real-time visibility into work as it happens with roll-up reports, dashboards, and automated workflows built to keep your team connected and informed. 

When teams have clarity into the work getting done, there’s no telling how much more they can accomplish in the same amount of time.  Try Smartsheet for free, today.

Discover why over 90% of Fortune 100 companies trust Smartsheet to get work done.

This device is too small

If you're on a Galaxy Fold, consider unfolding your phone or viewing it in full screen to best optimize your experience.

• Small Business
• The Top 10 Accounting Software for Small Businesses

How to Create a Financial Forecast

See Full Bio

Our Small Business Expert

The question that provokes the ire of every fresh high school and college graduate: “What’s next?”

It’s a question you’re continually asked as a business owner. Lenders, investors, employees, and you all want to know what’s coming down the pike. A financial forecast is one of the best ways to express your vision.

Overview: What is financial forecasting?

Businesses create financial forecasts to play out a predicted future. Communicated through forward-looking financial statements, forecasts reflect how your business might look according to your estimates and assumptions about future revenue, expenses, and changes in your business.

Accountants and financiers share common ground in financial forecasting because it relies on the analysis of historical financial statements yet necessitates the input of future expectations.

As a small business owner, you need a plan for what’s next: Financial forecasts can alert you to gird your financial resources when you see sales shortfalls or the payment of a massive debt on the horizon. It can also show you that it’s time to hire more staff when you’re expecting an increase in demand for your products or services.

Lenders and investors often ask for financial forecasts to see your strategic plan for the company.

Financial forecasting can offer profound insight into your business’s future, but there’s no way to get around one immovable bulwark: the unknown of what’s to come.

Financial forecasting vs. budgeting: What's the difference?

Financial forecasting and budgeting operate similarly. The difference lies in how they’re used and why they’re created.

Budgets are a business’s guidebook to reaching its annual profit goal. Even businesses that adopt flexible budgeting, which adjusts spending as expected revenue shifts, enforce budgets to keep the business running as expected.

Most budgets focus acutely on revenue and expenses, and they can get pretty granular.

Compared to budgets, financial forecasts lose some detail and gain some scope. They’re often used to assess current business strategy and how decisions made now can produce a desired outcome in the future.

You’re meant to tinker with a financial forecast, coming back to it as you consider investments in and changes to your business. The forecast reflects, within a margin of error, the bottom-line impact of potential decisions.

Long-term forecasts can address a time frame that looks many years beyond where your budgets end.

How to create a financial forecast for your small business

Large businesses dedicate a portion of their finance staff to financial planning and analysis. They create complex models teeming with variables and assumptions. But you don’t need all that to get an idea of where your business is headed.

1. Dream up your future business

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.

Set your target on a date in the future, whether it’s six months, a year, or five years from now. Imagine the products and services you’re offering, the property you’re owning, and the long-term projects in which you’re investing.

2. Consider upcoming investments and debt payments

Coming back to the here and now, think about what projects you’ve agreed to start and any significant payments coming due in the time frame of your forecasted financials. Think about big expenses before you begin forecasting financial statements, called pro forma financial statements.

3. Analyze your historical financial statements

My favorite Pixar character, Edna Mode from The Incredibles, once said, “I never look back, darling. It distracts from the now.” But in this one instance, I must disagree. You must look back at your company’s financial history to create a future forecast.

For this exercise, pull up your company’s balance sheets and income statements for the past three periods. If you’re looking to make a financial forecast for the next six months, look at financial statements from the last three six-month periods.

Start by calculating the percent change in your five major account types: revenue, expenses, assets, liabilities, and equity. You can find account balances in your accounting software .

Take a look at this income statement for the last three years.

Compare income statements from the last three periods. Image source: Author

The company’s revenues increased drastically year-over-year. While total expenses also rose, they didn’t increase by nearly the same margin as revenues. We’ll keep this in mind when we create the pro forma income statement. Do the same for balance sheet accounts.

4. Complete a ratio analysis

Ratio analysis is an advanced step, so just keep moving if you’re satisfied with the analysis you got in step three.

But those who want to dive deeper should calculate the following accounting ratios for the last three years. Businesses with little to no inventory can leave off the quick ratio.

• Gross profit margin ratio = (Sales Revenue - Cost of Goods Sold) / Sales Revenue
• Profit margin ratio = Net Income / Sales Revenue
• Debt-to-asset ratio = Total Liabilities / Total Assets
• Current ratio = Current Assets / Current Liabilities
• Cash ratio = Cash / Current Liabilities
• Quick ratio = (Current Assets - Inventories) / Current Liabilities

You can also compare your ratios to the benchmark in your industry to assess your business’s health. ReadyRatios is an excellent resource for industry ratio benchmarks, but take this information with a grain of salt: Small businesses will have less favorable ratios because they simply can’t achieve the same economies of scale that larger businesses can harness.

5. Draft a pro forma income statement

After taking a look at your company’s past, it’s now time to predict its future. A crystal ball wouldn’t be unhelpful at this stage.

The standard suite of pro forma financial statements is an income statement, balance sheet, and cash flow statement. Start the process by exporting the most recent version of each statement from your accounting software to a spreadsheet.

New businesses with no historical data should rely on whatever they can glean from similar businesses that have opened in their industry and area in recent years, with a particular focus on sales information. Older businesses can refer to their own data.

To draft a pro forma income statement, follow these steps:

• Estimate future revenue and expenses with a growth or decline percentage
• Fine-tune your estimates to account for the effect of internal and external factors

Step 1: Estimate future revenue and expenses with a growth or decline percentage

The most straightforward forecasting technique is to take your business’s most recent income statement and apply a rate of growth or decline for each revenue and expense account. The results of your financial statement and ratio analyses will guide your forecast.

Consider the income statement above. Revenues increased by 53% between years one and two and 32% between two and three. It would make sense that revenue would grow again in year four, but by a smaller margin, perhaps 10%. That means revenues for year four are a forecasted $222,200 ($202,000 year three revenue * 1.1 growth rate).

You have multiple expense accounts to project, and they won’t all change by the same percentage. Fixed costs, like rent and insurance, won’t rise as fast as wages and the cost of goods sold. Looking at historical data, create a realistic growth forecast for each account.

If you completed a ratio analysis, you’d bring in that data to sharpen the forecast.

Step 2: Fine-tune your estimates to account for the effect of internal and external factors

Internal factors are those you can expect or control, including:

• Introducing or discontinuing product lines
• Hiring new employees
• Investing in machinery, land, or buildings
• Paying down debts

External factors are harder to see coming, but might be:

• Changes in consumer attitudes and industry standards
• Changes in tax law and other regulations
• An economic boom or downturn
• A pandemic (looking at you, 2020)

Adjust your estimates based on what you see coming down the pike.

6. Draft a pro forma balance sheet

In a similar process to creating the income statement, start with the most recent version of your balance sheet. The balance sheet is home to asset, liability, and equity accounts.

Adjust cash according to the expenses you plan to pay with cash, accounts payable for expenses paid on credit, and accounts receivable for credit sales.

Don’t forget to adjust your fixed asset balance during this step. If you’re planning to make a major investment in land or machinery, this is the place to reflect that.

You’ve made a proper balance sheet when assets = liabilities + equity. The most easily forgotten step: Add forecasted net income to retained earnings, an equity account.

7. Draft a pro forma cash flow statement

The cash flow statement helps business owners understand where their cash goes during the period. It can help to break this statement into monthly or quarterly statements to make sure your business is never spending more cash than it has at the time.

8. Adjust often

Return to your financial projections frequently to adjust for changes in business strategy, internal and external factors, and new financial insights. Forecasts are more a moving target than a guiding star.

Good for insight, not for reliance

We live in the present, waiting to experience an unknown future. While financial forecasting can offer insight into your business’s future, it can’t tell you what exactly will happen. The discipline of keeping close tabs on your accounts and your projections, though, will stand you in good stead no matter what the future brings.

We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.

The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.

Copyright © 2018 - 2024 The Ascent. All rights reserved.

How to Create a Financial Forecast

Bryce Warnes

Reviewed by

July 15, 2022

This article is Tax Professional approved

Maybe your goal is world domination. Maybe you just want a sustainable side hustle. Either way, financial forecasting helps you understand the steps you need to take—and the numbers you need to hit—to make growth happen for your business.

I am the text that will be copied.

Plus, if you ever go looking for more funding, you’ll need financial forecasts to prove that your business is on track for growth.

Here’s everything you need on hand, and the steps you can take, to produce a reliable financial forecast.

What is a financial forecast?

A financial forecast tries to predict what your business will look like (financially) in the future. Pro forma financial statements are how you make those predictions somewhat concrete.

Pro forma statements are just like the financial statements you use each month to see how your business is performing. The only difference is that you prepare pro forma statements in advance, for future months and years.

There are three key pro forma statements you should be familiar with:

• The Income Statement
• The Cash Flow Statement
• The Balance Sheet

Helpful resource: How to Read and Analyze Financial Statements

Depending on your goals, these statements will cover different time spans. If you’re creating a financial forecast for your planning purposes, you should create pro forma statements covering six months to one year in the future.

If you’re presenting your forecast to a lender or investor, though, you should create pro forma statements covering the next one to three years.

Financial forecasting vs. budgeting

When you create a budget for your business , you plan to set aside money for certain costs, taking into account your income and expenses. The budget you make may be based on info from your financial forecast, but it’s distinct from the forecast itself.

Think of financial forecasting as a prediction, and budgeting as a plan. When you make a financial forecast, you see what direction your business is headed in, based on past performance and other factors, and use that to anticipate the future.

When you make a budget, you plan how you’re going to spend money based on what you expect your finances to look like in the future (your forecast).

For instance, if your financial forecast for next year says you’ll have an extra $5,000 in revenue, you might create a budget to decide how it will be spent—$2,000 for a new website, $1,000 for Facebook ads, and so on.

Three steps to creating your financial forecast

Ready to peer into the crystal ball and see the future of your business? There are three steps you need to follow:

• Gather your past financial statements. You’ll need to look at your past finances in order to project your income, cash flow, and balance.
• Decide how you’ll make projections. Besides past records, there’s other data you can draw on to make your projections more accurate.
• Prepare your pro forma statements. Pour a coffee and get ready to crunch some numbers.

Step one: Gather your records

If you’re not looking into the past to see how your business has grown, you’re not really forecasting—you’re just guessing.

You’ll need to gather past financial statements so you can see how your business has developed over time, and then project that development into the future.

Your bookkeeper or bookkeeping software should generate financial statements for you. If you don’t have either, and you don’t have financial statements, you’ll need to take care of that before you can start forecasting. You need complete bookkeeping in order to get the transaction history you base your financial statements on.

Put aside the task for financial forecasting for the moment, and learn how to catch up on your bookkeeping .

Once your books and financial statements are up to date, you’ll have everything you need to start planning for the future.

Step two: Decide how you’ll make your forecast

Depending what resources you choose to use, the type of forecast you create will fall between two poles— historical and researched-based.

Almost every financial forecast includes a little bit of historical forecasting, and a little bit that’s research-based. The blend you choose will depend on your needs and the resources at your disposal.

Remember, the goal is to create a realistic, useful forecast—without breaking the bank or eating up all your time.

Historical forecasting

When you use your financial history to plot the future, it’s historical forecasting . You’re looking at your last few annual Income Statements, Cash Flow Statements, and Balance Sheets to see how fast you’ve grown in the past. From there, you can make a guess about how fast you’ll grow this year.

The benefit of this is that it’s relatively easy to do and doesn’t take a lot of time, money, or expertise. The drawback is that you’re only using info about your own business, and not looking at broader market trends—like what your competition has been up to.

Historical forecasting is a good bet if you’re forecasting for modest growth, or else creating a quick-and-dirty forecast for your own use—not putting together a presentation for potential investors.

Research-based forecasting

When you do research about broader market trends, you’re using research-based forecasting . You may look at how your industry has performed over the past ten years, investigate new technologies and consumer trends, or try to measure the progress of your competitors. You might look at how companies similar to yours have planned their own growth.

The benefit of research-based forecasting is that you get a detailed, nuanced view of how your business could grow, taking into account a lot of different factors. And it’s the kind of forecast that investors and lenders want to see.

The drawback is that researched-based forecasting can be expensive. You may find you need to hire outside consultants and researchers to handle the heavy lifting.

Research-based forecasting is a good choice if you’re courting investors, or planning on rapid, aggressive growth. It’s also good if your company is brand new, and doesn’t have a lot of financial history to draw on for making projections

Step three: Create pro forma statements

Once you’ve collected the information you need to build your forecast, you can create pro forma statements.

We’ll cover the three key financial statements here. Whether you use all of them is up to you.

If you’re creating a quick forecast for your own planning, you may only need to create pro forma Income Statements. If you’re presenting to lenders or investors, you’ll want to use all three.

Rule of thumb: Any form you’d use in the month-to-month operation of your business should be created pro forma. For instance, if you move a lot of cash around every month, and you rely on Cash Flow Statements to make sure you’ve got enough money on hand to pay your vendors, then it’s wise to create pro forma Cash Flow Statements as part of your forecast.

Creating the pro forma Income Statement

First, set a goal—a projection—for sales in the period you’re looking at.

Let’s say you made $30,000 in sales this year. Next year, you want to make $60,000. So, your total sales will increase by $30,000.

Set a production schedule that will let you reach that goal, and map it out over the time period you’re covering. In our example, there will be 12 Income Statements in the year to come (one each month). Map out that $30,000 increase in sales over the 12 statements.

You could do this by increasing sales a fixed amount every month, or gradually increasing the amount of sales you make per month. It’s up to your instincts and experience as a business owner.

Then, it’s time for the “loss” part of “ profit and loss .” Calculate the cost of goods sold for each month, and deduct it from your sales. Deduct any other operating expenses you have, as well.

It’s important to take every expense into account so you get an accurate projection. If part of your plan is quadrupling your online advertising, be sure to include an expense that reflects that.

Once you’re done, your pro Forma Income Statements show you how much you can expect to earn and how much you can expect to spend in the time ahead.

Example Pro Forma Income Statement:

Karen’s Falafel Warehouse

Creating the pro forma Cash Flow Statement

You create a pro forma Cash Flow Statement a lot like the way you’d create a regular Cash Flow Statement. That means taking info from the Income Statement, and using the Cash Flow Statement format to plot out where your money is going, and how much you’ll have on hand at any one time.

Your projected cash flow can tell you a few things. If it’s in the negative, it means you’re not going to have enough cash on-hand to run your business, according to your current trajectory. You’ll need to make plans to borrow money and pay it off.

If your net cash flow is positive, you can plan on having enough surplus cash on hand to pay off loans, or save for a big investment.

Example Pro Forma Cash Flow Statement:

Ruth’s Raccoon Rescue and Rehabilitation Center

Creating the pro forma Balance Sheet

Drawing on info from the Income Statement and the Cash Flow Statement lets you create pro forma Balance Sheets. But you’ll also need previous Balance Sheets to make this useful—so you can follow the story of how your business got from “Balance A” to “Balance B.”

The Balance Sheet will project changes in your business accounts over time. That way, you can plan where to move money, when.

Example Pro Forma Balance Sheet:

Big Bill’s Budget Wedding Videos

Forecast vs. actuals

Once you’ve created a financial forecast, your work isn’t done. The vital second stage is to go back and record what your actual financials were in comparison to your forecast once the month or year is over.

Why is this so vital?

It helps you learn to forecast better next year, and when your forecast is way off, you can take notes for yourself on why that was.

For example:

• March revenue was much higher than I forecasted for. I didn’t realize there would be a seasonal boost over spring break.
• Sales were lower than I forecasted in the June. There was a miscommunication with the supplier and I didn’t have all the inventory I needed.

These mundane notes to yourself accumulate into invaluable business knowledge that help make every year more successful than the last.

Best, worst, and normal case projections

Whether you’re the kind of person who always sees the glass half full, or the kind who always sees it half empty, it’s a good idea to take into account different possible outcomes for your business.

Humans aren’t very good at predicting the future. Consider creating three different forecasts: One for the best case scenario, one for the worst, and one for the middle or “regular” scenario.

• Maybe the t-shirts you buy wholesale for your online store go up in price, like they did last year. Factor that into your worst case scenario .
• Maybe t-shirt prices stay the same, plus your new advertising plan takes off, and you get more business. Consider that the best case.
• Maybe everything more or less stays the same. Let’s call that the regular case.

The best/worst/regular trifecta is also useful when you’re making a budget for your business. For example, in January you might budget for a regular scenario. In this case, that means monthly sales revenue of $8,000.

However, in February say your revenue hits $10,000, and in March it’s $11,000. At that point, you may want to adjust your budget to the best case to scenario—since you’ll now have more money to reinvest in your business.

At the end of the day, the more robust your forecast, the better you’ll be able to plan the future of your business, and think on your feet. Plus, you’ll impress investors and lenders, by proving you’ve considered (almost) every possible outcome.

The better you understand how financial statements work, the easier you’ll find it to create financial forecasts. Before you start forecasting, take a look at our other helpful resources for understanding your small business financials:

• Financial Literacy 101 for Small Business Owners
• 10 Financial Ratios Every Small Business Owner Should Know
• Accounting Solutions: The Top 7 Ways to Get Your Accounting Done

Related Posts

Finding Small Business CPAs: Tips Before You Choose

You don’t have to tackle your business finances alone. A certified public accountant (CPA) can help out at various stages during the growth of your small business.

How to Read (and Understand) an Income Statement

If you can read an income statement, you can read your business.

How to Calculate and Use Year-Over-Year (YOY) Growth

The year-over-year growth formula is one of the most reliable ways of tracking your long-term growth. Here's how it works.

Join over 140,000 fellow entrepreneurs who receive expert advice for their small business finances

Get a regular dose of educational guides and resources curated from the experts at Bench to help you confidently make the right decisions to grow your business. No spam. Unsubscribe at any time.

How to Set Up a Financial Forecasting Model  For Your Startup

The ultimate guide to financial modeling for startups.

Setting up a robust financial forecasting model is the cornerstone for any successful startup. Navigating the intricacies of finances can be daunting, but a well-structured financial forecast not only serves as a roadmap but also empowers entrepreneurs to make informed decisions critical to their business’s growth and sustainability. In this blog post, we’ll explain why financial forecasting is important, give you a step-by-step guide for creating a strong plan, and call out what is significant to consider to achieve an accurate and reliable model. We aim to equip you with the knowledge and tools necessary to develop a solid financial roadmap that propels your startup toward success.

Why is Financial Forecasting Important?

Financial forecasting serves as a guide to businesses during times of uncertainty. They offer a strategic plan, help with decision-making, and ultimately help achieve long-term success.

For startups specifically, financial forecasting is a must. During the early stages of these businesses, a financial plan helps predict the potential challenges that may arise. The plan gives insight into how resources should be allocated and what funds should be saved.

Startups, typically operating in an environment of high risk and rapid change, rely on accurate financial projections to attract investors, chart sustainable growth trajectories, and steer away from potential pitfalls that could derail their ambitious endeavors. The ability to forecast financial outcomes empowers startups to make informed decisions, adapt swiftly to market fluctuations, and maintain a healthy financial standing in the face of uncertainty, positioning them for resilience and success in the competitive business landscape.

A Step by Step Guide

• Define your Goals and Objectives

Clearly outline the short-term and long-term goals of your business. Understand what you aim to achieve through financial forecasting – whether it’s securing funding, managing cash flow, or planning for growth.

• Do the Research

Collect and analyze historical financial data from your startup. This includes income statements, balance sheets, cash flow statements, and any other relevant financial records. Understanding past performance is crucial for making accurate projections. It’s also important to understand the different models that are available and how they can fit your needs.

• Gather the Data

Collect relevant financial information from external sources such as banks, credit agencies, and other public records and understand how they will impact your business. 

• Input the Data into a Model

Use the data collected and import it into a spreadsheet or other software program 

for analysis.

• Analyze the Results

Analyze the results to determine the best types of investments and strategies for reaching your goals.

• Visualize the Data

Utilize visuals such as charts and graphs to help understand the information

• Test and Evaluate the Outcomes

Test different scenarios within your model to make sure it is working accurately and evaluate the results accordingly. 

•  Update Your Forecasts Regularly

Regularly update your forecasting model with new data as it becomes available in order to ensure accuracy over time.

By following these steps and continuously refining your financial forecasting plan, you’ll equip your startup with a powerful tool to make informed decisions, manage risks, and drive sustainable growth.

Things to Consider

When conducting financial forecasting as a startup business, several crucial considerations can significantly impact the accuracy and relevance of your projections:

By considering these factors while financial forecasting, startups can develop more accurate, reliable, and adaptable financial models, empowering them to make informed decisions and navigate the challenges inherent in the early stages of business development.

In Conclusion

In essence, financial forecasting serves as a guiding light for startups, lighting the path toward sustainable growth and success. By meticulously analyzing past performance, making informed assumptions about the future, and projecting key financial metrics, startups gain a profound understanding of their business landscape. This foresight arms entrepreneurs with the insights needed to steer their ventures through uncertain terrain, make strategic decisions, secure funding, and remain agile in a rapidly evolving market. 

Ultimately, financial forecasting isn’t just about numbers on a spreadsheet; it’s a dynamic tool empowering startups to navigate challenges, capitalize on opportunities, and pave the way toward a future where their innovative ideas thrive and flourish. Embracing the power of financial forecasting equips startups with the resilience and foresight necessary to transform visions into tangible, long-lasting success stories.

*This blog does not constitute solicitation or provision of legal advice and does not establish an attorney-client relationship. This blog should not be used as a substitute for obtaining legal advice from an attorney licensed or authorized to practice in your jurisdiction.*

• Last Modified
• December 21, 2023

FOR ANY QUESTIONS

• MAILING ADDRESS

Finvisor HQ 48 2nd St, 4th Floor San Francisco, CA 94105

• PHONE NUMBER

(415) 416-6682

• EMAIL ADDRESS

" * " indicates required fields

Supercharge your business’ finance journey

Does your business plan need a push?

Writting a business plan can be a springboard exercise for your business, and it's not as difficult as people think. All it takes is a bit of method, and some efficient tools. The good news our free articles and paid course have you covered!

Resources on Business Plan Writing :

An article of the Accelerated MBA written by:

Antoine Martin (Ph.D) | Business coach

Is this article relevant? Share it & help someone!

In this article:

Financial projections: how to write the financial plan in business plan.

So, you’ve decided to write a business plan? Good for you! It’s an important document that will help you outline your business goals, strategies, and tactics.

But it’s not just a document for you, as the business owner in charge of everything – it’s also important for potential investors and lenders.

In particular, one of the most important sections of your business plan should be your financial plan or, in other words, your overall financial projections for the next few years – understand, three to five years – distilled in a specific and highly codified format.

Why? Because the financial projections in a business plan are the numbers’ version of your pitch – if something doesn’t add-up, that’s where you see it.

Now, we know that numbers can be impressive (not to say daunting), so in this post, we’ll explain to you how to write a financial plan in your business plan.

We’ll also explain the logic you are supposed to follow to do things right (because financiers expect you to follow a very specific logic).

And we’ll explain what your business plan absolutely needs to include from a financial standpoint.

If that makes sense to you, then let’s get going!

By the way…

Before we dig into the financial projections’ discussion, let us give you a tiny bit of background!

We are professional business coaches, and our job is to push entrepreneurs and business owners to their next steps.

Business planning and business plans are part of that, obviously, therefore we have written a series of free articles on how to write a business plan – of which this page is a part.

We are on a mission to make entrepreneurship fun and accessible, so we provide about 80 percent of our content for free – including a free business plan template to be downloaded down this page.

Still, in case that’s not sufficient, we’ve also created our Business Plan Builder Module , which has been designed to make your life super easy.

Shameless plug: it gives you access to:

• a complete and solid business plan writing work-frame tool
• automated financial tables that take the hassle away (yayyy!)
• two designer-made templates (comprehensive + pitch deck)
• and two hours of tutorial videos recorded with a business coach to explain all the logic you’ll need to master if you plan on writing a business plan that converts.

There’s simply no way to make things easier!

Now, having said that, let’s get going.

As a reminder, what is a business plan about?

To start the discussion, remember that a business plan is about much more than just numbers. As we’ve explained in our article What are Business Plans For? , the role of such a document is to show that beyond a nice business plan pdf nobody really cares about, you have a real business and a plan to get it somewhere.

First, a business plan’s purpose is to help you explain what your project is about. In that sense, the document you need to write should be written as a storytelling instrument, designed, and formulated to tell people a story they will want to read AND remember.

Second, it should give you a way to showcase your main business objectives for the next few years, as well as the strategy you will put into place to get there and deliver on your promises.

Third, your business plan should also provide a market analysis, and a description of your main target segment. That gives the reader a better understanding of your ecosystem’s potential, but more importantly the exercise forces you to look around, open your eyes and do some meaningful research.

You wouldn’t want to drive blindfolded, would you?

Of course, your document should also have a financial component – which is the topic of this article – and there the challenge is to ensure that your financial projections make sense, that they are clear, accurate and easy to follow.

Long things short, investors and bankers expect you to match a very specific business plan outline and format (there’s a code!) and you don’t have much wiggle room there – so be careful in your approach!

What is a Financial Plan & what should it include?

Now, let’s get into the core of this article: financial plans and financial projections. What are they, why are they important – there is a lot to explore.

First things first, what is a financial plan? How important is it in a business plan? And what type of elements is it made of? What are the projected financial statements you need to provide? Oh, and what do we mean by ‘financial projections’ in the first place, by the way?

What is the role of a financial plan in business plan?

A financial plan is the financial part of your business plan. Its purpose is simple: explain to the reader what should be the ins and outs of your project from a financial perspective, and help them see if their own business projections are aligned with yours.

On the one hand, the idea is to put numbers on your project, to make it tangible and show that your vision includes the end and the means.

On the other, it is also to show that you are capable of defending your big idea as well as the projected financials that need to come with it – something that many wannabe entrepreneurs are actually unable to do…

As a side note, and as silly as that might sound, this means that your business plan should include a lot more than just a financial plan and a smart cash flow projection!

That point brings us back to the one we made earlier when we said that a business plan should follow a specific structure (go read that article!), but we mention it again because we want things to be very clear: your business plan should be a matter of storytelling, not just a matter of financial projections!

Typically, we often see accountants work on business plans, and what they produce is rarely enough because they only deliver financial estimates that make no real sense to non-accountants (even less to the entrepreneurs at stake) and leave aside the rest of the topics – particularly the storytelling!

Said differently? The numbers are one aspect of the story, but you still have to come up with the pitch – which is where the rest of the business plan comes in handy.

Make sure to deliver an easy-to-read mix!

Your financial plan must provide your financial projections

To get into the technical part of the discussion, the financial plan in your business plan should include your financial projections, organized in a very formal format.

That makes two distinct points to consider!

On the one hand, you should be able to show with clear numbers what money should come in and when (that’s the income forecasts), for this year but also for the next, the ones after that for three to five years.

On the other, you should also be able to show what money needs to go out to make the business roll. What are the production costs, the fixed and variable expenses, the salaries, and of course the various marketing expenses needed to generate the development you are planning on getting to.

On that point, remember that your cost of client acquisition should also be part of the formalized projections – otherwise your numbers will be flawed (and doomed).

Ultimately, you need to be very clear as to when your new business (or existing business) should break even, as to when should profits be expected, as to when lenders and investors will get their money back, so forth and so on.

It must include specific financial documents people will expect to see

From a very formal perspective, you shouldn’t be trying to make one single projection sheet. Nope! Your readers will expect to see three important financial documents in the financial section of the business plan you will introduce to them.

• A profit and loss statement – also known as your P&L statement, or as an income statement
• A cash flow statement
• And a balance sheet.

First, the P&L table or income statement should show what money is expected to come in or go out, but it should also show if and when the business will make a profit or a loss, year by year, for the next five years.

The sales forecast and the operating expenses should be easy to understand at that stage, and you should also be able to provide your estimated gross profit, your gross margin, as well as your net profit and net margin.

In case you are wondering, your gross profit corresponds to your sales minus your cost of production. Your net profit corresponds to the gross profit minus all the remaining costs.

It’s okay to read that twice…

Not being profitable is also okay, by the way. That’s the game. However, you must be able to explain why you won’t be profitable in a given year, and how you plan on filling the gap in the bank – otherwise your business dies, right?

Second, the cashflow statement should explain your cash flow management strategy and indicate when you will need to fill the bank account in, and why.

For instance, important account receivables could justify a temporary cashflow need, but the gaps left from the previous years should also be visible. Obviously, the funding needs should also be there and aligned with the financial situation of the business.

Third, the balance sheet is a summary of the previous two tables, except that it shows the various elements in terms of assets or liabilities. For instance, the account receivables we mentioned just before would be an asset (because some money is owed to the business) while account payables would be a liability (since the business owes money to someone else).

Does all this sound a little complex?

That’s because it is.

No need to worry, though. We have you covered and will provide all the templates and tools you need further below. For now, just keep reading.

So, what’s the financial plan in a business plan for?

To conclude, the financial plan in business plan should act as a financial cartography of what you have in mind for that business of yours.

• The financial plan should illustrate the plan you have for the business in terms of numbers
• It should include precise financial projections of what you think can be achieved
• It should clearly illustrate your cashflow management strategy
• And it should summarize the information clearly
• All of this through highly standardized tables financiers will understand very easily

What documents should a financial business plan contain?

Getting your financial business plan right is a lot simpler than it seems.

Now, when you’re pitching that business of yours to potential partners, investors or lenders, you’ll need to provide them with a series of financial statements.

Yet, how to produce those documents without jumping into a living nightmare? How to come up with cash flow projections that make sense instead of being purely random?

Word of caution: financial planning for businesses is typically complex.

The question is not only fair, but it is also super-duper common and literally blocks tons of entrepreneurs and small business owners on a daily basis.

Because financial planning for businesses is typically complex.

Because most people aren’t comfortable with numbers.

And because the vast majority of small business owners simply don’t know where to start.

That’s probably why you were looking for either a financial plan pdf template or an example of financial plan for small business owners a few minutes ago, isn’t it?

Typically, here is what happens.

Some try and do their best, but then they don’t feel confident with pitching and defending their financial analysis, so they keep delaying and nothing happens.

Others end up having recourse to external help, even though external business plan consultants usually aren’t a good idea at that stage.

And the rest gives up.

That’s a shame, especially if consider that financial planning for a small business and building a financial plan for a business plan are only a matter of having access to the right method and tools!

Yes, a big (big) part of the work is to guestimate, but the rest is about trusting the process with the right logic, method and tools – and there’s nothing you can’t manage here.

Especially with the right tools!

How to build your financial forecasts?

Now that you understand the different sections of a financial plan, let us talk about how to build financial forecasting.

In plain English, this part of the exercise is where you’ll estimate your company’s income and expenses for the next few years. Therefore, you should keep a few things in mind.

One, you need to have a good understanding of your business in order to create realistic forecasts.

Sounds silly? Maybe, but this is a mistake people make way too much, and when they fail at justifying their financial projections, everything else goes down.

Two, you absolutely want to make sure that your projections can explore various trends, i.e. your pessimistic, optimistic, and most likely scenarios.

• If everything goes extremely well, we’ll get there.
• If everything goes wrong, we’ll get there.
• But… we should reasonably expect to achieve this and that if we obtain the funding we need…

Can you see the idea?

Be sure to also factor in any potential changes or risks that could affect your business.

For example, if you’re expecting a new competitor to enter the market, you’ll need to account for that in your projections. By being realistic and accounting for as many variables as possible, you’ll give yourself the best chance of success so give it some thought!

Pragmatically, how do I come up with reasonable financial forecasts for my business plan?

It’s all a question of common sense, really.

• How much do you plan on selling?
• What are your short, medium and long term financial goals?
• What would be the cost of production?
• What margin does that leave you with?
• What fixed costs would you expect?
• How about variable costs?
• Have you included transaction fees and credit card fees in your costs?
• What is the cost of insurance premiums?
• Will there be any debt to repay?
• What type of budget do you need for marketing purposes?
• What is the cost of acquisition of the client?
• What operational margin does it leave before the taxman comes in?
• What kind of money do you need to meet your long term goals?
• Have you planned for any emergency fund at all?

Right, that’s a long list. But! Answering those questions should give you a strong basis to build financial projections that make sense, because that’s literally how you would read your income statement in the end.

If you were trying to translate boring numbers into a meaningful story, that’s exactly where you would start!

Again, we have you covered with all this.

If you are looking for a concrete and practical financial plan example, make sure to download our business plan template down the page. It will give you the basic pro forma financials you’ll need.

If you need to understand the logic behind the template and would rather use an automated spreadsheet to get everything done, however, then it’s time to stop struggling.

The Impactified Business Plan Builder will provide everything you need: the automated tables and two hours of business coaching videos designed to explain all the logic you’ll need – what are you waiting for?

Why Are Financial Projections so Important in the end?

So, overall, why is creating financial projections so important? Are there various types of financial projections anyway? There are several things to keep in mind here.

First, your financial projections are important because they give bankers and investors the numbers they need (to make an informed decision) in a format they expect to see.

Second, your projections show whether your strategy is aligned with the means at your disposal to achieve it and whether you are aware of the financial engineering required to make your business roll.

Third, and in a related way, forecasts will give you, as the entrepreneur in charge, an opportunity to show if you understand the business for real (or if someone else not present during the discussion wrote the plan for you).

All of these documents are important, but you (nobody else!) will need to be able to tell a story around them.

Investors aren’t just looking for numbers! They invest in teams and people before investing in projects, so they want to know that you understand your business and that you have a plan for the future!

So, make sure your financial projections are accurate and be prepared to answer any questions investors have about them.

Understanding the investment process

To understand how to handle the exercise properly, understanding the investment and funding process in general is important.

What do bankers and investors expect when they are looking at a business plan? How do they decide whether to invest or not? And how do the financial projections help them make that decision?

In short, investors are looking for a return on their investment. So, they want to know what they can expect to earn from their investment, and how that compares to the risks they’re taking.

Your projected income statement is important there, but so are your cashflow projections!

Your financial estimates should therefore show how your business will grow and what profits you’ll generate, both in the short-term and long-term. This information will help investors determine whether or not your business is a good investment.

In contrast, bankers have a much lower risk tolerance and are not interested in funding you – they lend money to those who have money to repay the debt (or some assets to engage as collateral in case something goes wrong). Hence, what they look for is not a high return on investment based on risk, but a repayment capacity based on predictability and wise financial management.

Said differently? You need to create financial projections that make sense and adapt your financial pitch to your audience accordingly.

Show investors that there is a great opportunity to make money at a later stage and show bankers you will be able to start repaying as soon as possible.

Again, if you need to explore the question of investors’ mindsets, we elaborate on that in our video module – it’s time to give it a try!

Business valuation and exit thinking

Last but not least, understanding the investment process means that you also need to start thinking in terms of valuation and exit.

Or, said differently, the financial plan in your business plan must lead you to think about what your business will be worth a few years from now, and about how you will be able to make money (for you and your investment partners) by selling it.

On the one hand, exit thinking relates to the idea that investors invest in a business with the expectation that the business will raise more money later on, at which stage a larger investor will come in and buy the existing investors out.

To make your investors some money, therefore, you have to start thinking in terms of exiting the business at some point – which means progressively turning the business into an asset that works on its own, for you and as much as possible without you.

This mindset is absolutely key – think about it!

On the other hand, the discussion leads us to think in terms of business valuation – understand, how much is the business worth, and how much could it be sold for.

That topic is probably getting too technical for this article’s discussion, so we’ll explore it in another post.

Meanwhile, make sure to listen to the exit & valuation video in The Business Plan Builder module . We explain all this and even go as far as giving you an automated valuation calculator in the financial tables part of the tool – again, you have no excuse!

Avoiding the typical mistakes small businesses make with financial planning

To finish with the discussion, what should you keep in mind if you wanted to turn your financial plan into an asset that generates money rather than frustration?

Like it or not, but small business financial planning isn’t an intuitive thing and people tend to make very typical mistakes you should avoid at all costs!

Know your business

First piece of advice, you really (really, really) want to know your business from every angle.

When you are writing the financial plan in your business plan, it’s important to remember that your projections should represent an estimate of future performance. That’s how investors and lenders will read your numbers anyway.

So, your financial projections and forecasts should be based on realistic assumptions and calculations that you should always be prepared to adjust as needed.

In order to make accurate projections, it is therefore extremely important to have a good understanding of your business and the industry it operates in. You should also consult with industry experts and other professionals who can help you make informed decisions about your business.

Do the exercise yourself!

When you’re writing your financial plan, it’s important to avoid making common mistakes. One of the most common errors is underestimating how much money your business will need to operate.

Another is to rely on business plan consultants to write your financial projections without being able to understand the numbers yourself. This can lead to mistakes if the numbers are incorrect, and it can lead to embarrassing ahem! moments if you can’t explain how this or that number ended up in the document.

The best way to ensure accuracy is to do the exercise yourself with the right tools in hand and the brainstorming support of someone you trust to challenge your thoughts and conclusions.

This can be done with your acting CFO or close financial advisor if you have one, or with a fellow entrepreneur if anyone around you has the right mindset to dig into the discussion with you.

Alternatively, hiring a business coach is another way to brainstorm and challenge yourself – follow the link to find out more about that.

Don’t be a tourist. That’s stupid.

Third piece of advice: don’t enter into a discussion with a potential partner as a tourist – this is stupid, and that could very well kill you.

We have seen countless entrepreneurs walk into a room (let alone into a large startup event) saying that they were raising money for their startup. Yet, more often than not, their financial targets are not set or beyond approximative, which means they can’t explain why they need money and how they are going to spend it.

When you do that, the only thing you do is be stupid and make sure everyone knows about it.

First, because they won’t take you seriously. Would you invest money into someone who can’t tell you how they’ll use it and with what return on investment expectations?

And second, because the people you talk to will most likely ask you to come back to them once you have more information to provide. Which either means “don’t come back before six months to a year” or “please don’t come back at all, I have better things to do with my time and more competent people to talk to”.

Don’t be a tourist or you’ll just burn yourself. That’s stupid.

Turn your numbers into a story

The fourth piece of advice is going to be a repeat from earlier, but it’s important so let’s be redundant.

Now that you’ve written your financial projections, it’s time to go beyond the numbers and start telling your business story. The financial plan in your business plan is a great place to start but remember that it’s just one part of your overall pitch.

You’ll also need to be ready to pitch your idea, product, or service, and be ready to defend your financial plan against questions from investors or lenders.

Think holistically and build a story people will want to listen to, remember and act on. Period!

TL;DR: Get your financial projections right!

Now that you understand the different components of a financial plan, it’s time to learn how to write it. The key to writing a good financial plan is to be realistic. Don’t make assumptions that are unrealistic or impossible to achieve.

Start by estimating your sales and expenses for the first year of business. Be as specific as possible, and remember to include both fixed and variable costs. From there, you can create a cash flow statement that shows how your business will generate and spend money over time.

The goal of a financial plan is to paint a realistic picture of your business’s financial future. So make sure to update your plan as your business changes and grows. With careful planning and accurate numbers, you can ensure that your business will be successful for years to come.

What should your business plan financial plan include?

• A profit and loss statement – also known as your P&L statement, or as an income statement
• A cash flow statement showing if your business plan financial projections are realistic

What is the purpose of your business plan’s financial projections?

• To how the plan you have for the business in terms of numbers
• To show a financial overview of what you think can be achieved, by when, with what means
• To show you have a cashflow management strategy that makes sense
• To show you understand the standardized expectations and know how to play by the book
• To show that, overall, your business proposal makes sense whatever the angle!

Need a reliable template and video tutorial to get your financial business plan & financial projections right?

It’s built around over 2 hours of explanatory videos and comes with everything you’ll need to:

• Figure out what you need to figure out – powerful, uh?
• Understand the business plan code!
• Write a top business plan – with just the right amount of words and pages!
• Build your financial estimates – with an automated financial projections template excel spreadsheet!
• Create a visually appealing pitch deck people will want to read thanks to our designer-made templates!

If you want to stop wasting your time, this is THE most simple business plan template, and you can’t afford to miss it!

Wanna’ start with something free? Our free business plan template is also here to help !

Psss! Share this Article!

Topics related to Financial Projections: How to write the financial plan in business plan:

• Financial plan in business plan coffee shop
• Financial plan in business plan template

Need help with building & scaling your business?

At Impactified , we are on a mission to make you build, grow, and scale businesses you can be proud of, and we do that by making our business coaching expertise available to you, in person and through kick-ass self-coaching modules. You will love the experience either way, the only question is, what makes the most sense to you?

More Insights on Business Plan Writing

Hey coach! I’m writing a business plan and I’m wondering how to build the financial projections part of the document. What’s the importance of financial projections exactly – I mean, isn’t it absolute BS? How do I write the financial plan in business plan, and even more importantly, how can I make sense of all those messy tables? Can you help me understand this? Thanks in advance!

Do I Need a Business Plan Consultant? No, You Don’t!

Hey there Coach! I’m a small business owner and I need to find some support with my business plan. People suggested that I find a business plan consultant near me, but that’s a big cost and I’m not too sure about what to expect from that. What’s your opinion about business plan consultants in general? Is there any alternative you would highly recommend? Thanks!

How Much Does a Business Plan Cost? Just Under $100!

Hey coach! I was wondering – how much does a business plan cost? I need one, and I’m thinking about having it written for me, so I’d love your insights. Also, I’ve heard business plan writers cost a lot of money, so I’m interested if you have tips for writing a low-cost business plan! Thanks!

The #1 Growth & Scale Facilitation Platform for Entrepreneurs

Building & scaling a business is tough, so we’ve built easy-to-use tools & programs you can leverage anytime to make your business rock. The rest is up to you!

Get Started

• Book a Call!
• Pitch Your Biz!
• Read our Entrepreneurs' blog!

Business Facilitation

• Why Hire a Facilitator?
• Entrepreneur Training
• Our Brochures
• Team performance Survey
• The FREE Coaching Newsletter
• Impactified News
• Get in touch

© 2019-Present - All Rights Reserved - Impactified.com

• Starting a Business
• Growing a Business
• Small Business Guide
• Business News
• Science & Technology
• Money & Finance
• For Subscribers
• Write for Entrepreneur
• Tips White Papers
• Entrepreneur Store
• United States
• Asia Pacific
• Middle East
• South Africa

Copyright © 2024 Entrepreneur Media, LLC All rights reserved. Entrepreneur® and its related marks are registered trademarks of Entrepreneur Media LLC

• Write Your Business Plan | Part 1 Overview Video
• The Basics of Writing a Business Plan
• How to Use Your Business Plan Most Effectively
• 12 Reasons You Need a Business Plan
• The Main Objectives of a Business Plan
• What to Include and Not Include in a Successful Business Plan
• The Top 4 Types of Business Plans
• A Step-by-Step Guide to Presenting Your Business Plan in 10 Slides
• 6 Tips for Making a Winning Business Presentation
• 3 Key Things You Need to Know About Financing Your Business
• 12 Ways to Set Realistic Business Goals and Objectives
• How to Perfectly Pitch Your Business Plan in 10 Minutes
• Write Your Business Plan | Part 2 Overview Video
• How to Fund Your Business Through Friends and Family Loans and Crowdsourcing
• How to Fund Your Business Using Banks and Credit Unions
• How to Fund Your Business With an SBA Loan
• How to Fund Your Business With Bonds and Indirect Funding Sources
• How to Fund Your Business With Venture Capital
• How to Fund Your Business With Angel Investors
• How to Use Your Business Plan to Track Performance
• How to Make Your Business Plan Attractive to Prospective Partners
• Is This Idea Going to Work? How to Assess the Potential of Your Business.
• When to Update Your Business Plan
• Write Your Business Plan | Part 3 Overview Video
• How to Write the Management Team Section to Your Business Plan
• How to Create a Strategic Hiring Plan
• How to Write a Business Plan Executive Summary That Sells Your Idea
• How to Build a Team of Outside Experts for Your Business
• Use This Worksheet to Write a Product Description That Sells
• What Is Your Unique Selling Proposition? Use This Worksheet to Find Your Greatest Strength.
• How to Raise Money With Your Business Plan
• Customers and Investors Don't Want Products. They Want Solutions.
• Write Your Business Plan | Part 4 Overview Video
• 5 Essential Elements of Your Industry Trends Plan
• How to Identify and Research Your Competition
• Who Is Your Ideal Customer? 4 Questions to Ask Yourself.
• How to Identify Market Trends in Your Business Plan
• How to Define Your Product and Set Your Prices
• How to Determine the Barriers to Entry for Your Business
• How to Get Customers in Your Store and Drive Traffic to Your Website
• How to Effectively Promote Your Business to Customers and Investors
• Write Your Business Plan | Part 5 Overview Video
• What Equipment and Facilities to Include in Your Business Plan
• How to Write an Income Statement for Your Business Plan
• How to Make a Balance Sheet
• How to Make a Cash Flow Statement
• How to Use Financial Ratios to Understand the Health of Your Business
• How to Write an Operations Plan for Retail and Sales Businesses
• How to Make Realistic Financial Forecasts
• How to Write an Operations Plan for Manufacturers
• What Technology Needs to Include In Your Business Plan
• How to List Personnel and Materials in Your Business Plan
• The Role of Franchising
• The Best Ways to Follow Up on a Buisiness Plan
• The Best Books, Sites, Trade Associations and Resources to Get Your Business Funded and Running
• How to Hire the Right Business Plan Consultant
• Business Plan Lingo and Resources All Entrepreneurs Should Know
• How to Write a Letter of Introduction
• What To Put on the Cover Page of a Business Plan
• How to Format Your Business Plan
• 6 Steps to Getting Your Business Plan In Front of Investors

How to Make Realistic Financial Forecasts Business plans and financing proposals are based on projections. Here's how to set attainable financial goals.

By Eric Butow Oct 27, 2023

Key Takeaways

• Why forecasts are necessities for startups
• Experts advice on how to be conservative in your forecasts.
• The cash flow pro forma

Opinions expressed by Entrepreneur contributors are their own.

This is part 8 / 12 of Write Your Business Plan: Section 5: Organizing Operations and Finances series.

Business plans and financing proposals are based on projections. Past financial data can only support your projections. However, financial projections in your business plan express in common financial terms and formats how you expect the immediate future to play out the scenarios you created in the body of the plan. You can forecast financial statements such as balance sheets, income statements, and cash flow statements to project where you'll be at some point in the future.

Forecasts are necessities for startups, which have no past history to report on. Existing businesses find them useful for planning purposes. Forecasts help firms foresee trouble, such as a cash flow shortfall, that is likely to occur several months down the road, as well as give them benchmarks to which they can compare actual performance.

Related: The Facts About Financial Projections

It's always advisable to be somewhat conservative in your forecasts.

Forecasts Aren't Forever

Noah Parsons writes in How to Better Manage Your Business by Creating a Live Forecast : "You need to revisit and update your forecasts. If your budget and forecasts from the beginning of the fiscal year are static and unchanging, it's hard to see how the changes you're planning on making will impact your business financially. It's also hard to communicate the changes you're planning to make to the rest of your team.

Related: How to Write an Income Statement for Your Business Plan

Static budgets don't adjust to new situations and in fact, they become more and more outdated as the year goes on. What may have been small variances at the beginning of the year can become larger and larger as actual results naturally differ.

Once a budget is stale and outdated, it's easy to ignore because it doesn't reflect the current situation your business is in. And especially during a crisis, when things can fluctuate rapidly, you don't want budgets and forecasts that you just ignore. Having them up to date can mean the difference between survival and growth, or mismanagement and dwindling performance."

Related: My Company Hears Hundreds of Pitches Every Year — Here's What Investors Are Actually Looking For.

Projected Income Statement

Business planning starts with sales projections. No sales, no business. It's that simple. Even if you're in a long-range development project that won't produce a marketable product for years, you have to be able to look ahead and figure out how much you'll be able to sell before you can do any planning that makes sense.

Now that the pressure's on, making a sales projection and the associated income projection may look a little tricky. So let's do it step-by-step.

Related: 80% of Businesses Fail Due To a Lack of Cash. Here are 4 Reasons Why Cash Flow Forecasting Is So Important

First pick a period for which you want to make a projection. You should start with a projection for the first year. To do so, you want to come up with some baseline figures. If you're an existing business, look at last year's sales and the sales of prior years. What's the trend? You may then be able to simply project out the 10 percent annual sales increase that you've averaged the past three years for the next three years.

If you're a startup and don't have any prior years' figures to look at, look for statistics about other businesses within your industry. The most important question to ask is: What has been the experience of similar companies? If you know that car dealers across the nation have averaged 12 percent annual sales gains, that's a good starting point for figuring your company's projections.

You'll also need to do your due diligence to get an idea of how much volume you can expect and what factors will have a positive or negative impact upon your ability to sell.

For example, how many people can your restaurant expect to serve in a given day? Statistics of other restaurants may be hard to find, so you may have to do some research by simply watching customers enter and leave a similar type of restaurant for a couple of days during the breakfast, lunch, and dinner hours. Once you get a feel for how many people it is drawing on average, you can begin to estimate how many you may draw. Take into consideration your location vs. its location and the fact that it has regular customers who are familiar with the menu.

Statistics you can look at include how many people are within a few miles and what percentage meet your demographics. For example, a family- friendly restaurant wants to know how many families are living nearby, while a fine-dining establishment wants to get statistics on how many people with a higher income are living within a few miles of the establishment.

Related: How to Use Your Business Plan to Track Performance

For retailers, the difficult part is determining how much market share you can expect. You need to factor in the need for your product in a given community, which can range from local neighborhoods to worldwide if you are selling on the web. Volume will be the toughest thing to estimate. Try to remain conservative in your estimates, knowing that you may not be selling a lot of products or services right off the bat.

Forecasting expenses is your next step, and it's much easier. You can often take your prior year's cost of goods sold, adjust it either up or down based on trends in costs, and go with that. The same goes for rent, wages, and other expenses. Even startups can often find good numbers on which to forecast expenses because they can just go to the suppliers they plan to deal with and ask for current price quotes plus anticipated price increases.

Related: How a Failed Forecast Can Inform Future Planning

When making forecasts, it's useful to change dollar amounts into percentages. So if you figure sales will rise 20 percent next year, you'll enter 120 percent on the top line of the projection. Using percentages helps highlight overly optimistic sales projections and suggests areas, especially in costs, for improvement.

Projected Balance Sheet

Balance sheets can also be projected into the future, and the projections can serve as targets to aim for or benchmarks to compare against actual results. Balance sheets are affected by sales, too. If your accounts receivables go up or inventory increases, your balance sheet reflects this. And, of course, increases in cash show up on the balance sheet. So it's important to look ahead to see how your balance sheet will appear given your sales forecast.

Related: How Startups Should Formulate Financial Projections

When you sit down to prepare a projected balance sheet, it will be helpful to take a look at past years' balance sheets and figure out the relationship of certain assets and liabilities that vary according to sales. These include cash, receivables, inventory, payables, and tax liabilities.

If you have any operating history, you can calculate the average percentages of sales for each of these figures for the past few years and use that for your balance sheet projection. You can simply take last year's figures if you don't think they'll change that much. Or you can adjust the percentage to fit some special knowledge you have about the coming year— you're changing your credit terms, for instance, so you expect receivables to shrink, or you're taking out a loan for an expensive new piece of equipment. Firms without operating history can look at one of the books describing industry norms referred to earlier to get guidance about what's typical for their type of company.

Related: Master Business Finance With This Expert-Led Class

Cash Flow Pro Forma

Businesses are very sensitive to cash. Even if your operation is profitable and you have plenty of capital assets, you can go broke if you run out of cash and can't pay your taxes, wages, rent, utilities, and other essentials. Similarly, a strong flow of cash covers up a multitude of other sins, including a short-term lack of profitability. A cash flow pro forma (or cash budget) is your attempt to spot future cash shortfalls in time to take action.

A cash budget differs from a cash flow statement in that it's generally broken down into periods of less than a year. This is especially true during startup, when the company is sensitive to cash shortages and management is still fine-tuning its controls. Startups, highly seasonal businesses, and others whose sales may fluctuate widely should do monthly cash flow projections for a year ahead, or even two. Any business would do well to project quarterly cash flow for three years ahead.

Related: Maximize Profitability with Data-Driven Forecasts

The added detail makes monthly cash flow forecasts somewhat more complicated than figuring annual cash flow because revenues and expenses should be recorded when cash actually changes hands. Sales and cost of goods sold should be allotted to the months in which they can be expected to actually occur. Other variable expenses can be allocated as percentages of sales for the month. Expenses paid other than monthly, such as insurance and estimated taxes, are recorded when they occur.

As with the balance sheet projection, one way to project cash flow is to figure out what percentage of sales historically occurs in each month. Then you can use your overall sales forecast for the year to generate monthly estimates. If you don't have prior history, you'll need to produce estimates of such things as profit margins, expenses, and financing activities using your best guesses of how things will turn out.

Related: 4 Crucial Signs That Your Small Business Needs Funding

The cash flow pro forma also takes into account sources of cash other than sales, such as proceeds from loans and investments by owners.

Cash Flow Pro Forma Is the Most Important Financial Statement

If you have only one financial statement to manage your business by—and to use in your business plan—let it be the cash flow pro forma. Only the cash flow pro forma can tell you how much capital you will need in a startup (add the startup costs, project the cash flow, then make the cash flow positive by providing capital in the indicated amount). Only the cash flow pro forma will tell you when you will need to borrow money— and how much you will need to borrow. Only the cash flow pro forma will tell you when it is time to pull the plug and bail out before you create negative value in your business.

Used as a budget, your cash flow pro forma will keep you from making spontaneous purchases, help evaluate the cost (in cash flow) of growth, hiring new people, adding facilities or equipment, or taking on more debt.

No business can prosper without a cash flow pro forma.

Related: How to Use Financial Ratios to Understand the Health of Your Business

Finding Free Cash Flow Apps

They say there's an app for everything. You can now find cash flow projection templates in popular business applications. They may not be highly sophisticated, but they do provide the templates for several key spreadsheets. Google Docs, Intuit's QuickBooks, Pulse, and PlanGuru are among the places to look for cash flow templates. They can make setting it all up a lot easier.

Positive Cash Flow = Survival

Some key points about cash flow:

Cash flow buys time (if necessary), builds assets and profits, and keeps suppliers, bankers, creditors, and investors smiling. Without positive cash flow, survival becomes questionable. Negative or feebly positive cash flow is painful, and unless corrected will either kill a business or damage it so seriously that it never lives up to its potential. Although short periods of negative cash flow occur in almost every business, cash flows have to be positive at least on an annual basis. Some farmers do very well indeed with cash flows that are strongly negative for eleven months of the year. So do some manufacturers (especially in the garment trade). The key is that they know what their cash flow patterns are—and take steps to finance the negative periods, offsetting that cost against the occasional strong positive cash influx from operations.

Related: How to Tap Your Inner Business Futurist

Unfortunately, the smaller and more thinly capitalized the company, the less able it is to survive extended negative cash flows. This is one reason why so many startups fail. The business idea may be terrific, but sales always come much more slowly than expected while cash goes out twice as fast. And the initial investment is rarely enough to tide the business along until cash flow turns and stays positive.

How can a small business attain positive cash flow? Discipline. A cash flow budget is an unbeatable tool if followed carefully. If there is to be just one financial statement, make sure it's the cash flow pro forma. It acts at once as a cash flow budget and as a benchmark for sales.

Some people have trouble differentiating the cash flow pro forma from the projected P&L. The concept "profit" is so pervasive that it poses a barrier to understanding that positive cash flow does not equal profit (or vice versa). The example of a profitable growing company with negative cash flow succumbing to illiquidity and tumbling into Chapter 11 bankruptcy is commonly cited to disprove the identity. If the sales don't turn to cash soon enough, the company goes broke. Revenues are up, receivables are up, expenses are up, even profits are up. Yet the company runs out of cash, can't pay its bills, and becomes another cash flow victim.

Related: The Main Objectives of a Business Plan

Another conceptual problem is equating P&L losses with negative cash flow. A loss on the P&L can reflect a negative cash flow, but it doesn't have to. For example, publishing companies enjoy some accounting foibles such as deferred income (which suppresses sales by deferring revenues to a later period). The cash comes in December, but because the revenue is not earned until the following year, the company can show a nice loss for tax purposes, while enjoying strongly positive cash flow.

Some ways to understand cash flow (as distinct from P&L categories) include:

• Students are adept at managing skinny cash flows. They postpone bill paying, share space to lower costs, use secondhand books whenever possible (if they have to pay the bill, that is), minimize food costs, and so forth. Few of them think of this as cash flow management, but it is—and of a very high order. If they want a ticket to a concert or ball game, they find a way to scrape up the cash. Very few companies are as carefully managed.
• Emphasize timing. Timing is everything for cash flow—the transfers of cash, even the dates that bills fall due or when discounts can or cannot be taken. Although timing is always important in business, it is especially important in managing cash flow. A P&L can stand a bit of looseness—it doesn't matter whether a bill is received January 31 or February 10. That ten days can make a big difference in cash flow if the bill falls due before you have the cash in hand to pay it.
• Compare cash flow to a checking account. Cash is deposited (cash inflow). Checks are written (cash outflow). The aim is to always have some cash on hand (positive cash flow).

The cash flow pro forma is the most important single financial statement in the business plan. Every business needs an annotated cash flow pro forma (by month for the first year, by quarter thereafter) reflecting its business idea.

Related: 6 Strategies for Optimizing Cash Management When Starting a Business

Buzzword: EVA

EVA is an acronym standing for economic value added, and it's one of the most interesting financial management tools available to business owners. The aim of EVA is to find out whether you're doing better with the money you have than you could by, say, investing in U.S. Treasury bills.

EVA has been pioneered by consulting firm Stern Stewart, which has counseled hundreds of companies on how to apply EVA. And experts say that entrepreneurs in particular already understand EVA on a gut level. In any event, the basic concept is fairly simple—you measure EVA by taking net operating earnings before taxes and subtracting a reasonable cost of capital, say 12 percent.

In practice, however, it's complicated. Stern Stewart has identified more than 160 adjustments a company may potentially need to make to accounting procedures before EVA can be effectively implemented. Check them out at sternstewart.com .

Related: Developing a Business Model That Works

More in Write Your Business Plan

Section 1: the foundation of a business plan, section 2: putting your business plan to work, section 3: selling your product and team, section 4: marketing your business plan, section 5: organizing operations and finances, section 6: getting your business plan to investors.

Successfully copied link

How to Write a Business Plan Outline in 9 Steps (Example Included!)

Starting a business often begins with writing a business plan , especially if you need funding . It acts as a roadmap, guiding you through each stage of launching and managing your company, and it presents a clear, compelling case to potential investors and partners. But here's the thing: not everyone finds this step intuitive. That's where a business plan outline can be incredibly helpful.

Creating a detailed business plan outline helps you organize your thoughts and ensure you cover all the key aspects of your business strategy. Plus, it might be just what you need to overcome that blank page and start typing.

Below, you'll find an easy-to-follow guide on how to craft your business plan outline, and an example to show you what it should look like.

​​ Build your dream business with the help of a high-paying job—browse open jobs on The Muse »

What is an outline of a business plan?

Think of a business plan outline as the skeleton of your entire business plan. It gives a high-level overview of the main sections you'll need to flesh out later. It's not the final document but a crucial step in getting you there.

Simply put, it's like creating a detailed table of contents for your business plan, showing you exactly what information to include and how everything fits together. A well-structured business plan outline also helps you plan things ahead, saving time and effort.

Writing a business plan outline in 9 steps

Follow these steps to build your business plan outline and learn exactly what each section should include.

(Bear in mind that every business plan is unique, tailored to the specific needs and goals of the business. While the structure below is common, the order of sections may vary—only the executive summary will always come first.)

1. Executive summary

Imagine you have just 60 seconds to convince someone to invest in your business. That's the essence of a strong executive summary. Although it appears first on your business plan, this section is often written last because it sums up the entire plan. Think of it as your elevator pitch . This section gives a quick overview of your entire business plan, highlighting key points that grab the reader's attention.

Keep it clear and concise. Start with a brief overview of your business, including its name and what it offers. Summarize your mission statement and objectives, and don’t forget to mention crucial aspects like financial projections and competitive advantages.

2. Company description

Here's where you provide detailed information about your company. Begin with the business name and location. Describe the legal structure (e.g., sole proprietorship, partnership, corporation) and ownership. If your business already exists, share a brief history.

For new ventures, explain the business's nature and the problems you aim to solve. Go into more detail about your vision and mission statements, outlining your goals and the principles guiding your business. This section helps potential investors and stakeholders grasp your company’s identity and purpose.

3. Market research and analysis

This section shares insights into your company’s industry. Start with a landscape analysis to give an overview of the market, including its size, growth rate, and key players.

Next, define your target market and customer demographics—age, location, income, and interests—detailing who your ideal customers are. Identify market needs and trends your business will address, and highlight customer pain points your product or service aims to solve.

Consider conducting a SWOT analysis to evaluate your business's strengths, weaknesses, opportunities, and threats, and gain a strategic view of where your business stands in the competitive landscape.

4. Organization and management

Describe how your business is structured and who runs it. Outline the organizational structure, and if helps, include a chart. Introduce the leadership team and key personnel, highlighting their qualifications and roles. If you have a board of directors, mention them and briefly explain their involvement.

Then, outline your production processes, detailing how your product or service is (or will be) created—from sourcing materials to delivery—to give a comprehensive view of your operational capabilities.

5. Products and services

This section of your business plan outline is crucial for showing potential investors what makes your products and services unique and valuable.

Clearly describe what your business offers, emphasizing your unique selling propositions (USPs) and the benefits and features that set you apart from the competition. Talk about the product life cycle, including any plans for future updates.

If your business holds any intellectual property or proprietary technologies, detail them here to underscore your competitive advantages.

6. Marketing strategy

Having a fantastic product or service is just half the battle. The marketing plan section should outline how you'll reach your target market and convert them into customers.

Begin with market positioning and branding, explaining how you want your brand perceived. Detail your marketing and promotional strategies, including specific tactics to reach your target audience.

Discuss your sales strategy, focusing on how you'll convert leads into customers. Lastly, include your pricing strategy and provide a sales forecast, projecting your expected revenue over a certain period.

7. Operations plan

Here, the goal is to give a detailed overview of the physical and logistical aspects of your company. Start with the business location and facilities, describing where it operates and any significant physical assets. Detail the technology and equipment needed for daily operations.

Briefly describe your supply chain and logistics processes to illustrate how you manage inventory, procurement, and distribution. Finish it by outlining your production process and quality control measures to ensure your products or services consistently meet high standards.

8. Financial plan

Use this section of the business plan to show how your company will succeed financially. Include financial projections like income statements and cash flow statements. Specify how much capital you need and how you plan to use it, discussing funding sources.

Conduct a break-even analysis to estimate when your business will become profitable. Be transparent and address any financial risks and assumptions, outlining how you plan to mitigate them.

9. Appendices and exhibits

In this section, include any additional information that supports your business plan. This might be resumes of key personnel to highlight your team's expertise and experience, or even legal documents and agreements.

Include market research data and surveys to back up your market analysis. Add financial statements for a detailed look at your financial plan. Also, provide detailed product specifications to give a clear understanding of your products and services.

Here's a business plan outline example

Not quite there yet? Take a look at this business plan outline example—it will make everything clear for you.

3.1 Executive Summary

• Overview of the business
• Key points of the business plan

3.2 Company Description

• Business name and location
• History and nature of the business
• Legal structure and ownership
• Vision and mission statement

3.3 Market Research and Analysis

• Industry analysis
• Target market and customer demographics
• Market needs, trends
• Customer pain points
• SWOT analysis

3.4 Organization and Management

• Organizational structure
• Leadership team and key personnel
• Roles and responsibilities
• Board of directors (if applicable)
• Production processes

3.5 Products and Services

• Description of products or services offered
• Unique selling propositions, benefits, features
• Product lifecycle and development plans
• Intellectual property and proprietary technologies

3.6 Marketing Strategy

• Market positioning and branding
• Marketing and promotional strategies
• Sales strategy and tactics
• Pricing strategy and sales forecast

3.7 Operations Plan

• Business location and facilities
• Technology and equipment
• Supply chain and logistics
• Production process and quality control

3.8 Financial Plan

• Financial projections (income statements, balance sheets, cash flow statements)
• Funding requirements and sources
• Break-even analysis
• Financial risks and assumptions

3.9 Appendices and Exhibits (if applicable)

• Supporting documents and additional information
• Resumes of key personnel
• Legal documents and agreements
• Market research data and surveys
• Financial Statements
• Detailed Product Specifications

Bonus tips on how to write a winning business plan

Once you've done your business plan outline, it's time to fill in the gaps and craft a winning business plan. Here are some bonus tips to keep in mind:

• Tailor it to fit your business : Customize sections to meet industry-specific needs and highlight what makes your business unique.
• Keep it clear and concise : Use straightforward language and support your points with data to ensure easy understanding and avoid any confusion.
• Set actionable and realistic goals : Define measurable objectives with clear timelines and milestones to track your progress.
• Update regularly : Keep your plan dynamic by making regular updates to reflect changes in goals, market conditions, and strategies.
• Seek feedback : Gain insights from mentors and advisors to refine your plan.

Read this next: How to Start a Business in 8 Steps: A Comprehensive Guide from Concept to Launch

More From Forbes

How To Start A Business Plan: A Step-By-Step Guide

• Share to Facebook
• Share to Twitter
• Share to Linkedin

Creating a business plan is a critical first step for any entrepreneur. Knowing how to start a business plan will help you create a roadmap, guiding your business from startup to growth and beyond. Whether you're looking for investment, trying to set clear goals, or simply organizing your thoughts, a solid business plan can make all the difference.

Here is a guide to help you get started on your business plan:

1. executive summary.

What It Is: This section summarizes your business plan as a whole and outlines your company profile and goals.

What to Include:

• Business name and location
• Products or services offered
• Mission statement
• The purpose of the plan (e.g., seeking funding, guiding the startup process)

Tip: Keep it concise. Although it's the first section, it's often best to write it last, after you’ve detailed everything else.

2. Company Description

What It Is: This section provides detailed information about your company, including who you are, what you do, and what markets you serve.

Father Of Suspected Trump Gunman Was Profiled As Pro-Gun Voter By Trump Campaign: What We Know About Thomas Matthew Crooks

‘the acolyte’ episode 8 recap and review: a dreadful season finale and the cameos can’t save it, amazon prime day 2024: the 110 best deals of day two so far.

• Your business structure (e.g., sole proprietorship, LLC, corporation)
• The industry and marketplace needs your business meets
• Your business’s objectives and how you stand out from competitors

Tip: Use this section to highlight your company’s strengths and what makes you unique.

3. Market Research

What It Is: Market research demonstrates your understanding of the industry and target market.

• Market size and growth potential
• Target customer demographics
• Market trends and outlook
• Competitive analysis, including strengths and weaknesses of competitors

Tip: Include data and statistics to back up your findings and show that you’ve done your homework.

4. Organization and Management

What It Is: This section outlines your business’s organizational structure and management team.

• Organizational chart
• Information about the ownership of the company
• Backgrounds and qualifications of the management team
• Roles and responsibilities within the company

Tip: Highlight the skills and experiences of your team that will help the business succeed.

5. Products or Services Line

What It Is: Here, you detail the products or services you offer or plan to offer.

• A description of each product or service
• The lifecycle of products or services
• Research and development activities, if applicable
• Intellectual property, such as patents or trademarks

Tip: Focus on the benefits your products or services bring to your customers.

6. Marketing and Sales Strategy

What It Is: This section explains how you will attract and retain customers.

• Marketing strategies, including advertising, promotions, and public relations
• Sales strategies, including sales processes, channels, and tactics
• Pricing strategy and how it compares to competitors

Tip: Ensure your marketing and sales strategies are aligned with your market research findings.

7. Funding Request

What It Is: If you’re seeking funding , this section outlines your requirements.

• Your current funding needs
• Future funding requirements over the next five years
• How you intend to use the funds
• Potential future financial plans (e.g., selling the business, repaying debt)

Tip: Be specific and realistic about how much funding you need and how it will be used.

8. Financial Projections

What It Is: Financial projections provide a forecast of your business’s financial future.

• Income statements
• Cash flow statements
• Balance sheets
• Break-even analysis

Tip: Use realistic and conservative estimates. Consider hiring a financial professional to help with this section if needed.

9. Appendix

What It Is: The appendix includes any additional information that supports your business plan.

• Resumes of key management team members
• Permits and leases
• Legal documents
• Detailed market research data
• Product photos

Tip: Only include essential information that adds value to your business plan.

Final Tips for Creating a Business Plan

Creating a business plan requires clarity and precision. First and foremost, keep your business plan clear and concise. Avoid using jargon or complex language that could make the plan difficult to read or understand. Your aim should be to communicate your ideas effectively and efficiently.

Next, be realistic in your approach. Ensure that your goals and financial projections are attainable based on your research and understanding of the market. Overly ambitious projections can undermine your credibility and potentially lead to unrealistic expectations.

It's also essential to remember that a business plan is a dynamic document. As your business grows and market conditions change, you should revisit and revise your plan regularly. This helps you stay aligned with your goals and adapt to new challenges and opportunities.

Finally, seek feedback from experienced business professionals. Having someone with business experience review your plan can provide valuable insights and help identify any potential issues or areas for improvement. Their feedback can enhance the overall quality and effectiveness of your business plan.

By following these tips, you'll be better equipped to create a robust and effective business plan that can guide your business towards success.

The bottom line is that starting a business plan may seem challenging, but with careful planning and attention to detail, you can create a comprehensive guide to steer your business toward success. Use this step-by-step guide to ensure that all essential components are covered, giving your business the best possible start.

Melissa Houston, CPA is the author of Cash Confident: An Entrepreneur’s Guide to Creating a Profitable Business and the founder of She Means Profit . As a Business Strategist for small business owners, Melissa helps women making mid-career shifts, to launch their dream businesses, and I also guide established business owners to grow their businesses to more profitably.

The opinions expressed in this article are not intended to replace any professional or expert accounting and/or tax advice whatsoever.

• Editorial Standards
• Reprints & Permissions

Join The Conversation

One Community. Many Voices. Create a free account to share your thoughts. 

Forbes Community Guidelines

Our community is about connecting people through open and thoughtful conversations. We want our readers to share their views and exchange ideas and facts in a safe space.

In order to do so, please follow the posting rules in our site's  Terms of Service.   We've summarized some of those key rules below. Simply put, keep it civil.

Your post will be rejected if we notice that it seems to contain:

• False or intentionally out-of-context or misleading information
• Insults, profanity, incoherent, obscene or inflammatory language or threats of any kind
• Attacks on the identity of other commenters or the article's author
• Content that otherwise violates our site's  terms.

User accounts will be blocked if we notice or believe that users are engaged in:

• Continuous attempts to re-post comments that have been previously moderated/rejected
• Racist, sexist, homophobic or other discriminatory comments
• Attempts or tactics that put the site security at risk
• Actions that otherwise violate our site's  terms.

So, how can you be a power user?

• Stay on topic and share your insights
• Feel free to be clear and thoughtful to get your point across
• ‘Like’ or ‘Dislike’ to show your point of view.
• Protect your community.
• Use the report tool to alert us when someone breaks the rules.

Thanks for reading our community guidelines. Please read the full list of posting rules found in our site's  Terms of Service.