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Run » finance, how to create a financial forecast for a startup business plan.

Financial forecasting allows you to measure the progress of your new business by benchmarking performance against anticipated sales and costs.

When starting a new business, a financial forecast is an important tool for recruiting investors as well as for budgeting for your first months of operating. A financial forecast is used to predict the cash flow necessary to operate the company day-to-day and cover financial liabilities.

Many lenders and investors ask for a financial forecast as part of a business plan; however, with no sales under your belt, it can be tricky to estimate how much money you will need to cover your expenses. Here’s how to begin creating a financial forecast for a new business.

[Read more: Startup 2021: Business Plan Financials ]

Start with a sales forecast

A sales forecast attempts to predict what your monthly sales will be for up to 18 months after launching your business. Creating a sales forecast without any past results is a little difficult. In this case, many entrepreneurs make their predictions using industry trends, market analysis demonstrating the population of potential customers and consumer trends. A sales forecast shows investors and lenders that you have a solid understanding of your target market and a clear vision of who will buy your product or service.

A sales forecast typically breaks down monthly sales by unit and price point. Beyond year two of being in business, the sales forecast can be shown quarterly, instead of monthly. Most financial lenders and investors like to see a three-year sales forecast as part of your startup business plan.

Lower fixed costs mean less risk, which might be theoretical in business schools but are very concrete when you have rent and payroll checks to sign.

Tim Berry, president and founder of Palo Alto Software

Create an expenses budget

An expenses budget forecasts how much you anticipate spending during the first years of operating. This includes both your overhead costs and operating expenses — any financial spending that you anticipate during the course of running your business.

Most experts recommend breaking down your expenses forecast by fixed and variable costs. Fixed costs are things such as rent and payroll, while variable costs change depending on demand and sales — advertising and promotional expenses, for instance. Breaking down costs into these two categories can help you better budget and improve your profitability.

"Lower fixed costs mean less risk, which might be theoretical in business schools but are very concrete when you have rent and payroll checks to sign," Tim Berry, president and founder of Palo Alto Software, told Inc . "Most of your variable costs are in those direct costs that belong in your sales forecast, but there are also some variable expenses, like ads and rebates and such."

Project your break-even point

Together, your expenses budget and sales forecast paints a picture of your profitability. Your break-even projection is the date at which you believe your business will become profitable — when more money is earned than spent. Very few businesses are profitable overnight or even in their first year. Most businesses take two to three years to be profitable, but others take far longer: Tesla , for instance, took 18 years to see its first full-year profit.

Lenders and investors will be interested in your break-even point as a projection of when they can begin to recoup their investment. Likewise, your CFO or operations manager can make better decisions after measuring the company’s results against its forecasts.

[Read more: ​​ Startup 2021: Writing a Business Plan? Here’s How to Do It, Step by Step ]

Develop a cash flow projection

A cash flow statement (or projection, for a new business) shows the flow of dollars moving in and out of the business. This is based on the sales forecast, your balance sheet and other assumptions you’ve used to create your expenses projection.

“If you are starting a new business and do not have these historical financial statements, you start by projecting a cash-flow statement broken down into 12 months,” wrote Inc . The cash flow statement will include projected cash flows from operating, investing and financing your business activities.

Keep in mind that most business plans involve developing specific financial documents: income statements, pro formas and a balance sheet, for instance. These documents may be required by investors or lenders; financial projections can help inform the development of those statements and guide your business as it grows.

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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.

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How to write a sales forecast for a business plan

Table of Contents

What is a sales forecast?

Why do you need a sales forecast, how do you write a sales forecast, top-down or bottom-up, writing your sales forecast, calculating a sales forecast, how can countingup help manage your forecasting.

Sales forecasts are an important part of your business plan . If done correctly, they can give accurate projections of your business’ cash flow, and let you better prepare for the year ahead. They can also make it easier to find the right investors . While it’s easier for existing businesses with plenty of data, you can still calculate a sales forecast for a new business .

In this guide, we’ll explore:

• How can you manage your forecasting?

A sales forecast is a prediction of your business’ future revenue. In order to be an accurate prediction, the forecast is based on previous sales, current economic trends, and industry performance. Having a sales forecast is a useful tool, because it gives you a better idea of how to manage your business. 

Having a sales forecast is like using the past to have a peek into the future of your company. It might not be 100% accurate, but it can help you plan any future spending, or prevent any cash flow issues from occurring. 

You can also use your sales forecast to monitor your business’ progress. For instance, if your business regularly performs better than your forecast, it could be a sign that your business is continuing to grow. On the other hand, if your actual sales are frequently less than expected, this could be a sign that your business is struggling and needs adjustment. 

It’s important to remember that any projections you make aren’t guaranteed, there can be advantages and disadvantages of financial forecasting . 

Now we’ve run through why having a sales forecast can help you run your business, let’s look at how to write one. 

While there are two types of sales forecasting (top-down and bottom-up), one is a lot more accurate for small businesses than the other. A top-down forecast looks at the market as a whole and attributes a portion of the market to your business. 

A top-down approach may work for large businesses that already own a significant chunk of the market. When forecasting for a small business, it’s easy to overestimate your market share. For example, a 1% market share may not seem like a lot, but a small restaurant owning 1% of the £89.5 billion UK market is extremely unrealistic.

The alternative to top-down is bottom-up. A bottom-up sales forecast starts with existing company data (like customer or product information) and works up to revenue. Since this starts with the company, it’s easier to 

Your sales forecast is ultimately a prediction of your revenue over a set period. It considers the amount you think you’ll sell, and the cost of those sales. We’ve included how to calculate a sales forecast below.

A sales forecast consists of three separate values: revenue, cost of goods sold, and gross profit. For estimating values in the calculations below, it’s best to use any existing business data to be as accurate as possible. 

To calculate your predicted revenue:

• Make a list of your available goods and services
• Note the price of each of your goods and services
• Estimate the expected sales of each good or service
• Multiply the price by the estimated sales to get your estimated revenue
• Add them all together to get your total revenue

For example, if your food truck business sold pizzas at £10 and burgers at £5, you would multiply these values by how much you expected to sell. For calculating a weekly sales forecast, you might estimate selling 60 pizzas and 80 burgers. Your predicted revenue for that week would be £600 for pizzas and £400 for burgers — giving £1,000 total.

In order to figure out how much profit you’ll make, you also need to calculate your costs for those predicted sales. To calculate your predicted costs:

• Figure out how much each good or service will cost per unit
• Multiply each cost by the projected sales

Using the same example as above, assume a single pizza cost £3.50 to make and a burger cost £2. Using the estimated sales, the total cost for your pizzas (3.5 x 60) would be £210, and £160 for your burgers (2 x 80). Combining these two figures gives you a total cost of £370.

The last step is to work out your gross profit , and it’s a relatively simple calculation.

• Subtract the total predicted cost from your total predicted revenue

Continuing with the example above, your revenue (£1,000) minus your costs (£370), leaves you with a projected gross profit of £630 for the week. Using this estimate, you can then plan how much working capital your business should have access to. It’s important to remember that these are only estimates, and your actual values can be higher or lower than your forecast.

If you want your forecasts to be as accurate as possible, you need to refer to all of your business’ financial data. Since collecting and collating this data can be challenging, you may want to use financial management software like the Countingup app. 

When trying to calculate your sales forecasts, having an up-to-date log of your current sales can be hugely beneficial. By combining a business current account with accounting software, Countingup is the only software that provides real-time cash flow tracking. 

The Countingup app also provides business owners with access to automatically generated profit and loss statements. These can prove invaluable when trying to stay aware of all your business’ costs.

Start your three-month free trial today. Find out more here .

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Free Financial Templates for a Business Plan

By Andy Marker | July 29, 2020

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In this article, we’ve rounded up expert-tested financial templates for your business plan, all of which are free to download in Excel, Google Sheets, and PDF formats.

Included on this page, you’ll find the essential financial statement templates, including income statement templates , cash flow statement templates , and balance sheet templates . Plus, we cover the key elements of the financial section of a business plan .

Financial Plan Templates

Download and prepare these financial plan templates to include in your business plan. Use historical data and future projections to produce an overview of the financial health of your organization to support your business plan and gain buy-in from stakeholders

Business Financial Plan Template

Use this financial plan template to organize and prepare the financial section of your business plan. This customizable template has room to provide a financial overview, any important assumptions, key financial indicators and ratios, a break-even analysis, and pro forma financial statements to share key financial data with potential investors.

Download Financial Plan Template

Word | PDF | Smartsheet

Financial Plan Projections Template for Startups

This financial plan projections template comes as a set of pro forma templates designed to help startups. The template set includes a 12-month profit and loss statement, a balance sheet, and a cash flow statement for you to detail the current and projected financial position of a business.

‌ Download Startup Financial Projections Template

Excel | Smartsheet

Income Statement Templates for Business Plan

Also called profit and loss statements , these income statement templates will empower you to make critical business decisions by providing insight into your company, as well as illustrating the projected profitability associated with business activities. The numbers prepared in your income statement directly influence the cash flow and balance sheet forecasts.

Pro Forma Income Statement/Profit and Loss Sample

Use this pro forma income statement template to project income and expenses over a three-year time period. Pro forma income statements consider historical or market analysis data to calculate the estimated sales, cost of sales, profits, and more.

‌ Download Pro Forma Income Statement Sample - Excel

Small Business Profit and Loss Statement

Small businesses can use this simple profit and loss statement template to project income and expenses for a specific time period. Enter expected income, cost of goods sold, and business expenses, and the built-in formulas will automatically calculate the net income.

‌ Download Small Business Profit and Loss Template - Excel

3-Year Income Statement Template

Use this income statement template to calculate and assess the profit and loss generated by your business over three years. This template provides room to enter revenue and expenses associated with operating your business and allows you to track performance over time.

Download 3-Year Income Statement Template

For additional resources, including how to use profit and loss statements, visit “ Download Free Profit and Loss Templates .”

Cash Flow Statement Templates for Business Plan

Use these free cash flow statement templates to convey how efficiently your company manages the inflow and outflow of money. Use a cash flow statement to analyze the availability of liquid assets and your company’s ability to grow and sustain itself long term.

Simple Cash Flow Template

Use this basic cash flow template to compare your business cash flows against different time periods. Enter the beginning balance of cash on hand, and then detail itemized cash receipts, payments, costs of goods sold, and expenses. Once you enter those values, the built-in formulas will calculate total cash payments, net cash change, and the month ending cash position.

Download Simple Cash Flow Template

12-Month Cash Flow Forecast Template

Use this cash flow forecast template, also called a pro forma cash flow template, to track and compare expected and actual cash flow outcomes on a monthly and yearly basis. Enter the cash on hand at the beginning of each month, and then add the cash receipts (from customers, issuance of stock, and other operations). Finally, add the cash paid out (purchases made, wage expenses, and other cash outflow). Once you enter those values, the built-in formulas will calculate your cash position for each month with.

‌ Download 12-Month Cash Flow Forecast

3-Year Cash Flow Statement Template Set

Use this cash flow statement template set to analyze the amount of cash your company has compared to its expenses and liabilities. This template set contains a tab to create a monthly cash flow statement, a yearly cash flow statement, and a three-year cash flow statement to track cash flow for the operating, investing, and financing activities of your business.

Download 3-Year Cash Flow Statement Template

For additional information on managing your cash flow, including how to create a cash flow forecast, visit “ Free Cash Flow Statement Templates .”

Balance Sheet Templates for a Business Plan

Use these free balance sheet templates to convey the financial position of your business during a specific time period to potential investors and stakeholders.

Small Business Pro Forma Balance Sheet

Small businesses can use this pro forma balance sheet template to project account balances for assets, liabilities, and equity for a designated period. Established businesses can use this template (and its built-in formulas) to calculate key financial ratios, including working capital.

Download Pro Forma Balance Sheet Template

Monthly and Quarterly Balance Sheet Template

Use this balance sheet template to evaluate your company’s financial health on a monthly, quarterly, and annual basis. You can also use this template to project your financial position for a specified time in the future. Once you complete the balance sheet, you can compare and analyze your assets, liabilities, and equity on a quarter-over-quarter or year-over-year basis.

Download Monthly/Quarterly Balance Sheet Template - Excel

Yearly Balance Sheet Template

Use this balance sheet template to compare your company’s short and long-term assets, liabilities, and equity year-over-year. This template also provides calculations for common financial ratios with built-in formulas, so you can use it to evaluate account balances annually.

Download Yearly Balance Sheet Template - Excel

For more downloadable resources for a wide range of organizations, visit “ Free Balance Sheet Templates .”

Sales Forecast Templates for Business Plan

Sales projections are a fundamental part of a business plan, and should support all other components of your plan, including your market analysis, product offerings, and marketing plan . Use these sales forecast templates to estimate future sales, and ensure the numbers align with the sales numbers provided in your income statement.

Basic Sales Forecast Sample Template

Use this basic forecast template to project the sales of a specific product. Gather historical and industry sales data to generate monthly and yearly estimates of the number of units sold and the price per unit. Then, the pre-built formulas will calculate percentages automatically. You’ll also find details about which months provide the highest sales percentage, and the percentage change in sales month-over-month. 

Download Basic Sales Forecast Sample Template

12-Month Sales Forecast Template for Multiple Products

Use this sales forecast template to project the future sales of a business across multiple products or services over the course of a year. Enter your estimated monthly sales, and the built-in formulas will calculate annual totals. There is also space to record and track year-over-year sales, so you can pinpoint sales trends.

Download 12-Month Sales Forecasting Template for Multiple Products

3-Year Sales Forecast Template for Multiple Products

Use this sales forecast template to estimate the monthly and yearly sales for multiple products over a three-year period. Enter the monthly units sold, unit costs, and unit price. Once you enter those values, built-in formulas will automatically calculate revenue, margin per unit, and gross profit. This template also provides bar charts and line graphs to visually display sales and gross profit year over year.

Download 3-Year Sales Forecast Template - Excel

For a wider selection of resources to project your sales, visit “ Free Sales Forecasting Templates .”

Break-Even Analysis Template for Business Plan

A break-even analysis will help you ascertain the point at which a business, product, or service will become profitable. This analysis uses a calculation to pinpoint the number of service or unit sales you need to make to cover costs and make a profit.

Break-Even Analysis Template

Use this break-even analysis template to calculate the number of sales needed to become profitable. Enter the product's selling price at the top of the template, and then add the fixed and variable costs. Once you enter those values, the built-in formulas will calculate the total variable cost, the contribution margin, and break-even units and sales values.

Download Break-Even Analysis Template

For additional resources, visit, “ Free Financial Planning Templates .”

Business Budget Templates for Business Plan

These business budget templates will help you track costs (e.g., fixed and variable) and expenses (e.g., one-time and recurring) associated with starting and running a business. Having a detailed budget enables you to make sound strategic decisions, and should align with the expense values listed on your income statement.

Startup Budget Template

Use this startup budget template to track estimated and actual costs and expenses for various business categories, including administrative, marketing, labor, and other office costs. There is also room to provide funding estimates from investors, banks, and other sources to get a detailed view of the resources you need to start and operate your business.

Download Startup Budget Template

Small Business Budget Template

This business budget template is ideal for small businesses that want to record estimated revenue and expenditures on a monthly and yearly basis. This customizable template comes with a tab to list income, expenses, and a cash flow recording to track cash transactions and balances.

Download Small Business Budget Template

Professional Business Budget Template

Established organizations will appreciate this customizable business budget template, which  contains a separate tab to track projected business expenses, actual business expenses, variances, and an expense analysis. Once you enter projected and actual expenses, the built-in formulas will automatically calculate expense variances and populate the included visual charts. 

‌ Download Professional Business Budget Template

For additional resources to plan and track your business costs and expenses, visit “ Free Business Budget Templates for Any Company .”

Other Financial Templates for Business Plan

In this section, you’ll find additional financial templates that you may want to include as part of your larger business plan.

Startup Funding Requirements Template

This simple startup funding requirements template is useful for startups and small businesses that require funding to get business off the ground. The numbers generated in this template should align with those in your financial projections, and should detail the allocation of acquired capital to various startup expenses.

Download Startup Funding Requirements Template - Excel

Personnel Plan Template

Use this customizable personnel plan template to map out the current and future staff needed to get — and keep — the business running. This information belongs in the personnel section of a business plan, and details the job title, amount of pay, and hiring timeline for each position. This template calculates the monthly and yearly expenses associated with each role using built-in formulas. Additionally, you can add an organizational chart to provide a visual overview of the company’s structure. 

Download Personnel Plan Template - Excel

Elements of the Financial Section of a Business Plan

Whether your organization is a startup, a small business, or an enterprise, the financial plan is the cornerstone of any business plan. The financial section should demonstrate the feasibility and profitability of your idea and should support all other aspects of the business plan. 

Below, you’ll find a quick overview of the components of a solid financial plan.

• Financial Overview: This section provides a brief summary of the financial section, and includes key takeaways of the financial statements. If you prefer, you can also add a brief description of each statement in the respective statement’s section.
• Key Assumptions: This component details the basis for your financial projections, including tax and interest rates, economic climate, and other critical, underlying factors.
• Break-Even Analysis: This calculation helps establish the selling price of a product or service, and determines when a product or service should become profitable.
• Pro Forma Income Statement: Also known as a profit and loss statement, this section details the sales, cost of sales, profitability, and other vital financial information to stakeholders.
• Pro Forma Cash Flow Statement: This area outlines the projected cash inflows and outflows the business expects to generate from operating, financing, and investing activities during a specific timeframe.
• Pro Forma Balance Sheet: This document conveys how your business plans to manage assets, including receivables and inventory.
• Key Financial Indicators and Ratios: In this section, highlight key financial indicators and ratios extracted from financial statements that bankers, analysts, and investors can use to evaluate the financial health and position of your business.

Need help putting together the rest of your business plan? Check out our free simple business plan templates to get started. You can learn how to write a successful simple business plan  here . 

Visit this  free non-profit business plan template roundup  or download a  fill-in-the-blank business plan template  to make things easy. If you are looking for a business plan template by file type, visit our pages dedicated specifically to  Microsoft Excel ,  Microsoft Word , and  Adobe PDF  business plan templates. Read our articles offering  startup business plan templates  or  free 30-60-90-day business plan templates  to find more tailored options.

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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.

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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 .

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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 or small business, doesn’t it? Let’s cut to the chase and discuss the key components of a startup’s financial plan.

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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 or small business.

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 small business 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 for your business 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 for your small business, 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.

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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 small 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

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How to Create a Sales Forecast (Examples & Templates)

Every business needs management tools to maximize performance and keep everything running smoothly. A sales forecast is a critical tool that businesses use to measure their progress and check everything is going to plan. Here’s a closer look at why sales forecasts are important and how to create them. We have some great templates for you, too.

What Is a Sales Forecast – And Which Factors Impact It?

Sales forecasts are data-backed predictions about the sales volume a business will experience over a specific period.

A sales forecast is very important because it provides the foundation for almost all other planning activities. Businesses will rely on accurate sales forecasting to better understand how they should plan financially and execute their game plan .

This means that sales forecasts have the potential to make or break a business.

As with anything in life, though, nothing is certain. Sales forecasts can be affected by a range of factors. This means that businesses have to prepare for any and all eventualities.

Here’s a look at some of the factors that can affect sales forecasting:

A lack of sales history

Sales forecasts are often built using historical data. Businesses analyze previous results to extrapolate and create predictions. If a business starts and lacks a good body of historical sales data, it will struggle to create an accurate sales forecast.

The type of business

Each industry has its series of unique challenges and quirks. Those factors are sometimes unpredictable and could affect a business’s revenues. The ad tech industry, for instance, is often rocked by new data privacy regulations.

Outside factors

Some businesses find that everything is moving according to plan before blindsiding by an unpredictable event they cannot control. Consumer earnings may plummet, for instance, and cause people to restrict their spending.

Inside factors

Some businesses are forced to change their pricing or payment structures. This new dynamic can often have unpredictable effects and cause a business to veer off course from what its sales forecast predicted.

Why Should You Establish Sales Forecasts?

Sales forecasting is essential for every business. Here are some of the key reasons.

Perform accurate financial planning

Sales forecasts help the CFO and financial team understand how much cash is going to be coming into a business. This gives businesses a better understanding of how they can use that capital and makes it possible to calculate what profit they can expect over a given period .

Plan sales activities

A sales forecast can help executives with sales planning. Those executives will understand how many salespeople to employ, for instance, and which quotas and targets to attribute to each of those salespeople. This means that an accurate sales forecast can help salespeople to understand and hit their objectives.

Coordinate marketing

A sales forecast will have a big impact on marketing. For instance, the sales forecast might show that sales are waning, and a bigger investment needs to be placed within marketing. It might also show that a particular product or service fails to deliver appropriate amounts of value.

Control inventory

A sales forecast gives businesses a good understanding of how much inventory they will need to purchase and retain. This is an important factor; it helps businesses balance overstocking and running out of materials. This is also true for SaaS businesses needing customer support and success.

Avoid fluctuations in price

An accurate sales forecast helps businesses maintain consistent product and service pricing. A poor sales forecast might mean a business is forced to adjust its pricing unpredictably. This tactic is often the result of panic; without the proper strategy, it jeopardizes a business’s profitability.

How to Forecast Sales – The Best Sales Forecasting Methods

Businesses around the world use a range of sales forecasting techniques. Here’s a closer look at some key methods you could use.

Opportunity Stage Forecasting

What is it?

This sales forecasting technique calculates the likelihood of deals closing throughout a pipeline.

Most businesses use a sales pipeline divided into a series of sections. The likelihood of converting a prospect increases the deeper the prospect moves into the sales process. To get the most from this technique, the team must dig into the current performance of the sales team.

After that analysis, the probabilities might look something like this:

• Sales Accepted lead : 10% probability of closing
• Sales Qualified Lead : 25% probability of closing
• Proposal sent : 40% probability of closing
• Negotiating : 60% probability of closing
• Contract sent : 90% probability of closing

Using these probabilities, you can extrapolate an opportunity stage sales forecast. You’ll want to take the deal’s potential value and multiply that by the win likelihood.

Who should use it

This is a great sales forecasting method if you have access to historical data, lots of leads in your pipeline, and you need a quick estimate. It’s important to understand that this isn’t the most accurate option, given that many random factors affect those probabilities.

Length of Sales Cycle Forecasting

This sales forecasting method finds the average length of your sales cycle. This helps you predict when your deals will likely close and reveal opportunities for your sales team to expedite the sales cycle.

This method is simple. You can find the length of your average sales cycle using the following basic formula:

Total # of days to close deals / # of closed deals

Let’s imagine, for instance, that you find the following:

• Deal 1: 28 days
• Deal 2: 15 days
• Deal 3: 50 days
• Deal 4: 38 days

We closed four deals, and it took 131 days to close them all together. This means that the average length of our sales cycle is 33 days.

Equipped with that information, we can look at our pipeline and estimate how likely we are to close deals based on how old they are. The closer a deal moves toward the average sales cycle length, the more likely it will be closed.

This is a great sales forecasting method for sales managers who want to learn more about the deals spread across their pipeline. For instance, they can use this method to differentiate between different types of groups.

Sales managers might find that the average sales cycle length is much shorter for web leads, for example, when compared to email leads.

Historical Forecasting

Historical forecasting is a very quick and simple sales forecasting technique. The process involves looking back at your previous performance within a certain timeframe and assuming that your future performance will be superior or at least equal.

This is a useful reference because it helps you to get to grips with seasonality and the outside factors that affect your sales. You might find, for instance, that the holidays are a particularly slow time for your business, and looking at historical data can help you to prepare.

With that said, historical forecasting has its issues. It assumes that buyer demand will be constant, which is no longer a given. This could mean you overestimate your sales statistics and use an accurate sales forecast.

This forecasting method is ideal for a business that needs a quick and easy way to project how much it will sell over a given period. That said, historical data should be used as a benchmark instead of the foundation of a sales forecast.

Lead Pipeline Forecasting

This time-consuming sales forecasting method involves reviewing each lead within your pipeline and determining how likely the deal will be closed. That likelihood is determined by exploring factors like the value of the opportunity, the performance of your salespeople, seasonality, and more.

This is a time-consuming method, and it often makes sense for businesses with fewer high-value leads – it wouldn’t necessarily be efficient or make much sense for a SaaS business, for instance.

The big benefit of this method is its accuracy. If you have reliable and rigid data to base your analysis on, you will find that this method can give you a deeper insight into each lead.

This method makes sense for those businesses that have a lower number of leads. Inside salespeople, for instance, will want to get a clearer picture of every lead within their pipeline. This method isn’t appropriate for SaaS businesses that operate according to volume.

Test Market Analysis Forecasting

Businesses often launch exciting new products and services. But it can be difficult to get accurate sales forecasts without historical data . Test Market Analysis forecasting is the process of developing a product or service and introducing it to a test market to forecast sales and get an approximation of future sales.

This limited rollout allows businesses to track the performance of the new offering and monitor things like consumer awareness, repeat purchase patterns, and more. This is a data-gathering exercise, and it feeds businesses with the information they need to create accurate sales forecasts.

This approach is perfect for those businesses that need to perform real-world experiments to gather useful information. A new business can use sales forecasting to use its sales data to predict where future sales can come from. This can limit the cost since it’s an effective way of having a busy sales pipeline. The limited rollout of the product is also useful from a product perspective, given that adjustments can be made according to feedback.

A big issue with this form of forecasting is that one test market may not be like the others. Your data might not reflect the wider reality, so you must make prudent choices that provide you with accurate information.

Multivariable Analysis

As the name suggests, this method calls upon analyzing a range of variables to get the clearest picture possible. This means that if the method is performed well, it can often provide the most accurate forecast.

If you use this technique, you will want to bring together factors like the average length of your sales cycle, the performance of your salespeople, historical forecasting, and more.

The success of this method hinges upon two key factors within your business: 

• the accuracy of your salespeople and their reporting
• the quality of the forecasting tools that you use.

Both of these factors must be in place to make sure this forecasting method has the best chance of success.

Multivariable forecasting is most appropriate for larger and well-organized businesses, as it uses the data and tools necessary to blend various forecasting methods into one. This could be it if you need the most accurate forecast method possible.

Intuitive Forecasting

Your salespeople are on the front; their experience is very valuable. They often have a good idea of how likely they are to close a particular deal and can use educated guesses to assess the situation.

Experienced salespeople can take emotion out of the equation and rely on their experience and knowledge to make accurate predictions. Some businesses decide to incorporate those gut instincts into the way that they forecast a particular sale.

Some businesses, for instance, will add a score to the conversion probability of their various prospects according to the gut feeling of their salespeople.

This intuitive forecasting method is particularly useful for businesses that lack historical data. Without the quantifiable data to provide the basis for your sales forecasting, you might have to turn to more qualitative assessments from your salespeople.

The downside of this sales forecasting method is clear, though. These assessments are highly subjective, and you might find that your salespeople are often more optimistic in their projections. This means those projections should be taken with a pinch of salt, but they are better than nothing.

Sales Forecast Examples

We know the theory, but how about the practice? In these awesome examples, let’s take a closer look at what those sales forecast methods look like.

Standard Business Plan Financials

This example from Tim Berry (chairman and founder of Palo Alto Software) looks at what a startup sales forecast might look like .

Tim sets the scene and describes Magda’s situation – she wants to open a small café in an office park.

He goes on to show how Magda would establish a base case, estimate her monthly capacity, and what type of sales she could expect. To wrap up, she goes through her month-by-month estimates for her first year and estimates her direct cost.

This is a great exercise and unmissable reading for new entrepreneurs dreaming up a new venture.

Sales Forecast Guide by Toptal Research

This simple sales forecasting guide from Toptal Research also includes a simple example that forms the basis of the guide. These simple visuals and data will give you a good idea of how you can put your sales forecasting efforts together and what it will look like.

This example also shows that you can attractively forecast sales and inform the sales teams. Sales forecasting doesn’t have to be boring columns of data, but you can bring your sales forecast to life with colorful visuals.

Detailed Sales Forecast by Microsoft

This detailed sales forecast template from Microsoft makes it simple for you to estimate your monthly sales projections.

The formula comes with pre-built formulas and worksheet features that result in an attractive and clear template. The template also relies on a weighted sales forecasting method based on the probability of closing each opportunity.

Even if you do not use this exact template, it’s a great file to use. It can give you a great idea of the information you need to include and how it might come together in a spreadsheet format.

Sales Forecast Templates

Looking for your own sales forecast templates to get a running start? Here’s a look at some of the most practical and useful templates.

Sales Forecast Template for Excel by Vertex42

This free sales forecast template helps you keep a handle on key information like unit sales, growth rate, profit margins, and gross profit.

The template is already set up to help you compare and analyze a range of products and services on a monthly basis. The chart also includes a range of sample charts that can be used to effectively and accurately communicate the contents of your sales forecast.

The same worksheet can be used to create monthly and yearly forecasts. You can play with the template to find your desired view and information. 

Sales Forecast Template by Freshworks

This simple forecasting template helps you to put together an effective sales forecast. This finished product can then be used to grow your revenues and hit your quotas.

This template is particularly effective for small businesses and startups that need to project sales and prioritize deals at the early stages of their business. Freshworks also explains that the template can help businesses achieve a higher rate of on-time delivery and accurate hiring projections.

The free sales forecast template is very intuitive to use. Again, it’s great to flick through the spreadsheet to understand what you need in a sales forecast and how it can be put together.

Free Sales Forecast Template by Fit Small Business

This sales forecast template is perfect if your CRM doesn’t currently offer built-in sales forecasting. This template can help you create a forecast from scratch that is adjusted to your own particular needs much quicker.

The template is available in various formats, including PDF, Excel, and Google Sheets. This is great news if you create your small business on your own terms and have limited software access .

Again, this template is clear and simple to use. All of the fields are explained within the spreadsheet – you don’t have to worry about going elsewhere to find definitions.

Sales Forecasting Tools

Looking for sales forecasting tools to take your activities to the next level? Here’s a look at some of the standout options.

Pipedrive is a sales CRM that is designed for salespeople by salespeople. It is a robust CRM that includes all of the features a sales team needs to achieve sales success and grow their business.

The tool also includes a forecasting tool. This tool acts as a personal sales manager that helps salespeople to choose the right deals and activities at the right time. This helps salespeople to become better closers.

By all accounts, this function is very useful for salespeople and managers alike. The forecasting tool can also be customized to match the specific needs of salespeople.

Smart Demand Planner

Smart Demand Planner is a consensus demand planning and statistical forecasting solution that understands how accurate critical forecasts are to a business.

The tool was built on the premise that forecasts are often inaccurate and can cause various issues. Moreover, the traditional sales forecast often resides within a complex spreadsheet that is difficult to use, share, and scale.

The tool aims to fix those issues by aligning strategic business forecasting at all levels of your hierarchy. Smart Demand Planner offers a statistically sound objective foundation for your sales activities.

amoCRM is an easy and smart sales solution that focuses on the world of messenger-based sales. The platform understands the popularity and potential of messenger apps, so it offers a whole new way of using the channel to create valuable relationships.

The tool also includes visual, real-time reports that give salespeople and managers powerful insights. These analytics can be used to set targets and also forecast future sales. What’s more, they can measure performance and identify target areas.

The visual look and feel of the platform make this a very intuitive option. It can drive value through accurate forecasting in businesses where messenger-based selling is critical.

As we have seen, forecasts are critical to the success of your business. They can be cost-effective for a new business, keep sales teams and reps informed, and more. However, every business also needs the leads to make those forecasts a reality. Learn more about UpLead today and how our platform can help you to find, connect, and engage with qualified prospects.

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Sales forecasting: How to create a sales forecast template (with examples)

A strong sales team is the key to success for most companies. They say a good salesperson can sell sand at the beach, but whether you’re selling products in the Caribbean or Antarctica, it all comes down to strategy. When you’re unsure if your current strategy is working, a sales forecast can help.

What is a sales forecast?

A sales forecast predicts future sales revenue using past business data. Your sales forecast can predict a number of different things, including the number of new sales for an existing product, the new customers you’ll gain, or the memberships you’ll sell in a given time period. These forecasts are then used during project planning to determine how much you should allocate towards new products and services. 

Why is sales forecasting important?

Sales forecasting helps you keep a finger on your business’s pulse. It sets the ground rules for a variety of business operations, including your sales strategy and project planning. Once you calculate your sales projections, you can use the results to assess your business health, predict cash flow, and adjust your plans accordingly.

An effective sales forecasting plan:

Predicts demand: When you have an idea of how many units you may sell, you can get a head start on production.

Helps you make smart investments: If you have future goals of expanding your business with new locations or products, knowing when you’ll have the income to do so is important. 

Contributes to goal setting: Your sales forecast can help you set goals outside of investments as well, like outshining competitors or hiring new team members.

Guides spending: Your sales forecast may be the wake-up call you need to set a budget and use cost control to reduce expenses.

Improves the sales process: You can change your current sales process based on the sales projections you’re unhappy with.

Highlights financial problems: Your sales forecast template will open your eyes to problem areas you may not have noticed otherwise. 

Helps with resource management: Do you have the resources you need to fill orders if it’s an accurate sales forecast? Your sales forecast can guide how you allocate and manage resources to hit targets.

When you have an accurate prediction of your future sales, you can use your projections to adjust your current sales process. Leveraging inventory management software can help you implement these adjustments more effectively by providing up-to-date data on stock levels and supply chain performance.

Sales forecasting methods

Sales forecasting is an important part of strategic business planning because it enables sales managers and teams to predict future sales and make informed decisions. But why are there multiple sales forecasting methods? Simply put, businesses vary in size, industry, and market dynamics, so no single methodology suits all.

Choosing the right sales forecasting method is more of an art than a science. It involves:

Analyzing your business size and industry

Assessing the available data and tools

Understanding your sales cycle's complexity

A few telltale signs that you've picked the correct approach include:

Improved accuracy in sales target predictions

Enhanced understanding of market trends

Better alignment with your business goals

Opportunity stage forecasting

Opportunity stage forecasting is a dynamic approach ideal for businesses using CRM systems like Salesforce. It assesses the likelihood of sales closing based on the stages of the sales pipeline. This method is particularly beneficial for sales organizations with a clearly defined sales process.

For example, a software company might use this method to forecast sales by examining the number of prospects in each stage of their funnel, from initial contact to final negotiation.

Pipeline forecasting method

The pipeline forecasting method is similar to opportunity stage forecasting but focuses more on the volume and quality of leads at each pipeline stage. It's particularly useful for businesses that rely heavily on sales forecasting tools and dashboards for decision-making.

A real estate agency could use it by examining the number of properties listed, the stage of negotiations, and the number of closings forecasted in the pipeline.

Length of sales cycle forecasting

Small businesses often prefer the length of sales cycle forecasting. It's straightforward and involves analyzing the duration of past sales cycles to predict future ones. This method is effective for businesses with consistent sales cycle lengths.

A furniture manufacturer, for instance, might use this method by analyzing the average time taken from initial customer contact to closing a sale in the past year.

Intuitive forecasting

Intuitive forecasting relies on the expertise and intuition of sales managers and their teams. It's less about spreadsheets and more about market research and understanding customer behavior. This method is often used with other, more data-driven approaches.

A boutique fashion store, for example, might use this method, relying on the owner's deep understanding of fashion trends and customer preferences.

Historical forecasting

Historical forecasting uses past performance data to predict future sales. This method is advantageous for businesses with ample historical sales data. It's less effective for new markets or rapidly changing industries.

An established book retailer could use historical data from previous years, considering seasonal trends and past marketing campaigns, to forecast next quarter's sales.

Multivariable analysis forecasting

Multivariable analysis forecasting is a more sophisticated method that's ideal for larger sales organizations. It analyzes factors like market trends, economic conditions, and marketing efforts to provide a holistic view of potential sales outcomes.

An automotive company, for example, could analyze factors like economic conditions, competitor activity, and past sales data to forecast future car sales.

How to calculate sales forecast

Sales forecasts determine how much you expect to do in sales for a given time frame. For example, let’s say you expect to sell 100 units in Q1 of fiscal year 2024. To calculate sales forecasts, you’ll use past data to predict future trends. 

When you’re first creating a forecast, it’s important to establish benchmarks that determine how much you normally sell of any given product to how many people. Compare historical sales data against sales quotas—i.e., how much you sold vs. how much you expected to sell. This type of analysis can help you set a baseline for what you expect to achieve every week, month, quarter, and so on.

For many companies, this means establishing a formula. The exact inputs will vary based on your products or services, but generally, you can use the following:

Sales forecast = Number of products you expect to sell x The value of each product

For example, if you sell SaaS products, your sales forecast might look something like this: 

SaaS FY24 Sales forecast = Number of expected subscribers x Subscription price

Ultimately, the sales forecasting process is a guess—but it’s an educated one. You’ll use the information you already have to create a data-driven forecasting model. How accurate your forecast is depends on your sales team. The sales team uses facts such as their prospects, current market conditions, and their sales pipeline. But they will also use their experience in the field to decide on final numbers for what they think will sell. Because of this, sales leaders are more likely to have better forecasting accuracy than new members of the sales team.

Sales forecast vs. sales goal

Your sales forecast is based on historical data and current market conditions. While you always hope your sales goals are attainable—and you can use data to estimate what your team is capable of—your goals might not line up directly with your forecast. This can be for a number of reasons, including wanting to create stretch goals that push your sales team beyond what they’ve done in the past or big, pie-in-the-sky goals that boost investor confidence.

How to create a sales forecast

There are different sales forecasting methods, and some are simpler than others. With the steps below, you’ll have a basic understanding of how to create a sales forecast template that you can customize to the method of your choice. 

1. Track your business data

Without details from your past sales, you won’t have anything to base your predictions on. If you don’t have past sales data, you can begin tracking sales now to create a sales forecast in the future. The data you’ll need to track includes:

Number of units sold per month

Revenue of each product by month

Number of units returned or canceled (so you can get an accurate sales calculation)

Other items you can track to make your predictions more accurate include:

Growth percentage

Number of sales representatives

Average sales cycle length

There are different ways to use these data points when forecasting sales. If you want to calculate your sales run rate, which is your projected revenue for the next year, use your revenue from the past month and multiply it by 12. Then, adjust this number based on other relevant data points, like seasonality.

Tip: The best way to track historical data is to use customer relationship management (CRM) software. When you have a CRM strategy in place, you can easily pull data into your sales forecast template and make quick projections.

2. Set your metrics

Before you perform the calculations in your sales forecast template, you need to decide what you’re measuring. The basic questions you should ask are:

What is the product or service you’re selling and forecasting for? Answering this question helps you decide what exactly you’re evaluating. For example, you can investigate future trends for a long-standing product to decide whether it’s worth continuing, or you can predict future sales for a new product. 

How far in the future do you want to make projections? You can decide to make projections for as little as six months or as much as five years in the future. The complexity of your sales forecast is up to you.

How much will you sell each product for, and how do you measure your products? Set your product’s metrics, whether they be units, hours, memberships, or something else. That way, you can calculate revenue on a price-per-unit basis.

How long is your sales cycle? Your sales cycle—also called a sales funnel—is how long it takes for you to make the average sale from beginning to end. Sales cycles are often monthly, quarterly, or yearly. Depending on the product you’re selling, your sales cycle may be unique. Steps in the sales cycle typically include:

Lead generation

Lead qualification

Initial contact

Making an offer

Negotiation

Closing the deal

Tip: You can still project customer growth versus revenue even if your company is in its early phases. If you don’t have enough historical data to use for your sales forecast template, you can use data from a company similar to yours in the market. 

3. Choose a forecasting method

While there are many forecasting methods to choose from, we’ll concentrate on two straightforward approaches to provide a clear understanding of how sales forecasting can be implemented efficiently. The top-down method starts with the total size of the market and works down, while the bottom-up method starts with your business and expands out.

Top-down method: To use the top-down method, start with the total size of the market—or total addressable market (TAM). Then, estimate how much of the market you think your business can capture. For example, if you’re in a large, oversaturated market, you may only capture 3% of the TAM. If the total addressable market is $1 billion, your projected annual sales would be $30 million. 

Bottom-up method: With the bottom-up method, you’ll estimate the total units your company will sell in a sales cycle, then multiply that number by your average cost per unit. You can expand out by adding other variables, like the number of sales reps, department expenses, or website views. The bottom-up forecasting method uses company data to project more specific results. 

You’ll need to choose one method to fill in your sales forecast template, but you can also try both methods to compare results.

Tip: The best forecasting method for you may depend on what type of business you’re running. If your company experiences little fluctuation in revenue, then the top-down forecasting method should work well. The top-down model can also work for new businesses that have little business data to work with. Bottom-up forecasting may be better for seasonal businesses or startups looking to make future budget and staffing decisions.

4. Calculate your sales forecast

You’ve already learned a basic way to calculate revenue using the top-down method. Below, you’ll see another way to estimate your projected sales revenue on an annual scale.

Divide your sales revenue for the year so far by the number of months so far to calculate your average monthly sales rate.

Multiply your average monthly sales rate by the number of months left in the year to calculate your projected sales revenue for the rest of the year.

Add your total sales revenue so far to your projected sales revenue for the rest of the year to calculate your annual sales forecast.

A more generalized way to estimate your future sales revenue for the year is to multiply your total sales revenue from the previous year.

Example: Let’s say your company sells a software application for $300 per unit and you sold 500 units from January to March. Your sales revenue so far is $150,000 ($300 per unit x 500 units sold). You’re three months into the calendar year, so your average monthly sales rate is $50,000 ($150,000 / 3 months). That means your projected sales revenue for the rest of the year is $450,000 ($50,000 x 9 months).

5. Adjust for external factors

A sales forecast predicts future revenue by making assumptions about your growth rate based on past success. But your past success is only one component of your growth rate. There are external factors outside of your control that can affect sales growth—and you should consider them if you want to make accurate projections. 

Some external factors you can adjust your calculations around include:

Inflation rate: Inflation is how much prices increase over a specific time period, and it usually fluctuates based on a country’s overall economic state. You can take your annual sales forecast and factor in inflation rate to ensure you’re not projecting a higher or lower number of sales than the economy will permit.

The competition: Is your market becoming more competitive as time goes on? For example, are you selling software during a tech boom? If so, assess whether your market share will shrink because of rising competition in the coming year(s).

Market changes: The market can shift as people change their behavior. Your audience may spend an average of six hours per day on their phones in one year. In the next year, mental health awareness may cause phone usage to drop. These changes are hard to predict, so you must stay on top of market news.

Industry changes: Industry changes happen when new products and technologies come on the market and make other products obsolete. One instance of this is the invention of AI technology.

Legislation: Although not as common, changes in legislation can affect the way companies sell their products. For example, vaping was a multi-million dollar industry until laws banned the sale of vape products to people under the age of 21. 

Seasonality: Many industries experience seasonality based on how human behavior and human needs change with the seasons. For example, people spend more time inside during the winter, so they may be on their computers more. Retail stores may also experience a jump in sales around Christmas time.

Tip: You can create a comprehensive sales plan to set goals for team members. Aside from revenue targets and training milestones, consider assigning each of these external factors to your team members so they can keep track of essential information. That way, you’ll have your bases covered on anything that may affect future sales growth. 

Sales forecast template

Below you’ll see an example of a software company’s six-month sales forecast template for two products. Product one is a software application, and product two is a software accessory. 

In this sales forecast template, the company used past sales data to fill in each month. They projected their sales would increase by 10% each month because of a 5% increase in inflation and because they gained 5% more of the market. They kept their price per unit the same as the previous year.

Putting both products in the same chart can help the company see that their lower-cost product—the software accessory—brings in more revenue than their higher-cost product. The company can then use this insight to create more low-cost products in the future.

Sales forecast examples

Sales forecasting is not a one-size-fits-all process. It varies significantly across industries and business sizes. Understanding this through practical examples can help businesses identify the most suitable forecasting method for their unique needs.

Sales forecasting example 1: E-commerce

In the e-commerce sector, where trends can shift rapidly, intuitive forecasting is often useful for making quick, informed decisions.

Scenario: An e-commerce retailer specializing in fashion accessories is planning for the upcoming festive season.

Trend analysis phase: The team spends the first week analyzing customer feedback and current fashion trends on social media, using intuitive forecasting to predict which products will be popular.

Inventory planning phase: Based on these insights, the next three weeks are dedicated to selecting and ordering inventory, focusing on products predicted to be in high demand.

Sales monitoring and adjustment: As the holiday season approaches, the team closely monitors early sales data, ready to adjust their inventory and marketing strategies based on real-time sales performance.

This approach allows the e-commerce retailer to stay agile , adapting quickly to market trends and customer preferences.

Sales forecasting example 2: Software development

For a software development company, especially one working with B2B clients, opportunity stage forecasting can help predict sales and manage the sales pipeline effectively.

Scenario: A software development company is launching a new project management tool.

Lead generation and qualification phase: In the initial month, the sales team focuses on generating leads, qualifying them, and categorizing potential clients based on their progress through the sales pipeline.

Proposal and negotiation phase: For the next two months, the team works on creating tailored proposals for high-potential leads and enters negotiation stages, using opportunity stage forecasting to predict the likelihood of deal closures.

Closure and review: In the final phase, the team aims to close deals, review the accuracy of their initial forecasts, and refine their approach based on the outcomes.

Opportunity stage forecasting enables the software company to efficiently manage its sales pipeline , focusing resources on the most promising leads and improving their chances of successful deal closures.

Pair your sales forecast with a strong sales process

A sales forecast is only one part of the larger sales picture. As your team members acquire leads and close deals, you can track them through the sales pipeline. A solid sales plan is the foundation of future success.  

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Financial Forecasting: How to Do It with Different Methods, Models, & Software

Published: June 07, 2023

Planning for your company's future is significantly easier and more effective when you have a picture of what that future might look like. That's why any business interested in sound financial planning needs to have a grip on financial forecasting — the process of making accurate projections that can frame thoughtful, productive financial decisions in real time.

Here, we'll explore the concept of financial forecasting in depth, review some popular financial forecasting models, go over some prominent financial forecasting methods, and see some of the best financial forecasting software solutions on the market.

1. What is financial forecasting?

Forecasting vs. Budgeting

2. Financial Forecasting Models

• Top-Down Financial Forecasting
• Delphi Financial Forecasting
• Statistical Forecasting
• Bottom-Up Financial Forecasting

3. Financial Forecasting Methods

• Straight Line
• Simple Linear Regression
• Multiple Linear Regression
• Moving Average

4. How to do Financial Forecasting

5. Financial Forecasting Software

What is financial forecasting?

Financial forecasting is a process where a business leverages its current and past financial information to project its future financial performance. Forecasts are typically applied to assist with budgeting, financial modeling, and other key financial planning activities.

Financial forecasting is often conflated with the other key financial planning processes it generally informs — namely, budgeting. Though the two activities are often closely linked, it's important to differentiate between them.

The difference between a financial forecast and a budget boils down to the distinction between expectations and goals. A forecast details what a business can realistically expect to achieve over a given period.

When done correctly, it represents a reasonable estimate of how a company will likely perform — based on current and historical financial data, broader economic trends, foreseeable factors that might impact performance, and other variables that can be viably accounted for.

A budget, on the other hand, is the byproduct of a financial analysis rooted in what a business would like to  achieve. It's typically updated once per year and is ultimately compared to the actual results a business sees to gauge the company's overall performance.

Now that we have a picture of what financial forecasting is, let's take a look at some of its most popular models.

Financial Forecasting Models

1. top-down financial forecasting.

Top-down forecasting is a financial forecasting model where a company starts by analyzing broader market data and ultimately whittles down company-specific revenue projections from there.

It's one of the more simple, straightforward forecasting models — essentially amounting to a company looking at its total market size and calculating potential revenue based on its assumed market share with the help of fp&a software to collect all the data you need.

Top-Down Financial Forecasting Example

Let's say a company occupies space in a market that generates an estimated $1,000,000,000 in revenue annually. If the business assumes it will have a market share of 2.5%, a top-down forecast would suggest that it will see $25,000,000 in revenue in the coming year.

Benefits of Top-Down Forecasting

• It provides a more streamlined approach for larger, established businesses with diverse revenue sources than a concentrated, product-level forecast.
• It's often the only viable forecasting avenue for early-stage companies without extensive financial data.

Drawbacks of Top-Down Forecasting

• It's often seen as hastier and more superficial than more granular forecasting methods.
• A top-down forecast is generally seen more as a starting point than a concrete projection.

2. Delphi Forecasting

The term "Delphi" here is a reference to the ancient Greek city where the Greeks consulted the mythical oracle Pythia . Fittingly, the Delphi forecasting method involves financial forecasters consulting experts for their takes on projections.

With this method, a business sends multiple rounds of questionnaires to a panel of experts, covering the company's financial data. With each new round, the experts see an aggregated summary of the previous round and adjust their perspectives accordingly. Ultimately, the hope is that a few rounds can produce a consensus among the experts that can be applied to the company's financial projections.

Delphi Financial Forecasting Example

If a company were to leverage the Delphi model, it would gather a diverse array of experts and send them questionnaires without any of them ever meeting face-to-face. After one round, the experts would each receive a summary, detailing what the other experts thought with respect to the business's potential financial performance.

The experts would be at least partially moved by the group response and submit a new questionnaire accordingly. The panel would continue to receive questionnaires until it arrived at a consensus, and the forecast would be based on that insight.

Benefits of Delphi Forecasting

• It tends to be more objective than conventional, in-house forecasting.
• Contributions are anonymous, so respondents can answer candidly.

Drawbacks of Delphi Forecasting

• The method doesn't allow for a productive, open dialogue like a face-to-face meeting would.
• Response times can be long or unpredictable, prolonging forecast delivery.

3. Statistical Forecasting

Statistical forecasting is a broad term that accounts for a variety of forecasting methods. At its core, the model is exactly what it sounds like — forecasting based on statistics. More specifically, the term is essentially a catch-all that covers forecasting rooted in the use of statistics derived from historical, quantitative data.

Statistical Financial Forecasting Example

One method that generally falls under the statistical financial forecasting umbrella is the moving average method listed below. A company might look at the revenue it generated over the past 100 days and apply that statistic to its potential performance over the next similar period.

Benefits of Statistical Forecasting

• It rests on a more solid basis than other methods.
• It can be more straightforward than other methods — provided you have the right data.

Drawbacks of Statistical Forecasting

• Certain methods that fall under this umbrella can provide relatively hasty estimates, relative to other models.
• Companies without extensive historical data might not be able to produce reliable statistical forecasts.

4. Bottom-Up Financial Forecasting

As you can probably assume, bottom-up financial forecasting is essentially the opposite of top-down forecasting — it's a model where a company starts by referencing its detailed, ground-level customer or product information and works its way up to a broader revenue projection.

Bottom-Up Financial Forecasting Example

A bottom-up financial forecast could start with a business taking a look at its sales volume — or the total number of units of its product it moved in a given period — from the previous year. Then, it would estimate the price it expects to charge for that product in the coming year. From there, it would calculate its projected revenue by multiplying the two figures.

Obviously, that example is unrealistically straightforward. In most cases, the business in question here would consider other lower-level variables as well — potentially including customer-related information like total customers or retention rate.

Benefits of Bottom-Up Forecasting

• The model allows for more detailed analysis than most others.
• It offers more room for input from various departments.

Drawbacks of Bottom-Up Forecasting

• Any errors made at the micro-level can be amplified to the macro-level with this model.
• A thorough bottom-up forecast can be time-consuming and particularly labor-intensive.

Financial Forecasting Methods

1. Straight Line

True to its name, straight line forecasting is probably the most straightforward financial forecasting method businesses can leverage. It's rooted in basic math and tends to provide rougher projections than the other, more sophisticated methods listed here.

With straight line forecasting, a business gathers rough growth estimates — typically pulled from past figures — and applies them to coming months, quarters, or years. It's generally employed when a company assumes it will see steady growth over a given period.

For instance, if your business has seen revenue reliably grow 5% year over year for the past four years, you might use that figure to guide your straight line forecasting and assume that level of growth will continue for the next few years.

2. Simple Linear Regression

The simple linear regression is a common financial forecasting method where a business explores the relationship between two variables — one independent and one dependent. For instance, a company could use this method to forecast revenue by gauging how it might be impacted by shifts in GDP.

3. Multiple Linear Regression

Simple linear regression analysis often isn't enough to make accurate financial projections, as financial performance is rarely a function of a single factor. The nature of the multiple linear regression is covered by its name — instead of trying to predict how financial performance will play out in response to a single variable, the model considers two or more independent factors.

4. Moving Average

Moving average forecasting is a method most commonly used to identify the trend-direction of a stock, but businesses can still leverage it to project their financial performance. It involves taking the arithmetic mean of a dataset from a past period and applying that average to future projections. The method is typically used to evaluate potential performance over shorter periods — like weeks, months, or quarters.

How to do Financial Forecasting

1. Define your purpose for using a financial forecast.

To get the most out of a financial forecast, you have to know why you're using it in the first place. Ask yourself questions such as:

• What are you hoping to learn and take away from its results?
• Are you trying to get a better gauge of the company budget?
• Are you trying to reach a certain goal or threshold for product sales?

When you have clear intent behind your financial forecast, you'll have a more concise and clear result to search for once you begin.

2. Gather historical data.

To track the progress of your financial forecast, you have to have a good idea of your current and past finances. Take the time to analyze your historical financial data and records, including:

• Revenue and losses
• Equity and liabilities
• Fixed costs
• Investments
• Earnings per share

Your forecast will only be as accurate as the information you collect, so get as much relevant data as possible for better results and understanding.

3. Set a time frame for your forecast.

Decide how far into the future you're committed to recording and documenting your business' financial performance. This can look like weeks, months, quarters, or even years of data collection. 

It's most common for a business to conduct a forecast over the course of a fiscal year, but it's unique for every business. And if you need to adjust your forecast as time goes by, or if your goals change, you're ultimately in control and can make adjustments if need be.

4. Choose a forecasting method.

We've already give you four financial forecasting methods, so when choosing the one for your business, make sure it aligns with your previously declared purpose and goals.

5. Monitor and analyze your forecast results.

As your financial forecast delivers new data, you should monitor and analyze it differently. When you get enough data, try to think about how you can use it:

• Identify potential issues: Monitoring and analyzing financial results can help a business identify potential issues before they become more significant problems. For example, if expenses are higher than anticipated, a business can identify the cause and take corrective action to prevent it from negatively impacting financial performance.
• Measure progress towards goals: A financial forecast provides a business with financial goals and expectations. Weighing financial results against these goals enables a business to measure its progress toward achieving them. This can help the business identify where it is falling short and adjust to get back on track.
• Manage cash flow: Monitoring and analyzing financial results can give a business insights into its cash flow situation. By understanding how much cash is coming in and going out, a business can make smarter decisions about budgeting and spending.

And it doesn't have to be a tedious task to analyze your financial data, thankfully there's plenty of forecasting, decision-making and financial-planning tools available for this purpose. Let's go through some of our favorites.

Financial Forecasting Software

1. sage intacct, pricing: contact for pricing.

Sage Intacct is a multifaceted accounting and financial planning software with an accessible interface and a suite of features that can streamline your financial forecasting time by over 50%. The platform's automated forecasting resources effectively eliminate the stress, legwork, and room for error that often come with financial planning via spreadsheets.

Best for Collaboration

Sage Intacct separates itself from similar applications through its accessibility and room for collaboration. The software is particularly user-friendly and offers a singular, centralized solution for virtually any stakeholder within an organization to easily contribute to and make sense of financial projections.

2. PlanGuru

Pricing: plans starting at $99 per month.

PlanGuru is a dedicated financial forecasting software — supporting 20 separate forecasting methods that can cover projections of up to 10 years. The program also allows you to incorporate non-financial data into your forecasts and has scenario analysis features to help you interpret the ramifications of potentially impactful events. PlanGuru also offers a range of plans to suit most SMBs' budgets.

Best for Pure Financial Forecasting

Some of the other resources listed here are multifaceted accounting solutions that happen to cover financial forecasting — not PlanGuru. This application is primarily dedicated to creating financial projections.

As I mentioned, it offers 20 unique financial forecasting methods to support more effective strategic planning — along with a host of other features tailored to help you gauge your future financial performance. If you're interested in a cost-effective, forecasting-specific platform, look into PlanGuru.

3. Workday Adaptive Planning

Workday Adaptive Planning provides financial forecasting resources that reconcile accessibility with powerful functionality. The software lets you leverage both real-time financial and operational data to create and compare multiple accurate, effective what-if scenario models. It also allows you to forecast across any time horizon — whether it be daily, monthly, quarterly, or long-term.

Best for a Dynamic Range of Forecasting Options

Workday Adaptive Planning's ability to support detailed bottom-up and top-down forecasts makes it a particularly attractive option for businesses of virtually any size. It allows you to create compelling forecasts based on targets from executive guidance or ground-level operational plans.

That dynamic range of forecasting options helps set the program apart from similar options. If you're interested in software that lets you forecast from various perspectives without sacrificing accuracy or effectiveness, look into Workday Adaptive Planning.

4. Limelight

Limelight is an integrated, web-based financial planning that provides businesses with a centralized solution for almost all of their forecasting needs. Designed primarily to suit finance and accounting teams, the software offers powerful general automation and automated data integration to streamline and simplify forecasting without losing out on quality.

Best for a Familiar, Excel-Esque UX

Limelight's user experience is designed to reflect Excel — making it a familiar, particularly easy option for CFOs, controllers, budget managers, and other users to adapt to. If you're interested in a powerful forecasting resource with that kind of accessibility, Limelight might be your best option.

It's never too late to run a financial forecast.

Forecasting is a central component of sound, productive financial planning. If you have no idea what to expect financially, you'll have a hard time preparing for obstacles, setting attainable goals, and identifying aspects of your business that should be of particular interest. No matter the scale or nature of your organization, having a pulse on your financial future is always in your best interest.

Editor's note: This article was originally published in June 2022 and has been updated for comprehensiveness.

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2 Essential Templates For Starting Your Business

Powerful and easy-to-use sales software that drives productivity, enables customer connection, and supports growing sales orgs

How To Create Startup Financial Projections [+Template]

Businesses run on revenue, and accurate startup financial projections are a vital tool that allows you to make major business decisions with confidence. Financial projections break down your estimated sales, expenses, profit, and cash flow to create a vision of your potential future.

In addition to decision-making, projections are huge for validating your business to investors or partners who can aid your growth. If you haven’t already created a financial statement, the metrics in this template can help you craft one to secure lenders.

Whether your startup is in the seed stage or you want to go public in the next few years, this financial projection template for startups can show you the best new opportunities for your business’s development.

In this article:

• What is a startup financial projection?
• How to write a financial projection
• Startup expenses
• Sales forecasts
• Operating expenses
• Income statements
• Balance sheet
• Break-even analysiFinancial ratios Startup financial
• rojections template

What is a financial projection for startups?

A financial projection uses existing revenue and expense data to estimate future cash flow in and out of the business with a month-to-month breakdown.

These financial forecasts allow businesses to establish internal goals and processes considering seasonality, industry trends, and financial history. These projections cover three to five years of cash flow and are valuable for making and supporting financial decisions.

Financial projections can also be used to validate the business’s expected growth and returns to entice investors. Though a financial statement is a better fit for most lenders, many actuals used to validate your forecast are applied to both documents.

Projections are great for determining how financially stable your business will be in the coming years, but they’re not 100% accurate. There are several variables that can impact your revenue performance, while financial projections identify these specific considerations:

• Internal sales trends
• Identifiable risks
• Opportunities for growth
• Core operation questions

To help manage unforeseeable risks and variables that could impact financial projections, you should review and update your report regularly — not just once a year. 

How do you write a financial projection for a startup?

Financial projections consider a range of internal revenue and expense data to estimate sales volumes, profit, costs, and a variety of financial ratios. All of this information is typically broken into two sections:

• Sales forecasts : includes units sold, number of customers, and profit
• Expense budget : includes fixed and variable operating costs

Financial projections also use existing financial statements to support your estimated forecasts, including:

• Income stateme
• Cash flow document

Gathering your business’s financial data and statements is one of the first steps to preparing your complete financial projection. Next, you’ll import that information into your financial projection document or template.

This foundation will help you build the rest of your forecast, which includes:

• Cash flow statements
• Break-even analysis
• Financial ratios

Once all of your data is gathered, you can organize your insights via a top-down or bottom-up forecasting methods.

The top-down approach begins with an overview of your market, then works into the details of your specific revenue. This can be especially valuable if you have a lot of industry data, or you’re a startup that doesn’t have existing sales to build from. However, this relies on a lot of averages and trends will be generalized.

Bottom-up forecasting begins with the details of your business and assumptions like your estimated sales and unit prices. You then use that foundation to determine your projected revenue. This process focuses on your business’s details across departments for more accurate reporting. However, mistakes early in forecasting can compound as you “build up.”

1. Startup expenses

If your startup is still in the seed stage or expected to grow significantly in the next few quarters, you’ll need to account for these additional expenses that companies beyond the expansion phase may not have to consider.

Depending on your startup stage, typical costs may include:

• Advertising and marketing
• Lawyer fees
• Licenses and permits
• Market research
• Merchandise
• Office space
• Website development

Many of these costs also fall under operating expenses, though as a startup, items like your office space lease may have additional costs to consider, like a down payment or renovation labor and materials.

2. Sales forecasts

Sales forecasts can be created using a number of different forecasting methods designed to determine how much an individual, team, or company will sell in a given amount of time.

This data is similar to your financial projections in that it helps your organization set targets, make informed business decisions, and identify new opportunities. A sales forecast report is just much more niche, using industry knowledge and historical sales data to determine your future sales. Gather data to include:

• Customer acquisition cost (CAC)
• Cost of goods sold (COGS)
• Sales quotas and attainment
• Pipeline coverage
• Customer relationship management (CRM) score
• Average Revenue Per User (ARPU), typically used for SaaS companies

Sales forecasts should consider interdepartmental trends and data, too. In addition to your sales process and historical details, connect with other teams to apply insights from:

• Marketing strategies for the forecast period
• New product launches
• Financial considerations and targets
• Employee needs and resources from HR

Your sales strategy and forecasts are directly tied to your financial success, so an accurate sales forecast is essential to creating an effective financial projection.

3. Operating expenses

Whereas the costs of goods solds (aka Cost of Sales or COGS) account for variable costs associated with producing the products or services you produce, operating expenses are the additional costs of running your startup, including everything from payroll and office rent to sales and marketing expenses.

In addition to these fixed costs, you’ll need to anticipate one-time costs, like replacing broken machinery or holiday bonuses. If you’ve been in business for a few years, you can take a look at previous years’ expenses to see what one-time costs you ran into, or estimate a percentage of your total expenses that contributed to variable costs.

4. Cash flow statements

Cash flow statements (CFS) compare a business’s incoming cash totals, including investments and operating profit, to their expected expenses, including operational costs and debt payments.

Cash flow shows a company’s overall money management and is one of three major financial statements, next to balance sheets and income statements. It can be calculated using one of two methods:

• Direct Method : calculates actual cash flow in and out of the company
• Indirect Method : adjusts net income considering non-cash revenue and expenses

Businesses can use either method to determine cash flow, though presentation differs slightly. Typically, indirect cash flow methods are preferred by accountants who largely use accrual accounting methods .

5. Income statements

Your income statement projection utilizes your sales forecasts, estimated expenses, and existing income statements to calculate an expected net income for the future.

In addition to the hard numbers available, you should apply your industry expertise to consider new opportunities for your business to grow. If you’re entering Series C, you should anticipate the extra investments and big returns that you’re aiming to experience this round.

Once you’ve collected your insights, use your existing income statement to track your estimated revenue and expenses. Total each and subtract the expenses from the revenue projections to determine your projected income for the period.

 6. Balance sheet

Your balance sheet is the final of the big three financial documents needed to establish your company’s financial standing. The balance sheet makes a case for your company’s financial health and future net worth using these details:

• Company’s assets
• Business’s liabilities
• Shareholders’ equity

This document breaks down the company’s owned assets vs. debt items. It most directly tracks earnings and spendings, and it also doubles as an actual to establish profitability for prospective investors.

7. Break-even analysis

Launching a startup or new product line requires a significant amount of capital upfront. But at some point, your new endeavor will generate a profit. A break-even analysis identifies the moment that your profit equals the exact amount of your initial investment, meaning you’ve broken even on the launch and you haven’t lost or gained money.

A break-even point (BEP) should be identified before launching your business to determine its viability. The higher your BEP, the more seed money you’ll need or the longer it will be until operations are self-sufficient.

Of course, you can also increase prices or reduce your production costs to lower the BEP.

As your business matures, you can use the BEP to weigh risks with your product decisions, like implementing a new product or removing an existing item from the mix.

8. Financial ratios

Financial ratios are common metrics that lenders use to check financial health using data from your financial statements. There are five core groups of financial ratios used to evaluate businesses, as well as an example of each:

Efficiency ratios : Analyze a company’s assets and liabilities to determine how efficiently it manages resources and its current performance.

Formula : Asset turnover ratio = net sales / average total assets

Leverage ratios : Measure a company’s debt levels compared to other financial metrics, like total assets or equity.

Formula : Debt ratio = total liabilities / total assets

Liquidity ratios : Compare a company’s liquid assets and its liabilities to lenders to determine its ability to repay debt.

Formula : Current ratio = current assets / current liabilities

Market value ratios : Determine a public company’s current stock share price.

Formula : Book value per share (BVPS) = (shareholder’s equity - preferred equity) / total outstanding shares

Profitability ratios : Utilize revenue, operating costs, equity, and other other balance sheet metrics to asses a company’s ability to generate profits.

Formula : Gross profit margin = revenue / COGS

Graphs and charts can provide visual representations of financial ratios, as well as other insights like revenue growth and cash flow. These assets provide an overview of the financial projections in one place for easy comparison and analysis.

Startup Financial Projections Template

As a startup, you have some extra considerations to apply to your financial projections. Download and customize our financial projections template for startups to begin importing your financial data and build a road map for your investments and growth. 

Plan for future success with HubSpot for Startups

A sound financial forecast paves the way for your next moves and reassures investors (and yourself) that your business has a bright future ahead. Use our startup financial projections template to estimate your revenue, expenses, and net income for the next three to five years.

Ready to invest in a CRM to help you increase sales and connect with your customers? HubSpot for Startups offers sales, marketing, and service software solutions that scale with your startup. 

Get the template

• 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.

3 Popular Sales Forecast Examples For Small Businesses

• October 9, 2022
• Small Businesses

When creating financial forecasts for their business, entrepreneurs often face difficulties. Yet, there are 3 popular sales forecast examples you can use when creating yours. They work for the most popular revenue models , from restaurants, to retail shops, to software companies and other online businesses.

If you aren’t sure what are sales forecasts, read our article and follow these 5 simple steps to create accurate sales forecasts for your business. Looking for examples instead? In this article we explain what are the most popular 3 sales forecast examples for (almost) any type of business. Let’s dive in.

What is a sales forecast?

A sales forecast is the financial projection of a business’ sales (or revenues, turnover) over a given period. Therefore, sales forecasts are a must have of any financial forecast: by projecting sales and expenses we can then prepare the  4 financial statements  which constitute a financial forecast.

Often, sales forecasts are included within a business plan as part of your projected financial statements. Indeed, investors will want to see your business’ financial projections over a given period. Sales forecasts often are  3 or 5-years projections .

For more information on sales forecasts for small businesses and why they are important, read our article here .

Let’s now dive into the 3 most popular sales forecast examples which work for any type of business, from restaurants, to retail shops, to software companies and other online businesses.

Why are sales forecasts important?

Because sales forecasts are part of your financial forecasts, and ultimately your business plan, it is very important to get it right.

Sales forecasts help you set goals for your business

Sales forecasts aren’t simply a requirement for your business plan. Instead, they also help you set goals for your business. The sales you expect to generate as per your sales forecast should be used as a guidance for your budget and your business decisions later on.

You show you understand your business

Showing investors you’re not only a great entrepreneur but also a well-rounded and omniscient founder is very important to get the best deal. A great sales forecast will help understand how your business generates revenues, what are the different drivers affecting revenue and the potential risks involved.

Investors will give more credit to financial plans based on verified assumptions and reasonable targets. Calculate expected revenue using market size , market share and/or user adoption rates for instance. The more you justify your plan with verified assumptions, the more credible it will be.

You know how much you need to raise

Many entrepreneurs and founders do not really know exactly how much they need to raise.

Sales also drive expenses, so forecasting sales plays a pretty important role when assessing things such as your breakeven or the amount of money you need to raise . Miss the mark and you may be in trouble.

How much cash do you need to cover your losses over the next 12-18 months? The amount of money you need to raise is the result of your financial projections. This is very important to accurately estimate your revenues and expenses.

How to do a sales forecast?

Before we dive into the specifics of creating a rock-solid sales forecast for your small business, let’s first explain which approach you should follow.

Many entrepreneurs make the same mistake when forecasting their sales: they use a top-down approach. So what is bottom-up and top-down sales forecasting? Let’s use an example below.

• Top-down sales forecasting : we forecast sales using from the top down. For example, you make $500k in revenue per year and you forecast the next 3 years revenue by assuming you will capture 3% of your market size (assuming it is $100 million). By following this approach, your annual revenue is 3 years time is $3 million, a 6x increase from today.
• Bottom-up sales forecasting : we forecast sales using operational drivers (from the bottom up). For example, if your $500k sales are a function of your website traffic, we will forecast revenues based on this metric instead. Assuming website traffic increase by 50% each year (as you invest in paid and content), your revenue in 3 years time is $1.7 million, a 3x increase from today.

Bottom-up sales forecasting is the best approach for 2 main reasons:

• It allows us to relate revenues to another metric, helping us making sense of the projection. Does $3 million really make sense given this would mean multiplying website traffic by 6x over the next 3 years?
• Top-down approach requires us to make assumptions on the market size, which is often inaccurate for lack of publicly available data. Instead, bottom-up uses your own business’ historical data

Sales forecasts: 3 popular examples

1. location-based businesses.

If you are running a businesses with a physical location, such as a hotel, a restaurant, a repair shop or a retail store for example, forecasting sales boils down to forecasting street traffic.

Indeed, sales (revenues) are a function of the sales volume you generate (the number of “units” or products you sell). The sales volume itself is a function of the number of people who enter your store, and, by extrapolation, the number of people who pass by your store.

When forecasting sales for a new business, you should look at the location where your business will be based first. Assess the approximate number of people who are passing by.

Note: when assessing traffic, be careful to exclude any external factors (e.g. Christmas day), cyclicality and seasonality. Ideally, your assessment should look at a full week and all work hours in the day.

Once we have established the approximate number of people who pass by the street in a day, we will need to apply conversion rates, in order:

• How many people enter the store?
• Out of the people who enter the store, how many make a purchase?

Of course, if you already have some historical data (if you already run a store and are opening a new one), use your existing conversion rates. Else, make assumptions.

When making assumptions, you should use the data you have collected when making your own observations earlier. Use similar stores to yours, in a different street for example.

For example:

• 5% of people passing by your store enter
• 10% of people entering the store make a purchase

We can now create a simple sales forecast over a week, adding up the average traffic over a typical week:

2. Online businesses

Online businesses often acquire their customers via their website, or any type of online presence.

As such, unlike location-based businesses, sales (revenues) are a function of visitors (and not street traffic). The visitors can be visitors on a website, on a Appstore page (mobile apps) or any type of online lead acquisition page.

We often refer this type of acquisition as inbound acquisition . The traffic is two fold: paid and organic:

• Paid traffic : all visitors coming from paid marketing channels (Google Search, Facebook Ads, etc.). You are either paying for clicks, or impressions. 
• Organic traffic : all visitors landing on your landing page(s) organically (either via a referral link, direct search, social media post, blog article, etc.)

Paid marketing is the easiest way to generate traffic. Yet, because you are paying for each paid visitor, you will need to monitor your  Return on Ad Spend (ROAS)  to make sure your paid marketing campaigns are profitable.

In comparison, whilst you do not directly pay for each organic visitor, organic traffic is not free. Organic traffic is earned from investment into  SEO  and content. Whilst investing into your SEO for instance does not pay immediately, the returns can far outweigh those of your paid marketing in the long run.

So, when forecasting sales for online businesses, we should make assumptions on traffic. For example assuming:

• 30,000 visitors last month: 20,000 paid and 10,000 organic
• 3% monthly increase
• 2% conversion rate
• $50 average purchase price

This is how could look like a simplified sales forecast example for an online business:

3. Lead-acquisition businesses

Lead-acquisition businesses are companies that make sales through their sales teams efforts. This is also known as outbound acquisition (vs. inbound discussed above).

With outbound acquisition, a business acquires customers through its sales team. Whether it is via phone, email, Linkedin or even in-person, the number of acquired customers is a function of the number of sales people.

Outbound acquisition is very common for business-to-business (B2B) companies. For example, Enterprise SaaS and B2B marketplaces use outbound acquisition to acquire their customers.

Outbound customer acquisition is therefore easier to forecast vs. inbound. The simple formula to estimate new customers over time is:

The number of closings per sales person is also referred to as the efficiency of your sales team = the number of customer one sales person acquire (or “close”) each month, in average.

For example, lets’ assume you have 20 sales people. Historically, your sales team has closed (“acquired”) in average 2 B2B clients per month per sales person. Assuming you have the same number of sales persons and the same sales efficiency in the future, we can reasonably expect 40 new customers per month.

Now, assuming 1 new hire every 2 months, a sales forecast example for a lead-acquisition business could look like this:

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How to Write the Financial Section of a Business Plan

An outline of your company's growth strategy is essential to a business plan, but it just isn't complete without the numbers to back it up. here's some advice on how to include things like a sales forecast, expense budget, and cash-flow statement..

A business plan is all conceptual until you start filling in the numbers and terms. The sections about your marketing plan and strategy are interesting to read, but they don't mean a thing if you can't justify your business with good figures on the bottom line. You do this in a distinct section of your business plan for financial forecasts and statements. The financial section of a business plan is one of the most essential components of the plan, as you will need it if you have any hope of winning over investors or obtaining a bank loan. Even if you don't need financing, you should compile a financial forecast in order to simply be successful in steering your business. "This is what will tell you whether the business will be viable or whether you are wasting your time and/or money," says Linda Pinson, author of Automate Your Business Plan for Windows  (Out of Your Mind 2008) and Anatomy of a Business Plan (Out of Your Mind 2008), who runs a publishing and software business Out of Your Mind and Into the Marketplace . "In many instances, it will tell you that you should not be going into this business." The following will cover what the financial section of a business plan is, what it should include, and how you should use it to not only win financing but to better manage your business.

Dig Deeper: Generating an Accurate Sales Forecast

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How to Write the Financial Section of a Business Plan: The Purpose of the Financial Section Let's start by explaining what the financial section of a business plan is not. Realize that the financial section is not the same as accounting. Many people get confused about this because the financial projections that you include--profit and loss, balance sheet, and cash flow--look similar to accounting statements your business generates. But accounting looks back in time, starting today and taking a historical view. Business planning or forecasting is a forward-looking view, starting today and going into the future. "You don't do financials in a business plan the same way you calculate the details in your accounting reports," says Tim Berry, president and founder of Palo Alto Software, who blogs at Bplans.com and is writing a book, The Plan-As-You-Go Business Plan. "It's not tax reporting. It's an elaborate educated guess." What this means, says Berry, is that you summarize and aggregate more than you might with accounting, which deals more in detail. "You don't have to imagine all future asset purchases with hypothetical dates and hypothetical depreciation schedules to estimate future depreciation," he says. "You can just guess based on past results. And you don't spend a lot of time on minute details in a financial forecast that depends on an educated guess for sales." The purpose of the financial section of a business plan is two-fold. You're going to need it if you are seeking investment from venture capitalists, angel investors, or even smart family members. They are going to want to see numbers that say your business will grow--and quickly--and that there is an exit strategy for them on the horizon, during which they can make a profit. Any bank or lender will also ask to see these numbers as well to make sure you can repay your loan. But the most important reason to compile this financial forecast is for your own benefit, so you understand how you project your business will do. "This is an ongoing, living document. It should be a guide to running your business," Pinson says. "And at any particular time you feel you need funding or financing, then you are prepared to go with your documents." If there is a rule of thumb when filling in the numbers in the financial section of your business plan, it's this: Be realistic. "There is a tremendous problem with the hockey-stick forecast" that projects growth as steady until it shoots up like the end of a hockey stick, Berry says. "They really aren't credible." Berry, who acts as an angel investor with the Willamette Angel Conference, says that while a startling growth trajectory is something that would-be investors would love to see, it's most often not a believable growth forecast. "Everyone wants to get involved in the next Google or Twitter, but every plan seems to have this hockey stick forecast," he says. "Sales are going along flat, but six months from now there is a huge turn and everything gets amazing, assuming they get the investors' money."  The way you come up a credible financial section for your business plan is to demonstrate that it's realistic. One way, Berry says, is to break the figures into components, by sales channel or target market segment, and provide realistic estimates for sales and revenue. "It's not exactly data, because you're still guessing the future. But if you break the guess into component guesses and look at each one individually, it somehow feels better," Berry says. "Nobody wins by overly optimistic or overly pessimistic forecasts."

Dig Deeper: What Angel Investors Look For

How to Write the Financial Section of a Business Plan: The Components of a Financial Section

A financial forecast isn't necessarily compiled in sequence. And you most likely won't present it in the final document in the same sequence you compile the figures and documents. Berry says that it's typical to start in one place and jump back and forth. For example, what you see in the cash-flow plan might mean going back to change estimates for sales and expenses.  Still, he says that it's easier to explain in sequence, as long as you understand that you don't start at step one and go to step six without looking back--a lot--in between.

• Start with a sales forecast. Set up a spreadsheet projecting your sales over the course of three years. Set up different sections for different lines of sales and columns for every month for the first year and either on a monthly or quarterly basis for the second and third years. "Ideally you want to project in spreadsheet blocks that include one block for unit sales, one block for pricing, a third block that multiplies units times price to calculate sales, a fourth block that has unit costs, and a fifth that multiplies units times unit cost to calculate cost of sales (also called COGS or direct costs)," Berry says. "Why do you want cost of sales in a sales forecast? Because you want to calculate gross margin. Gross margin is sales less cost of sales, and it's a useful number for comparing with different standard industry ratios." If it's a new product or a new line of business, you have to make an educated guess. The best way to do that, Berry says, is to look at past results.
• Create an expenses budget. You're going to need to understand how much it's going to cost you to actually make the sales you have forecast. Berry likes to differentiate between fixed costs (i.e., rent and payroll) and variable costs (i.e., most advertising and promotional expenses), because it's a good thing for a business to know. "Lower fixed costs mean less risk, which might be theoretical in business schools but are very concrete when you have rent and payroll checks to sign," Berry says. "Most of your variable costs are in those direct costs that belong in your sales forecast, but there are also some variable expenses, like ads and rebates and such." Once again, this is a forecast, not accounting, and you're going to have to estimate things like interest and taxes. Berry recommends you go with simple math. He says multiply estimated profits times your best-guess tax percentage rate to estimate taxes. And then multiply your estimated debts balance times an estimated interest rate to estimate interest.
• Develop a cash-flow statement. This is the statement that shows physical dollars moving in and out of the business. "Cash flow is king," Pinson says. You base this partly on your sales forecasts, balance sheet items, and other assumptions. If you are operating an existing business, you should have historical documents, such as profit and loss statements and balance sheets from years past to base these forecasts on. If you are starting a new business and do not have these historical financial statements, you start by projecting a cash-flow statement broken down into 12 months. Pinson says that it's important to understand when compiling this cash-flow projection that you need to choose a realistic ratio for how many of your invoices will be paid in cash, 30 days, 60 days, 90 days and so on. You don't want to be surprised that you only collect 80 percent of your invoices in the first 30 days when you are counting on 100 percent to pay your expenses, she says. Some business planning software programs will have these formulas built in to help you make these projections.
• Income projections. This is your pro forma profit and loss statement, detailing forecasts for your business for the coming three years. Use the numbers that you put in your sales forecast, expense projections, and cash flow statement. "Sales, lest cost of sales, is gross margin," Berry says. "Gross margin, less expenses, interest, and taxes, is net profit."
• Deal with assets and liabilities. You also need a projected balance sheet. You have to deal with assets and liabilities that aren't in the profits and loss statement and project the net worth of your business at the end of the fiscal year. Some of those are obvious and affect you at only the beginning, like startup assets. A lot are not obvious. "Interest is in the profit and loss, but repayment of principle isn't," Berry says. "Taking out a loan, giving out a loan, and inventory show up only in assets--until you pay for them." So the way to compile this is to start with assets, and estimate what you'll have on hand, month by month for cash, accounts receivable (money owed to you), inventory if you have it, and substantial assets like land, buildings, and equipment. Then figure out what you have as liabilities--meaning debts. That's money you owe because you haven't paid bills (which is called accounts payable) and the debts you have because of outstanding loans.
• Breakeven analysis. The breakeven point, Pinson says, is when your business's expenses match your sales or service volume. The three-year income projection will enable you to undertake this analysis. "If your business is viable, at a certain period of time your overall revenue will exceed your overall expenses, including interest." This is an important analysis for potential investors, who want to know that they are investing in a fast-growing business with an exit strategy.

Dig Deeper: How to Price Business Services

How to Write the Financial Section of a Business Plan: How to Use the Financial Section One of the biggest mistakes business people make is to look at their business plan, and particularly the financial section, only once a year. "I like to quote former President Dwight D. Eisenhower," says Berry. "'The plan is useless, but planning is essential.' What people do wrong is focus on the plan, and once the plan is done, it's forgotten. It's really a shame, because they could have used it as a tool for managing the company." In fact, Berry recommends that business executives sit down with the business plan once a month and fill in the actual numbers in the profit and loss statement and compare those numbers with projections. And then use those comparisons to revise projections in the future. Pinson also recommends that you undertake a financial statement analysis to develop a study of relationships and compare items in your financial statements, compare financial statements over time, and even compare your statements to those of other businesses. Part of this is a ratio analysis. She recommends you do some homework and find out some of the prevailing ratios used in your industry for liquidity analysis, profitability analysis, and debt and compare those standard ratios with your own. "This is all for your benefit," she says. "That's what financial statements are for. You should be utilizing your financial statements to measure your business against what you did in prior years or to measure your business against another business like yours."  If you are using your business plan to attract investment or get a loan, you may also include a business financial history as part of the financial section. This is a summary of your business from its start to the present. Sometimes a bank might have a section like this on a loan application. If you are seeking a loan, you may need to add supplementary documents to the financial section, such as the owner's financial statements, listing assets and liabilities. All of the various calculations you need to assemble the financial section of a business plan are a good reason to look for business planning software, so you can have this on your computer and make sure you get this right. Software programs also let you use some of your projections in the financial section to create pie charts or bar graphs that you can use elsewhere in your business plan to highlight your financials, your sales history, or your projected income over three years. "It's a pretty well-known fact that if you are going to seek equity investment from venture capitalists or angel investors," Pinson says, "they do like visuals."

Dig Deeper: How to Protect Your Margins in a Downturn

Related Links: Making It All Add Up: The Financial Section of a Business Plan One of the major benefits of creating a business plan is that it forces entrepreneurs to confront their company's finances squarely. Persuasive Projections You can avoid some of the most common mistakes by following this list of dos and don'ts. Making Your Financials Add Up No business plan is complete until it contains a set of financial projections that are not only inspiring but also logical and defensible. How many years should my financial projections cover for a new business? Some guidelines on what to include. Recommended Resources: Bplans.com More than 100 free sample business plans, plus articles, tips, and tools for developing your plan. Planning, Startups, Stories: Basic Business Numbers An online video in author Tim Berry's blog, outlining what you really need to know about basic business numbers. Out of Your Mind and Into the Marketplace Linda Pinson's business selling books and software for business planning. Palo Alto Software Business-planning tools and information from the maker of the Business Plan Pro software. U.S. Small Business Administration Government-sponsored website aiding small and midsize businesses. Financial Statement Section of a Business Plan for Start-Ups A guide to writing the financial section of a business plan developed by SCORE of northeastern Massachusetts.

Editorial Disclosure: Inc. writes about products and services in this and other articles. These articles are editorially independent - that means editors and reporters research and write on these products free of any influence of any marketing or sales departments. In other words, no one is telling our reporters or editors what to write or to include any particular positive or negative information about these products or services in the article. The article's content is entirely at the discretion of the reporter and editor. You will notice, however, that sometimes we include links to these products and services in the articles. When readers click on these links, and buy these products or services, Inc may be compensated. This e-commerce based advertising model - like every other ad on our article pages - has no impact on our editorial coverage. Reporters and editors don't add those links, nor will they manage them. This advertising model, like others you see on Inc, supports the independent journalism you find on this site.

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How to Create a Cash Flow Forecast

10 min. read

Updated May 3, 2024

A good cash flow forecast might be the most important single piece of a business plan . All the strategy, tactics, and ongoing business activities mean nothing if there isn’t enough money to pay the bills.

That’s what a cash flow forecast is about—predicting your money needs in advance.

By cash, we mean money you can spend. Cash includes your checking account, savings, and liquid securities like money market funds. It is not just coins and bills.

Profits aren’t the same as cash

Profitable companies can run out of cash if they don’t know their numbers and manage their cash as well as their profits.

For example, your business can spend money that does not show up as an expense on your  profit and loss statement . Normal expenses reduce your profitability. But, certain spending, such as spending on inventory, debt repayment, and purchasing assets (new equipment, for example) reduces your cash but does not reduce your profitability. Because of this, your business can spend money and still be profitable.

On the sales side of things, your business can make a sale to a customer and send out an invoice, but not get paid right away. That sale adds to the revenue in your profit and loss statement but doesn’t show up in your bank account until the customer pays you.

That’s why a cash flow forecast is so important. It helps you predict how much money you’ll have in the bank at the end of every month, regardless of how profitable your business is.

Learn more about the differences between cash and profits .

• Two ways to create a cash flow forecast

There are several legitimate ways to do a cash flow forecast. The first method is called the “Direct Method” and the second is called the “Indirect Method.” Both methods are accurate and valid – you can choose the method that works best for you and is easiest for you to understand.

Unfortunately, experts can be annoying. Sometimes it seems like as soon as you use one method, somebody who is supposed to know business financials tells you you’ve done it wrong. Often that means that the expert doesn’t know enough to realize there is more than one way to do it.

• The direct method for forecasting cash flow

The direct method for forecasting cash flow is less popular than the indirect method but it can be much easier to use.

The reason it’s less popular is that it can’t be easily created using standard reports from your business’s accounting software. But, if you’re creating a forecast – looking forward into the future – you aren’t relying on reports from your accounting system so it may be a better choice for you.

That downside of choosing the direct method is that some bankers, accountants, and investors may prefer to see the indirect method of a cash flow forecast. Don’t worry, though, the direct method is just as accurate. After we explain the direct method, we’ll explain the indirect method as well.

The direct method of forecasting cash flow relies on this simple overall formula:

Cash Flow = Cash Received – Cash Spent

And here’s what that cash flow forecast actually looks like:

Let’s start by estimating your cash received and then we’ll move on to the other sections of the cash flow forecast.

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Forecasting cash received

You receive cash from three primary sources: 

1. Sales of your products and services

In your cash flow forecast, this is the “Cash from Operations” section. When you sell your products and services, some customers will pay you immediately in cash – that’s the “cash sales” row in your spreadsheet. You get that money right away and can deposit it in your bank account. You might also send invoices to customers and then have to collect payment. When you do that, you keep track of the money you are owed in  Accounts Receivable . When customers pay those invoices, that cash shows up on your cash flow forecast in the “Cash from Accounts Receivable” row. The easiest way to think about forecasting this row is to think about what invoices will be paid by your customers and when.

2. New loans and investments in your business

You can also receive cash by getting a new loan from a bank or an investment. When you receive this kind of cash, you’ll track it in the rows for loans and investments. It’s worth keeping these two different types of cash in-flows separate from each other, mostly because loans need to be repaid while investments do not need to be repaid.

3. Sales of assets

Assets are things that your business owns, such as vehicles, equipment, or property. When you sell an asset, you’ll usually receive cash from that sale and you track that cash in the “Sales of Assets” section of your cash flow forecast. For example, if you sell a truck that your company no longer needs, the proceeds from that sale would show up in your cash flow statement.

Forecasting cash spent

Similar to how you forecast the cash that you plan on receiving, you’ll forecast the cash that you plan on spending in a few categories:

1. Cash spending and paying your bills

You’ll want to forecast two types of cash spending related to your business’s operations: Cash Spending and Payment of Accounts Payable. Cash spending is money that you spend when you use petty cash or pay a bill immediately. But, there are also bills that you get and then pay later. You track these bills in  Accounts Payable . When you pay bills that you’ve been tracking in accounts payable, that cash payment will show up in your cash flow forecast as “payment of accounts payable”. When you’re forecasting this row, think about what bills you’ll pay and when you’ll pay them. In this section of your cash flow forecast, you exclude a few things: loan payments, asset purchases, dividends, and sales taxes. These will show up in the following sections.

2. Loan Payments

When you make loan repayments, you’ll forecast the repayment of the principal in your cash flow forecast. The interest on the loan is tracked in the “non-operating expense” that we’ll discuss below.

3. Purchasing Assets

Similar to how you track sales of assets, you’ll forecast asset purchases in your cash flow forecast. Asset purchases are purchases of long-lasting, tangible things. Typically, vehicles, equipment, buildings, and other things that you could potentially re-sell in the future. Inventory is an asset that your business might purchase if you keep inventory on hand.

4. Other non-operating expenses and sales tax

Your business may have other expenses that are considered “non-operating” expenses. These are expenses that are not associated with running your business, such as investments that your business may make and interest that you pay on loans. In addition, you’ll forecast when you make tax payments and include those cash outflows in this section. 

Forecasting cash flow and cash balance

In the direct cash flow forecasting method, calculating cash flow is simple. Just subtract the amount of cash you plan on spending in a month from the amount of cash you plan on receiving. This will be your “net cash flow”. If the number is positive, you receive more cash than you spend. If the number is negative, you will be spending more cash than you receive. You can predict your cash balance by adding your net cash flow to your cash balance.

• The indirect method

The indirect method of cash flow forecasting is as valid as the direct and reaches the same results.

Where the direct method looks at sources and uses of cash, the indirect method starts with net income and adds back items like depreciation that affect your profitability but don’t affect the cash balance.

The indirect method is more popular for creating cash flow statements about the past because you can easily get the data for the report from your accounting system.

You create the indirect cash flow statement by getting your Net Income (your profits) and then adding back in things that impact profit, but not cash. You also remove things like sales that have been booked, but not paid for yet.

Here’s what an indirect cash flow statement looks like:

There are five primary categories of adjustments that you’ll make to your profit number to figure out your actual cash flow:

1. Adjust for the change in accounts receivable

Not all of your sales arrive as cash immediately. In the indirect cash flow forecast, you need to adjust your net profit to account for the fact that some of your sales didn’t end up as cash in the bank but instead increased your accounts receivable.

2. Adjust for the change in accounts payable

Very similar to how you make an adjustment for accounts receivable, you’ll need to account for expenses that you may have booked on your income statement but not actually paid yet. You’ll need to add these expenses back because you still have that cash on hand and haven’t paid the bills yet.

3. Taxes & Depreciation

On your income statement, taxes and depreciation work to reduce your profitability. On the cash flow statement, you’ll need to add back in depreciation because that number doesn’t actually impact your cash. Taxes may have been calculated as an expense, but you may still have that money in your bank account. If that’s the case, you’ll need to add that back in as well to get an accurate forecast of your cash flow.

4. Loans and Investments

Similar to the direct method of cash flow, you’ll want to add in any additional cash you’ve received in the form of loans and investments. Make sure to also subtract any loan payments in this row.

5. Assets Purchased and Sold

If you bought or sold assets, you’ll need to add that into your cash flow calculations. This is, again, similar to the direct method of forecasting cash flow.

• Cash flow is about management

Remember: You should be able to project cash flow using competently educated guesses based on an understanding of the flow in your business of sales, sales on credit, receivables, inventory, and payables.

These are useful projections. But, real management is minding the projections every month with plan versus actual analysis so you can catch changes in time to manage them. 

A good cash flow forecast will show you exactly when cash might run low in the future so you can prepare. It’s always better to plan ahead so you can set up a line of credit or secure additional investment so your business can survive periods of negative cash flow.

• Cash Flow Forecasting Tools

Forecasting cash flow is unfortunately not a simple task to accomplish on your own. You can do it with spreadsheets, but the process can be complicated and it’s easy to make mistakes. 

Fortunately, there are affordable options that can make the process much easier – no spreadsheets or in-depth accounting knowledge required.

If you’re interested in checking out a cash flow forecasting tool, take a look at LivePlan for cash flow forecasting. It’s affordable and makes cash flow forecasting simple.

One of the key views in LivePlan is the cash flow assumptions view, as shown below, which highlights key cash flow assumptions in an interactive view that you can use to test the results of key assumptions:

With simple tools like this, you can explore different scenarios quickly to see how they will impact your future cash.

Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.

Table of Contents

• Profits aren’t the same as cash

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Original text

Financial projections use existing or estimated financial data to forecast your business’s future income and expenses. They often include different scenarios to see how changes to one aspect of your finances (such as higher sales or lower operating expenses) might affect your profitability.

If you need to create financial projections for a startup or existing business, this free, downloadable template includes all the necessary tools.

What Are Financial Projections Used for?

Financial projections are an essential business planning tool for several reasons.

• If you’re starting a business, financial projections help you plan your startup budget, assess when you expect the business to become profitable, and set benchmarks for achieving financial goals.
• If you’re already in business, creating financial projections each year can help you set goals and stay on track.
• When seeking outside financing, startups and existing businesses need financial projections to convince lenders and investors of the business’s growth potential.

What’s Included in Financial Projections?

This financial projections template pulls together several different financial documents, including:

• Startup expenses
• Payroll costs
• Sales forecast
• Operating expenses for the first 3 years of business
• Cash flow statements for the first 3 years of business
• Income statements for the first 3 years of business
• Balance sheet
• Break-even analysis
• Financial ratios
• Cost of goods sold (COGS), and
• Amortization and depreciation for your business.

You can use this template to create the documents from scratch or pull in information from those you’ve already made. The template also includes diagnostic tools to test the numbers in your financial projections and ensure they are within reasonable ranges.

These areas are closely related, so as you work on your financial projections, you’ll find that changes to one element affect the others. You may want to include a best-case and worst-case scenario for all possibilities. Make sure you know the assumptions behind your financial projections and can explain them to others.

Startup business owners often wonder how to create financial projections for a business that doesn’t exist yet. Financial forecasts are continually educated guesses. To make yours as accurate as possible, do your homework and get help. Use the information you unearthed in researching your business plans, such as statistics from industry associations, data from government sources, and financials from similar businesses. An accountant with experience in your industry can help fine-tune your financial projections. So can business advisors such as SCORE mentors.

Once you complete your financial projections, don’t put them away and forget about them. Compare your projections to your financial statements regularly to see how well your business meets your expectations. If your projections turn out to be too optimistic or too pessimistic, make the necessary adjustments to make them more accurate.

*NOTE: The cells with formulas in this workbook are locked. If changes are needed, the unlock code is "1234." Please use caution when unlocking the spreadsheets. If you want to change a formula, we strongly recommend saving a copy of this spreadsheet under a different name before doing so. 

We recommend downloading the  Financial Projections Template Guide in English  or  Espanol .

Do you need help creating your financial projections? Take SCORE’s online course on-demand on financial projections or connect with a SCORE mentor  online or in your community today.

Simple Steps for Starting Your Business: Financial Projections In this online module, you'll learn the importance of financial planning, how to build your financial model, how to understand financial statements and more.

Business Planning & Financial Statements Template Gallery Download SCORE’s templates to help you plan for a new business startup or grow your existing business.

Why Projected Financial Statements Are Essential to the Future Success of Startups Financial statements are vital to the success of any company but particularly start-ups. SCORE mentor Sarah Hadjhamou shares why they are a big part of growing your start-up.

Copyright © 2024 SCORE Association, SCORE.org

Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.

Simple Business Plan Template (2024)

Updated: May 4, 2024, 4:37pm

Table of Contents

Why business plans are vital, get your free simple business plan template, how to write an effective business plan in 6 steps, frequently asked questions.

While taking many forms and serving many purposes, they all have one thing in common: business plans help you establish your goals and define the means for achieving them. Our simple business plan template covers everything you need to consider when launching a side gig, solo operation or small business. By following this step-by-step process, you might even uncover a few alternate routes to success.

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Whether you’re a first-time solopreneur or a seasoned business owner, the planning process challenges you to examine the costs and tasks involved in bringing a product or service to market. The process can also help you spot new income opportunities and hone in on the most profitable business models.

Though vital, business planning doesn’t have to be a chore. Business plans for lean startups and solopreneurs can simply outline the business concept, sales proposition, target customers and sketch out a plan of action to bring the product or service to market. However, if you’re seeking startup funding or partnership opportunities, you’ll need a write a business plan that details market research, operating costs and revenue forecasting. Whichever startup category you fall into, if you’re at square one, our simple business plan template will point you down the right path.

Copy our free simple business plan template so you can fill in the blanks as we explore each element of your business plan. Need help getting your ideas flowing? You’ll also find several startup scenario examples below.

Download free template as .docx

Whether you need a quick-launch overview or an in-depth plan for investors, any business plan should cover the six key elements outlined in our free template and explained below. The main difference in starting a small business versus an investor-funded business is the market research and operational and financial details needed to support the concept.

1. Your Mission or Vision

Start by declaring a “dream statement” for your business. You can call this your executive summary, vision statement or mission. Whatever the name, the first part of your business plan summarizes your idea by answering five questions. Keep it brief, such as an elevator pitch. You’ll expand these answers in the following sections of the simple business plan template.

• What does your business do? Are you selling products, services, information or a combination?
• Where does this happen? Will you conduct business online, in-store, via mobile means or in a specific location or environment?
• Who does your business benefit? Who is your target market and ideal customer for your concept?
• Why would potential customers care? What would make your ideal customers take notice of your business?
• How do your products and/or services outshine the competition? What would make your ideal customers choose you over a competitor?

These answers come easily if you have a solid concept for your business, but don’t worry if you get stuck. Use the rest of your plan template to brainstorm ideas and tactics. You’ll quickly find these answers and possibly new directions as you explore your ideas and options.

2. Offer and Value Proposition

This is where you detail your offer, such as selling products, providing services or both, and why anyone would care. That’s the value proposition. Specifically, you’ll expand on your answers to the first and fourth bullets from your mission/vision.

As you complete this section, you might find that exploring value propositions uncovers marketable business opportunities that you hadn’t yet considered. So spend some time brainstorming the possibilities in this section.

For example, a cottage baker startup specializing in gluten-free or keto-friendly products might be a value proposition that certain audiences care deeply about. Plus, you could expand on that value proposition by offering wedding and other special-occasion cakes that incorporate gluten-free, keto-friendly and traditional cake elements that all guests can enjoy.

3. Audience and Ideal Customer

Here is where you explore bullet point number three, who your business will benefit. Identifying your ideal customer and exploring a broader audience for your goods or services is essential in defining your sales and marketing strategies, plus it helps fine-tune what you offer.

There are many ways to research potential audiences, but a shortcut is to simply identify a problem that people have that your product or service can solve. If you start from the position of being a problem solver, it’s easy to define your audience and describe the wants and needs of your ideal customer for marketing efforts.

Using the cottage baker startup example, a problem people might have is finding fresh-baked gluten-free or keto-friendly sweets. Examining the wants and needs of these people might reveal a target audience that is health-conscious or possibly dealing with health issues and willing to spend more for hard-to-find items.

However, it’s essential to have a customer base that can support your business. You can be too specialized. For example, our baker startup can attract a broader audience and boost revenue by offering a wider selection of traditional baked goods alongside its gluten-free and keto-focused specialties.

4. Revenue Streams, Sales Channels and Marketing

Thanks to our internet-driven economy, startups have many revenue opportunities and can connect with target audiences through various channels. Revenue streams and sales channels also serve as marketing vehicles, so you can cover all three in this section.

Revenue Streams

Revenue streams are the many ways you can make money in your business. In your plan template, list how you’ll make money upon launch, plus include ideas for future expansion. The income possibilities just might surprise you.

For example, our cottage baker startup might consider these revenue streams:

• Product sales : Online, pop-up shops , wholesale and (future) in-store sales
• Affiliate income : Monetize blog and social media posts with affiliate links
• Advertising income : Reserve website space for advertising
• E-book sales : (future) Publish recipe e-books targeting gluten-free and keto-friendly dessert niches
• Video income : (future) Monetize a YouTube channel featuring how-to videos for the gluten-free and keto-friendly dessert niches
• Webinars and online classes : (future) Monetize coaching-style webinars and online classes covering specialty baking tips and techniques
• Members-only content : (future) Monetize a members-only section of the website for specialty content to complement webinars and online classes
• Franchise : (future) Monetize a specialty cottage bakery concept and sell to franchise entrepreneurs

Sales Channels

Sales channels put your revenue streams into action. This section also answers the “where will this happen” question in the second bullet of your vision.

The product sales channels for our cottage bakery example can include:

• Mobile point-of-sale (POS) : A mobile platform such as Shopify or Square POS for managing in-person sales at local farmers’ markets, fairs and festivals
• E-commerce platform : An online store such as Shopify, Square or WooCommerce for online retail sales and wholesale sales orders
• Social media channels : Facebook, Instagram and Pinterest shoppable posts and pins for online sales via social media channels
• Brick-and-mortar location : For in-store sales , once the business has grown to a point that it can support a physical location

Channels that support other income streams might include:

• Affiliate income : Blog section on the e-commerce website and affiliate partner accounts
• Advertising income : Reserved advertising spaces on the e-commerce website
• E-book sales : Amazon e-book sales via Amazon Kindle Direct Publishing
• Video income : YouTube channel with ad monetization
• Webinars and online classes : Online class and webinar platforms that support member accounts, recordings and playback
• Members-only content : Password-protected website content using membership apps such as MemberPress

Nowadays, the line between marketing and sales channels is blurred. Social media outlets, e-books, websites, blogs and videos serve as both marketing tools and income opportunities. Since most are free and those with advertising options are extremely economical, these are ideal marketing outlets for lean startups.

However, many businesses still find value in traditional advertising such as local radio, television, direct mail, newspapers and magazines. You can include these advertising costs in your simple business plan template to help build a marketing plan and budget.

5. Structure, Suppliers and Operations

This section of your simple business plan template explores how to structure and operate your business. Details include the type of business organization your startup will take, roles and responsibilities, supplier logistics and day-to-day operations. Also, include any certifications or permits needed to launch your enterprise in this section.

Our cottage baker example might use a structure and startup plan such as this:

• Business structure : Sole proprietorship with a “doing business as” (DBA) .
• Permits and certifications : County-issued food handling permit and state cottage food certification for home-based food production. Option, check into certified commercial kitchen rentals.
• Roles and responsibilities : Solopreneur, all roles and responsibilities with the owner.
• Supply chain : Bulk ingredients and food packaging via Sam’s Club, Costco, Amazon Prime with annual membership costs. Uline for shipping supplies; no membership needed.
• Day-to-day operations : Source ingredients and bake three days per week to fulfill local and online orders. Reserve time for specialty sales, wholesale partner orders and market events as needed. Ship online orders on alternating days. Update website and create marketing and affiliate blog posts on non-shipping days.

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6. Financial Forecasts

Your final task is to list forecasted business startup and ongoing costs and profit projections in your simple business plan template. Thanks to free business tools such as Square and free marketing on social media, lean startups can launch with few upfront costs. In many cases, cost of goods, shipping and packaging, business permits and printing for business cards are your only out-of-pocket expenses.

Cost Forecast

Our cottage baker’s forecasted lean startup costs might include:

Gross Profit Projections

This helps you determine the retail prices and sales volume required to keep your business running and, hopefully, earn income for yourself. Use product research to spot target retail prices for your goods, then subtract your cost of goods, such as hourly rate, raw goods and supplier costs. The total amount is your gross profit per item or service.

Here are some examples of projected gross profits for our cottage baker:

Bottom Line

Putting careful thought and detail in a business plan is always beneficial, but don’t get so bogged down in planning that you never hit the start button to launch your business . Also, remember that business plans aren’t set in stone. Markets, audiences and technologies change, and so will your goals and means of achieving them. Think of your business plan as a living document and regularly revisit, expand and restructure it as market opportunities and business growth demand.

Is there a template for a business plan?

You can copy our free business plan template and fill in the blanks or customize it in Google Docs, Microsoft Word or another word processing app. This free business plan template includes the six key elements that any entrepreneur needs to consider when launching a new business.

What does a simple business plan include?

A simple business plan is a one- to two-page overview covering six key elements that any budding entrepreneur needs to consider when launching a startup. These include your vision or mission, product or service offering, target audience, revenue streams and sales channels, structure and operations, and financial forecasts.

How can I create a free business plan template?

Start with our free business plan template that covers the six essential elements of a startup. Once downloaded, you can edit this document in Google Docs or another word processing app and add new sections or subsections to your plan template to meet your specific business plan needs.

What basic items should be included in a business plan?

When writing out a business plan, you want to make sure that you cover everything related to your concept for the business,  an analysis of the industry―including potential customers and an overview of the market for your goods or services―how you plan to execute your vision for the business, how you plan to grow the business if it becomes successful and all financial data around the business, including current cash on hand, potential investors and budget plans for the next few years.

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Krista Fabregas is a seasoned eCommerce and online content pro sharing more than 20 years of hands-on know-how with those looking to launch and grow tech-forward businesses. Her expertise includes eCommerce startups and growth, SMB operations and logistics, website platforms, payment systems, side-gig and affiliate income, and multichannel marketing. Krista holds a bachelor's degree in English from The University of Texas at Austin and held senior positions at NASA, a Fortune 100 company, and several online startups.