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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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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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How to Create Financial Projections for Your Business Plan

Written by Dave Lavinsky

Financial projections, also known as financial models, are forecasts of your company’s expected financial performance, typically over the next 5 years.

Over the past 25+ years, we’ve created financial projections for thousands of startups and existing businesses. In doing so, we’ve found 3 key reasons why financial projections are important:

• They help you determine the viability of your new business ideas and/or your need to make modifications to them. For instance, if your initial financial projections show your business idea isn’t profitable, you’ll know that changes are needed (e.g., raising prices, serving new markets, figuring out how to reduce costs, etc.) to make it viable.
• They are crucial for raising funding. Lenders will always review your financial projections to ensure you can comfortably repay any loans they issue you. Equity investors will nearly always review your projections in determining whether they can achieve their desired return on their investment in your business.
• They help keep your business financially on track by giving you goals. For instance, if your financial projections state your company should generate 100 new clients this year, and the year is halfway done and you’re only at 30 clients, you’ll know you need to readjust your strategy to achieve your goals.

In the remainder of this article, you’ll learn more about financial projections, how to complete them, and how to incorporate them in your business plan.

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What are Financial Projections?

Financial projections are forecasts or estimations of your company’s future revenues and expenses, serving as a crucial part of business planning. To complete them you must develop multiple assumptions with regards to items like future sales volumes, employee headcount and the cost of supplies and other expenses. Financial projections help you create better strategies to grow your business.

Your financial projections will be the most analyzed part of your business plan by investors and/or banks. While never a precise prediction of future performance, an excellent financial model outlines the core assumptions of your business and helps you and others evaluate capital requirements, risks involved, and rewards that successful execution will deliver.

Having a solid framework in place also will help you compare your performance to the financial projections and evaluate how your business is progressing. If your performance is behind your projections, you will have a framework in place to assess the effects of lowering costs, increasing prices, or even reimagining your model. In the happy case that you exceed your business projections, you can use your framework to plan for accelerated growth, new hires, or additional expansion investments.

Hence, the use of financial projections is multi-fold and crucial for the success of any business. Your financial projections should include three core financial statements – the income statement, the cash flow statement, and the balance sheet. The following section explains each statement in detail.

Necessary Financial Statements

The three financial statements are the income statement, the cash flow statement, and the balance sheet. You will learn how to create each one in detail below.  

Income Statement Projection

The projected income statement is also referred to as a profit and loss statement and showcases your business’s revenues and expenses for a specific period.

To create an income statement, you first will need to chart out a sales forecast by taking realistic estimates of units sold and multiplying them by price per unit to arrive at a total sales number. Then, estimate the cost of these units and multiply them by the number of units to get the cost of sales. Finally, calculate your gross margin by subtracting the cost of sales from your sales.

Once you have calculated your gross margin, deduct items like wages, rent, marketing costs, and other expenses that you plan to pay to facilitate your business’s operations. The resulting total represents your projected operating income, which is a critical business metric.

Plan to create an income statement monthly until your projected break-even, or the point at which future revenues outpace total expenses, and you reflect operating profit. From there, annual income statements will suffice.

Sample Income Statement

Consider a sample income statement for a retail store below:

Cash Flow Projection

As the name indicates, a cash flow statement shows the cash flowing in and out of your business. The cash flow statement incorporates cash from business operations and includes cash inflows and outflows from investment and financing activities to deliver a holistic cash picture of your company.

Investment activities include purchasing land or equipment or research & development activities that aren’t necessarily part of daily operations. Cash movements due to financing activities include cash flowing in a business through investors and/or banks and cash flowing out due to debt repayment or distributions made to shareholders.

You should total all these three components of a cash flow projection for any specified period to arrive at a total ending cash balance. Constructing solid cash flow projections will ensure you anticipate capital needs to carry the business to a place of sustainable operations.

Sample Cash Flow Statement

Below is a simple cash flow statement for the same retail store:

Balance Sheet Projection

A balance sheet shows your company’s assets, liabilities, and owner’s equity for a certain period and provides a snapshot in time of your business performance. Assets include things of value that the business owns, such as inventory, capital, and land. Liabilities, on the other hand, are legally bound commitments like payables for goods or services rendered and debt. Finally, owner’s equity refers to the amount that is remaining once liabilities are paid off. Assets must total – or balance – liabilities and equity.

Your startup financial documents should include annual balance sheets that show the changing balance of assets, liabilities, and equity as the business progresses. Ideally, that progression shows a reduction in liabilities and an increase in equity over time.

While constructing these varied business projections, remember to be flexible. You likely will need to go back and forth between the different financial statements since working on one will necessitate changes to the others.

Sample Balance Sheet

Below is a simple balance sheet for the retail store:

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How to Create Financial Projections

When it comes to financial forecasting, simplicity is key. Your financial projections do not have to be overly sophisticated and complicated to impress, and convoluted projections likely will have the opposite effect on potential investors. Keep your tables and graphs simple and fill them with credible data that inspires confidence in your plan and vision. The below tips will help bolster your financial projections.  

Create a List of Assumptions

Your financial projections should be tied to a list of assumptions. For example, one assumption will be the initial monthly cash sales you achieve. Another assumption will be your monthly growth rate. As you can imagine, changing either of these assumptions will significantly impact your financial projections.

As a result, tie your income statement, balance sheet, and cash flow statements to your assumptions. That way, if you change your assumptions, all of your financial projections automatically update.

Below are the key assumptions to include in your financial model:

For EACH essential product or service you offer:

• What is the number of units you expect to sell each month?
• What is your expected monthly sales growth rate?
• What is the average price that you will charge per product or service unit sold?
• How much do you expect to raise your prices each year?
• How much does it cost you to produce or deliver each unit sold?
• How much (if at all) do you expect your direct product costs to grow each year?

For EACH subscription/membership, you offer:

• What is the monthly/quarterly/annual price of your membership?
• How many members do you have now, or how many members do you expect to gain in the first month/quarter/year?
• What is your projected monthly/quarterly/annual growth rate in the number of members?
• What is your projected monthly/quarterly/annual member churn (the percentage of members that will cancel each month/quarter/year)?
• What is the average monthly/quarterly/annual direct cost to serve each member (if applicable)?

Cost Assumptions

• What is your monthly salary? What is the annual growth rate in your salary?
• What is your monthly salary for the rest of your team? What is the expected annual growth rate in your team’s salaries?
• What is your initial monthly marketing expense? What is the expected annual growth rate in your marketing expense?
• What is your initial monthly rent + utility expense? What is the expected annual growth rate in your rent + utility expense?
• What is your initial monthly insurance expense? What is the expected annual growth rate in your insurance expense?
• What is your initial monthly office supplies expense? What is the expected annual growth rate in your office supplies expense?
• What is your initial monthly cost for “other” expenses? What is the expected annual growth rate in your “other” expenses?

Capital Expenditures, Funding, Tax, and Balance Sheet Items

• How much money do you need for Capital Expenditures in your first year  (to buy computers, desks, equipment, space build-out, etc.)?
• How much other funding do you need right now?
• What percent of the funding will be financed by Debt (versus equity)?
• What Corporate Tax Rate would you like to apply to company profits?
• What is your Current Liabilities Turnover (in the number of days)?
• What are your Current Assets, excluding cash (in the number of days)?
• What is your Depreciation rate?
• What is your Amortization number of Years?
• What is the number of years in which your debt (loan) must be paid back?
• What is your Debt Payback interest rate?

Create Two Financial Projection Scenarios

It would be best if you used your assumptions to create two sets of financial projections that exhibit two very different scenarios. One is your best-case scenario, and the other is your worst-case. Investors are usually very interested in how a business plan will play out in both these scenarios, allowing them to better analyze the robustness and potential profitability of a business.  

Conduct a Ratio Analysis

Gain an understanding of average industry financial ratios, including operating ratios, profitability ratios, return on investment ratios, and the like. You can then compare your own estimates with these existing ratios to evaluate costs you may have overlooked or find historical financial data to support your projected performance. This ratio analysis helps ensure your financial projections are neither excessively optimistic nor excessively pessimistic.  

Be Realistic

It is easy to get carried away when dealing with estimates and you end up with very optimistic financial projections that will feel untenable to an objective audience. Investors are quick to notice and question inflated figures. Rather than excite investors, such scenarios will compromise your legitimacy.  

Create Multi-Year Financial Projections

The first year of your financial projections should be presented on a granular, monthly basis. For subsequent years, annual projections will suffice. It is advised to have three- or five-year projections ready when you start courting investors. Since your plan needs to be succinct, you can add yearly projections as appendices to your main plan.

You should now know how to create financial projections for your business plan. In addition to creating your full projections as their own document, you will need to insert your financial projections into your plan. In your executive summary, Insert your topline projections, that is, just your sales, gross margins, recurring expenses, EBITDA (earnings before interest, taxes, depreciation, and amortization), and net income). In the financial plan section of your plan, insert your key assumptions and a little more detail than your topline projections. Include your full financial model in the appendix of your plan.

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How to make financial projections for business.

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

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

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

Key Takeaways

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

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

Here’s What We’ll Cover:

What Is a Financial Projection?

How to Create a Financial Projection

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

Financial Projections Advantages

Frequently Asked Questions

What Is Financial Projection?

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

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

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

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

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

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

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

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

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

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

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

1. Start With A Sales Projection

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

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

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

2. Create Your Expense Projection

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

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

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

3. Create Your Balance Sheet Projection

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

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

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

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

4. Make Your Income Statement Projection

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

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

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

5. Finally, Create Your Cash Flow Projection

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

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

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

Income Statement

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

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

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

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

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

Cash Flow Statement

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

You can break a cash flow statement into three parts:

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

Balance Sheet

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

A balance sheet is split up into three different sections:

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

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

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

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

Financial Projections Advantages 

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

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

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

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

FAQs on Financial Projections

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

Why are financial projections important?

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

What is an example of a financial projection?

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

Are financial forecasts and financial projections the same?

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

What is the most widely used method for financial forecasting?

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

What is the purpose of a financial projection?

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

Michelle Alexander, CPA

About the author

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

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Home > Start a Business > Small Business Financial Projections: A Step-by-Step Guide

Small Business Financial Projections: A Step-by-Step Guide

Published on 20 March 2024

8 mins read

As in most areas of business, however, a little prep, planning and guidance can help you overcome your challenges, and to create well-planned financial projections involves taking the process one step at a time.

Here's a step-by-step guide to crafting financial projections that not only reflect your business's potential but also its challenges.

1. Understand the Importance

2. start with your sales forecast.

Begin by estimating your sales over a specific period. Consider factors like market size, competition, trends, and your marketing strategy. Remember, it's better to be conservative than overly optimistic.

3. Estimate Costs

List down all potential expenses. This includes fixed costs like rent and salaries, and variable costs like production materials. Don't forget seasonal expenses or one-off costs like equipment purchases.

4. Predict Cash Flow

5. factor in taxes and regulations.

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6. Consider Different Scenarios

7. regularly update your projections.

Your first financial projection won't be your last. As your business grows and the market evolves, revisit and revise your projections. This ensures they remain relevant and reflective of current realities.

8. Seek Expert Advice

If numbers aren't your forte, consider seeking help. A financial advisor or accountant can provide valuable insights, ensuring your projections are both accurate and comprehensive.

9. Use Technology

Leverage modern tools and software. They not only simplify the process but also offer templates, analytics, and insights that can be invaluable for a small business owner.

10. Trust Your Instincts, But Rely on Data

While gut feelings have their place in business, financial projections should be grounded in data. Use market research, historical data, and industry benchmarks to inform your projections.

Financial projections, while rooted in numbers, are essentially a reflection of your business vision. They're a roadmap, guiding you through the challenges and opportunities that lie ahead. Let your financial projections be the compass that navigates your entrepreneurial journey!

Frequently Asked Questions (FAQs)

1. what are financial projections, and why are they important for small businesses.

Financial projections are estimates of a business's future financial performance, including revenue, expenses, and cash flow. They are crucial for small businesses as they help in anticipating challenges, setting realistic goals, and making informed decisions.

2. How do I start creating financial projections for my small business?

Begin by estimating your sales, listing all potential expenses, predicting cash flow, and factoring in taxes and regulations. Our step-by-step guide above provides detailed instructions.

3. What role does cash flow play in financial projections?

4. should i consider different scenarios when creating financial projections.

Yes, it's advisable to create best-case, worst-case, and most likely financial scenarios. This prepares you for unexpected changes and helps in risk management.

5. How often should I update my financial projections?

Regular updates are essential. As your business grows and market conditions change, revisit and revise your projections to ensure they remain accurate and relevant.

6. What if I'm not confident in my financial projection skills?

If numbers aren't your strength, consider seeking expert advice from a financial advisor or accountant. They can provide valuable insights and ensure your projections are accurate.

7. Are there modern tools and software to assist with financial projections?

Yes, there are various online tools and software that can simplify the process. They offer templates, analytics, and insights that can be invaluable for small business owners.

8. How can I ensure my financial projections are grounded in data?

To ensure accuracy, base your financial projections on market research, historical data, and industry benchmarks. This data-driven approach is essential for reliable projections.

9. Why are financial projections considered a reflection of a business's vision?

Financial projections are not just numbers; they are a roadmap that guides your business through challenges and opportunities. They reflect your vision and help you navigate your entrepreneurial journey effectively.

Written by Rauva

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What are Financial Projections and Why Do You Need Them?

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Our Small Business Expert

If you run a multimillion-dollar empire, it’s likely that your accounting staff is using enterprise-level software that can quickly and easily produce financial projections.

But if you’re a sole proprietor, freelancer, or micro-business owner, you’re likely to use data from your accounting software in order to prepare financial projections, but the software won’t help you in the preparation itself.

While that may sound confusing, it just means that most software applications such as QuickBooks Online , Sage 50cloud Accounting , and Xero can create the financial statements needed for you to prepare your financial projections, but the software itself will not be used in the actual creation of the projections.

At a glance: How you can create and utilize financial projections

• Three financial statements -- a balance sheet, income statement, and cash-flow statement -- are required for any financial projections you create.
• New businesses need financial projections, too. If you’re still in the planning stages, be aware that you will still need to prepare projections for your business plan.
• You’ll likely be using a template to prepare your projections. While accounting software provides the basis for your financial projections, most small business accounting software applications aren’t capable of producing financial projections.

Overview: What are financial projections?

Financial projections are an important part of managing your business. Preparing financial projections may seem like a daunting task for small business owners, but if you can create financial statements, you can create financial projections. Similar to creating a budget, financial projections are a way to forecast future revenue and expenses for your business.

Frequently used as a way to attract future investors, financial projections are also an important component when preparing a business plan for a new business or creating a strategic plan for your current business.

You can create both short-term and long-term financial projections, with most business owners using both types of projections:

Short-term projections: Short-term projections usually cover a year and are typically broken down by month.

Long-term projections : Long-term projections typically cover the next three to five years and are usually used when creating a strategic plan, or for attracting investors.

What are financial projections used for?

Financial projections can be used in a variety of ways, but they’re usually used to attract investors or when applying for a bank loan or line of credit.

Here are a few situations that would call for financial projections:

• You’re creating a business plan: One of the first things potential investors or banks want to see is a financial projection for your business, even if it isn’t operational yet.
• You’re hoping to attract investors: When looking to invest in a business, investors typically look for financial viability. No one will invest in a business without a financial projection that outlines variables such as expenses, revenue, and growth patterns.
• You’re applying for a loan or line of credit: Again, banks or other financial institutions are interested in the financial health of your business. This means providing them not just with current financial statements that outline current business performance, but also where you see your business next year, and the year after.
• You want to get a better handle on your business: You may not be in the market to attract investors or obtain a bank loan, but you do want to be able to map out your potential growth and create budgets allowing your business grow and thrive. Financial projections can help here, too.

How to create financial projections for your small business

When you’re creating financial projections for your business, the same information is required whether your business is up and running or still in the planning stages.

The difference is whether you can create your projections using historical financial data, or if you’ll need to start from scratch. This includes creating projections based on your own experience in the field, or by doing some market research in the industry in which your business will operate.

Step 1: Create a sales projection

Sales projections are an important component of your financial projections. For existing businesses, you can base your projections on past performance obtained from your financial statements. For instance, if your sales tend to be higher in the summer and fall, you’ll want to include that in your projections.

You’ll also need to take under consideration some outside factors, such as the current and projected health of the economy, whether your inventory may be affected by additional tariffs, and whether there’s been a downturn in your industry.

While we all want to be optimistic about our businesses, be sure to plan realistically.

This is one of Microsoft Excel's templates for sales forecasting. Image source: Author

Those still in the planning stages can follow the exact same plan (minus historical data), but you’ll need to do some additional research into the health of similar businesses in your proposed industry in order to plan as accurately as possible.

Step 2: Create an expense projection

Creating an expense projection may initially seem a bit simpler, because it’s easier to predict possible expenses than it is to predict the buying habits of current or potential customers.

For those working from history, you can predict with some certainty what your fixed expenses are, such as your rent or mortgage, along with recurring expenses such as utilities and payroll.

However, it’s much harder to predict those one-time expenses that have the potential to destroy your business.

What if the roof leaks in your business and destroys 75% of your inventory? What if you import the majority of your inventory from China, and you’re hit with escalating prices?

The “what ifs” can drive any of us crazy. All you can do is project expenses to the best of your ability, and maybe tack on an additional 15% to your initial number.

Step 3: Create a balance sheet projection

If you’re using accounting software and your business has been operational for at least a few months, you’ll be able to create a balance sheet directly from your software.

A balance sheet shows the financial position of your business, listing assets, liabilities, and equity balances for a particular time frame.

When creating your financial projections, you can use your current balance sheet totals to better predict where your business will be one to three years down the road.

For those of you in the planning stages, create a balance sheet based on the information you have collected from industry research.

Step 4: Create an income statement projection

Current business owners can easily create an income statement projection by using your current income statement to estimate your projected numbers.

This Excel template can be used to display revenue, cost of goods sold, expenses, and other income to identify net income. Image source: Author

An income statement provides a view of the net income of your business after things such as cost of goods sold, taxes, and other expenses have been subtracted.

This can give you a good idea of how your business is currently performing as well as serve as the basis for estimating net income for the next one to three years.

If you're in the planning stages, producing a possible income statement demonstrates that you’ve done your research and have created a good-faith estimate of your income for the next three years.

If you’re not sure where to start, visit market research firms such as Allied Market Research, which can give you an overview of your targeted industry, including product sales, target markets, and current and expected industry growth levels.

Step 5: Create a cash flow projection

The last step in completing your financial projection is the cash flow statement. The cash flow statement ties into both the income statement and the balance sheet, displaying any cash or cash-related activities that affect your business.

The cash flow statement shows how money is being spent, a must for those looking to attract an investor or obtain financing.

Again, you can use your current cash flow statement if your business has been operational for at least six months, while those of you in the start-up phase can use the data you’ve collected in order to create a credible cash flow projection.

Benefits of using accounting software for your financial projections

If you’re an existing business owner, you’re likely using accounting software to track your financial transactions. If so, the availability of financial reports such as a balance sheet, income statement, and cash flow statement are valuable resources when creating financial projections.

Here are some of the benefits of using accounting software:

• Accuracy: Unless you’re still in the planning stages, having the ability to create various financial reports and transactional histories from your software application helps to ensure your financial projections are based on accurate numbers.
• Availability of data: Being able to pull financial reports can go a long way in preparing financial projections. While you’ll likely create the projections themselves using a spreadsheet application such as Microsoft Excel, the data for your projections is readily available for you and others to access and review.
• Credibility: Being able to include supporting financial statements created by your accounting software with your financial projections lends credibility to your business and signals that you’re serious.

If you’re looking for a template to use to create financial projections, SCORE offers a downloadable financial projections template from Excel.

Finding the best way to create financial projections

While you’ll likely be using a template to create your financial projections, don’t underestimate the important role accounting software plays in creating accurate financial projections -- a necessity if you’re looking for investors or additional financing for your business.

If you’re still using manual ledgers or spreadsheet software to manage your business, it may be time to step up to the next level of professionalism by choosing and implementing an accounting software application that works for your business.

If you’re not sure which accounting software is right for you, be sure to check out our accounting software reviews .

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How to Create Financial Projections for your Business Plan

• Last Updated: September 10, 2024
• By: StartUp 101

Advertising Disclosure

Starting a business is an exciting time, but one that can come with some uncertainty. Writing out your business plan helps to increase your success significantly in addition to reducing some of the worries by getting all the ideas out of your head and organized on paper.

Financial projections are an essential component of the  business plan  to provide a realistic view as to whether or not your business is financially viable for success.

By creating financial plans, you are also able to test some of your assumptions to see the financial impact and analyze whether your business idea is feasible.

What are financial projections?

Financial projections (sometimes referred to as pro forma) are an essential part of a business plan. They are used to forecast a business’s expected sales and expenses and analyze the financial feasibility of the company. These forecasts evaluate past trends, current market conditions, and future expectations. They will also take into account regional sales potential and growth strategies and examine external and internal costs, such as the cost of customer acquisition and the amount of money you can afford to pay team members and yourself.

While it may be tempting to skip this step, not completing it could be costly.

Why are financial projections important?

Financial projections are one of the most critical steps in starting a small business. These figures help show you whether or not your business has a reasonable chance of being profitable. If your company does not reflect a profit based on your projections, you may have to make some adjustments. Financial projections can also help determine realistic price points and sales goals. They can also show you whether or not a profitable market even exists for the product or service you wish to provide.

The sales forecast is also useful in analyzing cash flows from accounts receivable and accounts payable to ensure the company has enough cash to operate.

Another reason financial projections are important is when requesting funding.  The bank will review whether you have realistic financial projections before making a business loan.

How to create financial projections?

It is important to understand that financial projections are simply the best estimates you can determine based on the information available.

These figures are next to impossible to predict accurately. While this financial forecast can’t predict how the business will perform in the future, it will provide the analysis to make informed decisions and plans for the business.

Financial projections are typically shown as a 12-month projection in the first year and by quarter in the second year and third year.

To begin with, your business plan financial projections, start by focusing on your revenue potential and likely expenses.

1. Create sales projections

Projecting sales projections (also known as revenue projections) for a new business is difficult, especially if you are new to the type of business you are starting. They are a few approaches you can consider when preparing the sales forecast.  Some companies will have multiple sources of revenue. To make these easier to follow, each revenue stream is often put on a separate line in the projections.

Average household spending  – The Consumer Expenditure Survey program from the  U.S. Bureau of Labor Statistics  (scroll down to the Annual Calendar Year Tables) provides data on the expenditures of U.S. consumers. Using the average household spending multiplied by the population in your target area, you can come up with the total potential sales. Try not to get too carried away with your target area as it will have a significant impact on potential sales.

Using the BLS data, you can look up how much people spend on food and beverages (such as food at home, food away at home, bakery products, alcoholic beverages, etc.), appliances, apparel, education, reading – and the list goes on. This information can be assessed against demographic information such as age, income, education level, occupation, race, religion, and more.

Not only can you use this data to provide useful because you can use it to gauge the feasibility of your business. For instance, if there are three competitors in your market, and you need 10% of the market to make an adequate profit, this may be a good indication your business would be successful. If you needed 80% of the market, it would likely be much more challenging.

Trade associations –  Depending on the industry you are starting your business in, it’s likely there is an industry association. Do a Google search for “[type of business] industry association” or even find a Facebook group to join and ask questions. Many industry associations have statistics and formulas you can use to estimate sales. Make sure to reference your work, so the bank or prospective investors know you didn’t come up with these numbers out of thin air. Be sure to do your own due diligence as these numbers may be overly optimistic.

Menu of services –  Another way to project sales is to create a list of services to assess how many jobs you can do in a day and the pricing of each job.

For instance, if you own a  car detailing business and it takes 4 hours per vehicle to detail, you may be able to do up to two vehicles per day, ten vehicles a week, or 40 vehicles a month (you could squeeze in a few more in a month, but let’s keep the math easy for now).

Each vehicle brings in an average of $100 for a total monthly sales revenue of $4,000. Let’s say that after subtracting rent, utilities, supplies, advertising, etc, you are left with $2,000. Now you find that best case, you have a profit of $2,000, and by working 8 hours a day, you would make $12.50 per hour. Now you have to ask yourself that in this best-case scenario where you have clients lined up each and every day and you are making $12.50 per hour, is this business worth your time?

Regardless of how you project sales, be sure to explain the key assumptions in the business plan so the reader can follow the math!

2. Project operating expenses

Next, project the monthly operating expenses of the business. Some expenses are going to be easy to estimate, such as fixed costs like rent, insurance, and utilities. Other expenses need to be carefully examined as they can make a large difference in the projected profit.

The biggest expense for most businesses is the cost of goods sold, sometimes called COGS, cost of sales, or cost of inventory. This is the cost to produce the item being sold, such as the raw materials to produce it. A typical example is a wedding band sold at a jewelry store. The sales price to the customer may have been $1,000, but the jewelry store purchased it for $700. The cost of goods sold in this instance is $700. Many times COGS is represented as a percentage, which in this example would have been 70% ($700 /$1,000).

You can often find the average cost of goods for most businesses by searching for industry publications.

Another major expense for most businesses is employees. This number can be found for many industries as a percentage of sales; however, we would recommend you create a list of the positions needed, the number of employees for each position, the number of hours worked, and wages. By comparing the industry average with your own list, you can have some confidence your numbers are in the ballpark.

Make a list of the monthly expenses and the cost for those expenses to use later in the financial statements.

3. Seasonality

After getting the sales projections completed, you will also want to look at seasonality. Seasonality refers to the fluctuations in monthly sales. Some businesses will be affected more by seasonality than others, but it is important to analyze because it may show your business will run out of cash. Lenders and potential investors will expect some seasonality, but if you have a business that has steady sales, be sure to explain why your sales are consistent.

In most areas,  landscapers  are a common business that has fluctuating sales. The spring and fall are really busy, while in the winter, there is little to no work.

4. Financial projections

With the sales projections, expenses, and seasonality now out of the way, creating the pro forma financial statements are actually pretty straightforward.

Business plan financial forecasting is typically set up to show a three-year outlook. Depending on the project, especially if it is one that has a significant amount of research and development time before revenues start to come in, some banks and lenders will occasionally want to see a five-year outlook.

There will be three financial statements to create:

• Cash flow statement –  Similar to a detailed view of a checkbook, the projected cash flow statement  looks at cash coming in and cash going out of the business. Cash flow projections usually look at the first year broken out into 12 months, and the following two years by quarter.
• Profit and loss statement  – Also referred to as an income statement, this statement is an annual estimate of the taxable profits (or losses) of the business. The numbers in the P&L statement are similar to the cash flow statement; however, depreciation and amortization are also included.
• Balance sheet –  Not every bank will request a proforma balance sheet for a start-up business. The balance sheet is similar to a personal financial statement that looks at assets and liabilities to determine the net worth.

The balance sheet is projected at the end of each year.

5. Sources and uses of funds

The sources and uses of funds section provide an overview of the financing activities, use of working capital,  loan repayments, and how the money is spent.

The sources section is a list of where the money is coming from to fund the project. This will commonly have a line for the amount of the bank loan and another line for the amount the owner is investing in the business. Keep in mind when preparing this for the bank that most banks will want to see the business owner invest 15%-25% of their own funds in a start-up business.

The uses section provides details of all the startup costs for the business. Items are usually put into categories such as:

• Real estate
• Renovations

The amount in the sources section should equal the amount in the uses section.

Financial Projection Templates

There are free financial projection templates from  Smartsheet ,  Spreadsheet 123 , and others. LivePlan has a guided approach (like Turbo Tax) to creating financial projections that are pretty thorough and easy to use.

There are free financial projection templates from  Smartsheet ,  Spreadsheet 123 , and others.  LivePlan has a guided approach (like Turbo Tax) to creating financial projections that are pretty thorough and easy to use.

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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. 

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How to Write a Financial Plan for a Business Plan

Noah Parsons

4 min. read

Updated July 11, 2024

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

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

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

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

• Key components of a financial plan in business plans

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

Sales forecast

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

Subscription sales forecast

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

Expense budget

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

How to forecast personnel costs

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

Profit and loss forecast

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

Cash flow forecast

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

Balance sheet

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

What to include if you plan to pursue funding

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

Highlight any risks and assumptions

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

Plan your exit strategy

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

• Financial ratios and metrics

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

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

Key financial terms you should know

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

Common business ratios

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

Break-even analysis

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

How to calculate ROI

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

• How to improve your financial plan

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

Common mistakes with business forecasts

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

How to improve your financial projections

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

Brought to you by

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• Financial plan templates and tools

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

Sales forecast template

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

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

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• What to include for funding

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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.

Financial Projections for Startups [Template + Course Included]

January 11, 2022

Adam Hoeksema

Financial projections are an important part of any business plan or startup pitch deck. They allow a company to estimate future revenues, expenses, and profits, and to identify potential risks and opportunities.  We have been helping founders create financial projections through our templates, tools, and custom financial modeling services since 2012.  I thought it was finally time to write a comprehensive article that should answer the key questions that we get from founders again and again.  So here is what I plan to cover:

What are financial projections? 

Why should a startup create financial projections, how to create a financial forecast , creating sales projections based on data, forecasting operating expenses, salary projections.

• Startup cost forecasting

Pro forma financial statements

Existing business vs. startup vs acquisition forecasting, how to know whether my projections are realistic, what will investors and lenders be looking for in my projections, tools used for financial forecasting.

But first, who am I, and do I know anything about financial projections? 

My name is Adam Hoeksema and I am the Co-Founder of ProjectionHub.  Since 2012 we have helped over 50,000 entrepreneurs create financial projections between our software tool and our business projection spreadsheet templates . 

I didn’t spend a decade on Wall Street or make a killing in private equity, and I haven’t even raised VC funding myself.  

But I did spend over a decade launching a growing an SBA (Small Business Administration) lender in the Indianapolis, IN area.  During that time we made over 1,800 small business loans and we often asked our clients for financial projections along with their loan applications.  That is why I started ProjectionHub.  

So 10 years ago my experience was with helping small, main street businesses create projections and secure loan funding to start their dream.  Along the way, I learned a ton about startup projections for tech-based businesses as well.  Today about 50% of our work is with small businesses looking for an SBA loan and 50% is with tech-based businesses looking to raise capital from investors.  

With that background in mind, I want to share with you what I have learned along the way to try to make your financial forecasting process just a little bit easier.  Let’s dive in!

Financial projections are estimates of the future financial performance of a company. These projections are typically based on a set of assumptions and are used to help businesses plan for the future and make informed decisions about investments, financing, and other strategic matters. Most ProjectionHub customers use pro forma financials to help external stakeholders, such as investors and lenders understand a company's financial position and future prospects. Financial projections typically include projections of income, expenses, cash flow, and balance sheet items.  

There are many opinions on whether a startup needs to create a forecasted balance sheet and how many years a set of projections should be.  At ProjectionHub, all of our financial projection templates have an integrated pro forma income statement, cash flow and balance sheet in annual and monthly format for 5 years.  This seems to meet the needs of 99% of our customers, so I think it is pretty safe to say that your investor or lender might not require all of that level of information, but they probably won’t require more than a 5-year forecast of your 3 statement financials. 

So it sounds like a lot of work to create a financial forecast, so why do we create projections?  No one can know the future.  Isn’t it just a pointless exercise?  

Well, I think it is smart for an entrepreneur to create a set of projections before they start a business to understand what they are getting themselves into and what it will take to break even and generate a profit.  

I could beat that drum all day, and you know what it doesn’t really matter.  Even if we know it is a good idea to create projections before throwing our life savings into a new venture, most entrepreneurs will not create projections before starting their business.  I have just come to accept this!  

So the real reason to create projections is because the people with the money, the investors and lenders ask for them.  

• Investors will ask for a financial model because they want to see how you plan to use their money, how long you think it will last, and what the potential return could be. 
• Lenders will ask to see financial projections for startups or new projects or divisions in a business because they want to be able to see whether you think you can pay them back or not.  How does your debt service coverage ratio look? How many cups of coffee are you going to have to sell to make your monthly loan payment? 

Now that we know why we are creating projections and who the audience is, let’s get into the “how.”

So the plan now is to walk through how to create a set of financial projections, how to do good research to take a data-driven approach when modeling, what tools you can use to help you with research, and then how to know whether your forecast is realistic once you are done.   We are going to look at:

• Creating revenue projections
• Operating Expenses
• Salaries Forecasting
• How to get investor and lender-ready projections

Revenue Projections

This is where we will camp out for a while.  I want to show you a few examples of different types of revenue models to show you how I approach creating revenue projections.  

If you have a stable, existing business, then it is possible that the best approach to creating sales projections is simply to take last year’s numbers and apply a growth rate based on your expectations of growth.  Since that approach is quite straightforward I am not going to spend any time on that today. Our Existing Business Forecast Template will be perfect for you in this scenario.  

We are going to focus on more of a first principles approach.  I am going to outline two different approaches that I often take when building a financial model.  First a capacity approach and then a customer funnel approach.  

Capacity-Based Revenue Projections

I use a capacity-based approach to revenue projections when a company is pretty certain to have demand for their products or services and their revenue is more of a function of your price x capacity.  

Here are some examples of businesses where I would take a capacity-based approach. 

Farming Projections

For a farm, your revenue forecast is going to be based on how many acres you are farming x the yield per acre x the price per unit for your crop.  You don’t really need to worry about whether you have a customer or not.  Since most crops are commodities you won’t need to find a customer, you simply sell into the ready made market at the market price. 

Trucking Projections

Trucking is similar in the sense that as long as you have a valid license and a working truck, you will be able to find loads to deliver.  The question is more about how many trucks do you have, how many miles per day can each truck drive and what price will you be able to earn per mile.  Again this is about capacity and price, not whether or not you can find a customer.  This is the approach we take to show how a trucking business with one truck can generate $400k in annual revenue . 

Daycare Facility

A daycare facility will also be able to calculate a capacity based on the size of the facility and the teacher-to-student ratio requirements.  Once you have your capacity it is mostly a function of pricing to determine your revenue forecast.  You can see a screenshot from our daycare financial forecast tool to see how we think about modeling this type of business. 

I would say most tech businesses do not fall into a capacity-based projection approach. 

For tech companies, I typically use a customer funnel-based approach to forecasting revenue. 

Customer Funnel-Based Revenue Projection Approach

These are companies where your customer might not even know your product or service exists and might not know that they want it or need it so you are going to have to really go out and market and sell.  You will likely have a customer funnel that will have leads that convert into customers over time.  

Here are some examples of business models where I would use a customer funnel approach to financial modeling. 

B2B SaaS Projections

For a B2B SaaS product you will probably have an advertising budget and a sales team that will drive leads that your team will work to qualify.  Then some percentage of those sales qualified leads will turn into customers.  You will need assumptions for things like:

• A monthly ad budget 
• Cost per click to attract a website visitor
• Percentage of website visitors that become sales qualified leads
• Percentage of sales qualified leads that the sales team converts into customers
• Average monthly spend per customer

DTC Product Forecasting

For direct to consumer product companies you will have a similar customer funnel.  Once you get to a customer, then you might have assumptions like:

• Average order value
• % of customers that become repeat customers
• How often do repeat customers repurchase

Consumer Apps 

For a consumer mobile app you will need assumptions for things like:

• Monthly ad budget
• Cost per download
• Organic / word of mouth downloads
• % of customers that download the app that convert into active users
• % of active users that churn each year
• Average monthly spend per active user per month

So this should give you an idea of the structure of assumptions that you will need in order to approach creating projections, but I just left you with a bunch of assumptions that you have no idea how to fill in with realistic data.  

Next I want to show you what I would do in order to research and find good data for your sales projections. 

So how do you know how many people are searching on Google for terms that are relevant to your product or service?  How do you know how much it would cost to advertise and get a click for that term?  How do you know what a reasonable conversion rate is from a website visitor to a customer?  How do you know what the average order value is for an ecommerce business like yours, etc? 

I recorded an entire course on this , but I have listed some tools and some slides below to show you my typical research process. 

As you will notice in the slides, I start out be simply doing Google research to try to find reasonable assumptions for as many of the key assumptions as I can.  

From there, I like to use the following tools:

• Ahrefs - I use this tool for competitor research to determine how much organic traffic my competitors are getting and thereby how much organic traffic my website might get over time. 
• Google Trends - I use Google Trends to see seasonality trends in a business. 
• Google Adwords Keyword Tool - I use this tool to forecast how much it will cost per click to attract a website visitor, and to see search volume for certain keywords.
• Bizminer - You can use Bizminer industry reports to get an idea of key industry ratios to get an idea of whether your projections are realistic for your industry. 

When forecasting expenses I like a couple of different resources to help me forecast my expenses and ensure that my expense projections are within industry standards. 

Expenses for Small Businesses

Bizminer - You can use Bizminer industry reports to get an idea of key industry ratios.  For example, you can determine if the average company in your industry spends 10% on rent or 12% on rent. 

Expenses for Tech Startups

SaaS Capital - You can use this report from SaaS Capital to get an idea of the spending categories as a % of revenue for tech companies.  This is specifically focused on SaaS, so if you are in ecommerce or a hardware startup you will need to find a similar source for your industry.  You can see an example of the expense ratios from SaaS Capital below:

When forecasting salaries I actually take two different approaches.  I typically start out by projecting specific salaries and positions for the first 24 months of the projection.  Then after that, I simply include salaries in larger buckets of operating expenses like General & Admin, R&D, and Sales & Marketing.  When you are raising investment the investors will likely want to know your specific use of funds for the first 18 to 24 months, but after that they will understand that it is impossible to predict exact positions, timing and salaries, so transitioning to an expense as a % of revenue makes sense.  You can see how this looks in one of our financial models for a B2B SaaS company : 

Detailed Salary Projections for the First 24 Months:

Salaries included in operating expense categories as a percentage of sales for year 3 and beyond:

Startup Cost Forecasting

When forecasting your startup costs, your specific location, concept, size and scale of business will make a dramatic difference in what it costs to launch your business.  I don’t recommend that you just take the first “average startup cost” number that you find in a Google search because your specific situation matters.  You will need to do your own research for each startup cost, but I have actually found it helpful to use ChatGPT to ask for a list of common startup expenses for business XYZ so that I don’t forget any common expenses. 

I have already mentioned this before, but I commonly take a different approach to creating projections for an existing business compared to a startup compared to modeling a business acquisition.  

Existing Business Projections

When modeling a projection for an existing business I like to use our existing business budgeting template that allows me to enter in historical revenue and expenses and use that as a baseline to build a forecast by increasing or decreasing expenses and revenue based on my plans. 

Startup Projections

For a startup, I would use one of our 70+ industry specific financial projection templates and start from the ground up.  You would use the research process outlined in this article to create your projections. 

Forecasting a Business Acquisition

For creating projections for a business that you are looking to acquire I would use our acquisition financial model which will allow you to enter in historical financials from the target business, but it will also allow you to make adjustments to the balance sheet and revenue and expenses for a post acquisition pro forma. You can’t simply use the existing balance sheet and income statement because both will likely change quite a bit after the sale of the business.

Finally, I wanted to show you some example pro forma statements so that you can see what the end product should look like.  

Pro forma P&L Example

Here is an example of our 5 year pro forma income statement. 

Pro forma Balance Sheet Example

Here is an example of our 5 year pro forma balance sheet. 

Once you have a complete set of projections (if you are using a ProjectionHub template) I would suggest taking a look at the profit and loss at a glance table as seen below: 

In this example, I am looking at projections for a technology company that is looking to raise investment.  So a couple of things that I would look at for a tech company pro forma.  

• The first year should probably be a loss because that is why you are looking to raise investment right?  I would just make sure you are assuming that you will raise enough investment to cover that first year loss.  
• Next I would look at how fast revenue is growing.  For an investable company there is a rule of thumb “triple, triple, double, double” which means after investment an investor will be hoping that you triple sales the first 2 years and then double sales the following two years.  This is really hard to do, so if you are forecasting that you will do 10x every year you are probably off base! 
• For tech startups you can look at this study with our partner Story Pitch Decks where we looked at what is a reasonable projection for a tech startup .  This study will show you what other similar companies are projecting, so that you can ensure that whatever you project will fall within the norms that investors see. 

Investors and lenders will likely be looking at the following numbers and ratios to make sure your projections seem to be reasonable:

• Gross Profit Margin
• Profit Margin
• Debt Service Coverage Ratio
• Comparing to industry averages
• Do revenue projections, units sold make sense?
• Does your balance sheet balance?
• When do you reach breakeven?
• Do you have room for error?

I suggest that you simply Google these things and make sure your numbers seem “normal.”  For example, if you are opening a coffee shop you could Google “average profit margin for a coffee shop” and you would probably find our article on coffee shop profit margins .  Confirm that your forecasted profit margins are in line and reasonable. Do this same exercise with each of these key ratios and numbers.  

As a thank you for reading this behemoth of an article, you can download our free financial projection template .  Other tools that I utilized or mentioned in the article include:

• Ahrefs - For competitor research
• Google Trends - For seasonality trends
• Google Adwords Keyword Tool - For search volume and cost per click
• Bizminer - For industry expense ratios
• ProjectionHub Pro Forma Templates - You can use our library of templates built specifically for over 70 unique industries and business models. 

If you would like to learn more about my process for creating financial projections, you can watch this course that I put on for tech startups looking to create investor-ready financial projections. 

Insert Webinar video below

Well I hope this has been helpful to you.  If you have specific questions please feel free to reach out directly to us at [email protected]  

About the Author

Adam is the Co-founder of ProjectionHub which helps entrepreneurs create financial projections for potential investors, lenders and internal business planning. Since 2012, over 50,000 entrepreneurs from around the world have used ProjectionHub to help create financial projections.

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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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Business Plan Financial Projections: How To Create Accurate Targets

• Written by Keith Murphy
• 17 min read

Small businesses and startups have a lot riding on their ability to create effective and accurate financial projections as part of their business plan. 

Solid financials are a strong enticement for investors, after all, and can help new businesses chart a course that will take them beyond the legendendarily difficult first year and into a productive and profitable future.

But the need for business owners to look ahead in order to secure funding, increase profits, and make intelligent financial decisions doesn’t end when startups become full-fledged businesses—and business plan financial projections aren’t just for startups. 

Existing businesses can also put them to good use by harvesting insights from their existing financial statements and creating sales projections and other financial forecasts that guide and improve their ongoing business planning.

What Are Business Plan Financial Projections?

Successful companies plan ahead, looking as best they can into the near and distant future to chart a course to growth, innovation, and competitive strength. 

Financial projections, both as part of an initial business plan and as part of ongoing business planning, use a company’s financial statements to help business owners forecast their upcoming expenses and revenue in a strategically useful way.

Most businesses use two types of financial projections:

• Short-term projections are broken down by month and generally cover the coming 12 months. They provide a guide companies can use to monitor and adjust their financial activity to set and hit targets for the financial year. In the first year, short-term projections will be entirely estimated, but in subsequent years, historical data can be used to help fine-tune them for greater accuracy and strategic utility.
• Long-term projections are focused on the coming three to five years and are generally used to secure investment (both initial and ongoing), provide a strategic roadmap for the company’s growth, or both.

For startups, creating financial projections is part of their initial business plan. Providing financial forecasts banks and potential investors can use to determine the financial viability of a business is key to obtaining financing and investments needed to get the business off the ground.

For existing businesses—for whom an initial business plan has evolved into business planning—financial projections are useful in attracting investors who want to see clear estimates for upcoming revenue, expenses, and potential growth. 

They’re also helpful in securing loans and lines of credit from financial institutions for the same reason. And even if you’re not trying to get funding or investments, financial projections provide a useful framework for building budgets focused on growth and competitive advantage.

So whether you’re a small business owner, an aspiring tycoon starting a new business, or part of the financial team at a well-established corporation, what matters most is viewing financial projections as a living, breathing reference tool that can help you plan and budget for growth in a realistic way while still setting aspirational goals for your business.

Financial Projections: Core Components

Whether you’re preparing them as part of your business plan or to enhance your business planning, you’ll need the same financial statements to prepare financial projections: an income statement, a cash-flow statement, and a balance sheet.

• Income statements , sometimes called profit and loss statements , provide detailed information on your company’s revenue and expenses for a given period (e.g., a quarter, year, or multi-year period).
• Cash flow statements provide a comprehensive view of cash flowing into and out of a business. They record all cash flow from operations, investment, and financing activities.
• Balance sheets are used to showcase a company’s assets, liabilities, and owner’s equity for a specific period.

How to Create Financial Projections

The process of creating financial projections is the same whether you’re drafting a business plan or creating forecasts for an existing business. 

The primary difference is whether you’ll draw on your own research and expertise (a new business or startup business) or use historical data (existing businesses).

Keep in mind that while you’ll create the necessary documents separately, you’ll most likely finish them by consulting each of them as needed. For example, your sales forecast might change once you prepare your cash-flow statement. 

The best approach is to view each document as both its own piece of the financial projection puzzle and a reference for the others; this will help ensure you can assemble comprehensive and clear financial projections.

1. Start with a Sales Projection

A sales forecast is the first step in creating your income statement. You can start with a one, three, or five-year projection, but keep in mind that, without historical financial data, accuracy may decrease over time. 

It’s best to start with monthly income statements until you reach your projected break-even , which is the point at which revenue exceeds total operating expenses and you show a profit. Once you hit the break-even, you can transition to annual income statements.

Also, keep in mind factors outside of sales; market conditions, global environmental, political, and health concerns, sourcing challenges (including pricing changes and increased variable costs) and other business disruptors can put the kibosh on your carefully constructed forecasts if you leave them out of your considerations.

Start with a reasonable estimate of the units sold for the forecast period, and multiply them by the price per unit. This value is your total sales for the period.

Next, estimate the total cost of producing these units (i.e., the cost of goods sold , or COGS; sometimes called cost of sales ) by multiplying the per-unit cost by the number of units produced.

Deducting your COGS from your estimated sales yields your gross profit margin.

From the gross margin, subtract expenses such as wages, marketing costs, rent, and other operating expenses. The result is your projected operating income , or net income .

Using these figures, you can create an income statement:

2. Cash Flow Statement

Tracking your estimated cash inflows and outflows from investment and financing, combined with the cash generated by business operations, is the purpose of a cash flow projection .

Investment activities might include, for example, purchasing real estate or investing in research and development outside of daily operations.

Financing activities include cash inflows from investor funding or business loans, as well as cash outflows to repay debts or pay dividends to shareholders.

A reliable and accurate cash flow projection is essential to managing your working capital effectively and ensuring you have all the cash you need to cover your ongoing obligations while still having enough left to invest in growth and innovation or cover emergencies.

Drawing from our income statement, we can create a basic cash flow statement:

3. The Balance Sheet

Providing a “snapshot” of your businesses’ financial performance for a given period of time, the balance sheet contains your company’s assets, liabilities, and owner’s equity.

Assets include inventory, real estate, and capital, while liabilities represent financial obligations and include accounts payable, bank loans, and other debt.

Owner’s equity represents the amount remaining once liabilities have been paid.

Ideally, over time your company’s balance sheet will reflect your growth through a reduction of liabilities and an increase in owner’s equity.

We can complete our triumvirate of financial statements with a basic balance sheet:

Best Practices for Effective Financial Projections

Like a lot of other business processes, financial planning can be complex, time-consuming, and even frustrating if you’re still using manual workflows and paper documents or basic spreadsheet-style applications such as Microsoft Excel. 

You can get free templates for basic financial projections from the Service Corps of Retired Executives (SCORE), but even templates can only take you so far.

Without a doubt, the best advantage you can give yourself in creating effective and accurate financial projections—whether they’re for the financial section of your business plan or simply part of your ongoing business planning—is to invest in comprehensive procure-to-pay (P2P) software such as Planergy.

In addition to helpful templates, best-in-class P2P software also provides a rich array of real-time data analysis, reporting, and forecasting tools that make it easy to transform historical data (or market research) into accurate forecasts. 

In addition, artificial intelligence and process automation make it easy to collect, organize, manage and share your data with all internal stakeholders, so everyone has the information they need to create the most useful and complete forecasts and projections possible.

Beyond investing in P2P software, you can also improve the quality and accuracy of your financial projections by:

• Doing your homework. Invest in financial statement analysis and ratio analysis, with a focus not just on your own company, but your industry and the market in general. Learn the current ratios used for liquidity analysis, profitability, and debt and compare them to your own to get a more nuanced and useful understanding of how your company performs internally and within the context of the marketplace.
• Keeping it real. It can be all too easy to get carried away with pie-in-the-sky optimism when forecasting the future of your business. Rose-colored glasses aren’t exclusive to startups and small businesses; over-inflated estimates can hobble even veteran organizations if they don’t practice good data discipline and temper their hopes with practical considerations. Focus on creating realistic, but positive, projections, and you won’t have to worry about investors or lenders glancing askance at your hard work.
• Hoping for the best, but planning for the worst. Run two scenarios when performing your financial projections: the best-case scenario where everything goes perfectly to plan, and a worse-case scenario where Murphy’s Law holds sway. While actual performance will undoubtedly fall somewhere in between the two, having an upper and lower boundary appeals to investors and lenders who are assessing your company’s financial viability.

Financial Projections Help You Reach Your Goals for Growth

From startups to global corporations, every business needs reliable tools for financial forecasting. 

Take the time to create well-researched, data-driven financial projections, and you’ll be well-equipped to attract investors, secure funding, and chart a course for greater profits, growth, and performance in today’s competitive marketplace.

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Writing a Business Plan—Financial Projections

Spell out your financial forecast in dollars and sense

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

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

Sales Forecast

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

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

Expenses Budget

What you're selling has to cost something, and this budget is where you need to show your expenses. These include the cost to your business of the units being sold in addition to overhead. It's a good idea to break down your expenses by fixed costs and variable costs. For example, certain expenses will be the same or close to the same every month, including rent, insurance, and others. Some costs likely will vary month by month such as advertising or seasonal sales help.

Cash Flow Statement

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

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

Profit and Loss Statement

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

Balance Sheet

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

Break-Even Projection

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

Additional Tips

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

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

• TemplateLab

Financial Projections Templates

34 simple financial projections templates (excel,word).

A financial projections template is a tool that is an essential part of managing businesses as it serves as a guide for the various team to achieve the desired goals. The preparation of these projections seems like a difficult task, especially for small businesses. If you can come up with financial statements , then you can also make financial projections.

Table of Contents

• 1 Financial Projections Templates
• 2 When do you need a financial projections template?
• 3 Business Projections Templates
• 4 What to include in financial projections?
• 5 Financial Forecast Templates
• 6 How do I make a financial projection?
• 7 Revenue Projection Templates

When do you need a financial projections template?

A financial projections template uses estimated or existing financial information to forecast the future expenses and income of your business. These projections don’t just consider a single scenario but different ones so you can determine how the changes in one part of your finances might affect the profitability of your company.

If you have to create a financial business projections template for your business, you can download a template to make the task easier. Financial projection has become an important tool in business planning for the following reasons:

• If you’re starting a business venture, a financial projection helps you plan your start-up budget.
• If you already have a business, a financial projection helps you set your goals and stay on track.
• If you’re thinking about getting outside financing, you need a financial projection to convince investors or lenders of the potential of your business.

Business Projections Templates

What to include in financial projections?

A financial projections template usually includes a few financial statements that will help you achieve better financial performance for your business:

• Income Statement Also called the Profit and Loss Statement , this focuses on your company’s expenses and revenues generated for a specific period of time. A typical income statement includes expenses, revenue, losses, and gains. The sum of all these is the net income, a measure of your company’s profitability.
• Cash Flow Statement Taking a look at a cash flow statement makes you understand how your company’s operations work. The statement explains in detail how much money goes in and out of your business in the form of either expense or income. This document includes the following: Operating Activities The cash flow from operating activities reports cash outflows and inflows from your company’s daily operations. This includes changes in accounts receivable, cash, inventory, accounts payable, and depreciation. Investing Activities You use the cash flows from investing activities for your company’s investments into the long-term future. This includes cash outflows for purchases of fixed assets like equipment and property and cash inflows for sales of assets. Financing Activities The financial activities in a cash flow statement show your business’ sources of cash from either banks or investors along with expenditures of cash you have paid to your shareholders. Total these at the end of each period to determine either a loss or a profit. The cash flow statement gets connected to the income statement through net income. To make this document, it requires the reconciliation of the two documents. You can calculate net profitability or income in the income statement which you then use to start the cash flow from the operations category in your cash flow statement.
• Balance Sheet This is a statement of your business’ liabilities, assets, and capital at a specific point in time. It details the balance of expenditure and income over the preceding period. This document provides you with a general overview of your business’ financial health. Here is an overview of these components: Assets These are your business’ resources with economic value that your business owns and which you believe will provide some benefit in the future. Examples of such future benefits include reducing expenses, enhancing sales, or generating cash flow. Assets typically include inventory, property, and cash. Liabilities In general, these refer to the obligations of your business to other entities. In more common terms, these are the debts that your business incurs in your daily operations. It typically includes loans and accounts payable. You can classify liabilities either as short-term or long-term. Owner’s Equity This is the amount you have left after you have paid off your liabilities. It is usually classified as retained earnings – the sum of your net income earned minus all the dividends you have paid since the start of your business.

Together with your break-even analysis and financial statements, you can include any other document that will help explain the assumptions behind your cash flow and financial forecast template.

Financial Forecast Templates

How do I make a financial projection?

The creation of a financial projections template requires the same information to use whether your business is still in its planning stages or it’s already up and running. The difference is whether you’re creating your revenue projection template using historical financial information or if you need to start from scratch.

This includes the creation of projections based on your own experiences or by conducting market research in the industry in which your business will operate. Here are some tips for creating an effective business plan financial projections template:

• Create the sales projection An important component of your business projections template is the sales projections. A business that’s already running can base its projections on its past performance, which you can derive from financial statements. When creating your sales projections, you must consider some external factors like the projected and current health of your company, if your inventory will get affected by additional tariffs, or if there is a downturn in your industry. Even if you want to remain optimistic about your business, you have to make realistic plans.
• Create the expense projection At the onset, the creation of an expense projection seems simpler because it’s much easier to predict the possible expenses of your business than it is to predict potential customers or their buying habits. If you have experience working in a certain industry, you can predict with some degree of accuracy what your fixed expenses are and any recurring expenses. But when it comes to one-time expenses that have the potential to bring down your business, these are much harder to predict. The best thing you can do in this scenario is to project expenses to the best of your ability then increase this value by 15%.
• Come up with a balance sheet for your financial projections template If you have a business that has been in operation for a couple of months, you can come up with a balance sheet using accounting software. The balance sheet shows your business’ financial status, listing its liabilities, equity, and assets balance for a certain time period. Use the current totals in your balance sheet when making your financial projections, In doing so, you will make better predictions on where your business will be a few years in the future. If you’re still in the planning stage of a business, you can create a balance sheet based on the data you’ve gathered from industry research.
• Create the income statement projection If you have a business that is currently in operation, you can create an income statement projection using your existing income statements to create an estimate of your business’ projected numbers. This is a logical move since an income statement provides a picture of your business’s net income after subtracting things like taxes, cost of goods, and other expenses. One of the main purposes of the income statement is to provide an idea of your business’ current performance. It also serves as the basis for estimating your net income for the next couple of years. If your business is still in the planning stages, the creation of a potential income statement shows that you have conducted extensive research and created a diligent and well-crafted estimate of your income in the next couple of years. If you have uncertainties on how to start creating an income statement projection, you can consult with market research firms in your locale. They can provide you with an overview of your targeted industry which includes target markets, expected and current industry growth levels, and sales.
• Come up with a cash flow projection The creation of this document is the final step leading to the completion of your financial projection. The cash flow statement is directly connected to the balance sheet and the net income statement, showing any cash-related or cash activities that can affect your industry. One of the purposes of this statement is to show how much money your business spends. This is a must for businesses obtaining financing or looking for investors. You can use this cash flow statement if your business has been in operation for a minimum of six months, but if your business is still in the planning stages, you can use the information you have gathered to create a credible projection. To make things easier for you, consider using spreadsheet software. Chances are, you’re already using spreadsheets. Using a spreadsheet will be the starting point for your financial projections. In addition, it offers flexibility that allows you to quickly judge alternative scenarios or change assumptions. Be as clear and reasonable as possible with your financial projections. Remember that financial projection is as much science as art. At some point, you will have to make assumptions on certain things like how administrative costs and raw materials will grow, revenue growth, and how efficient you will be at gathering accounts receivable for your business.

Revenue Projection Templates

More Templates

Business Budget Templates

Payment Schedule Templates

General Ledger Templates

Bill Pay Checklists

Collection Letter Templates

Personal Balance Sheets

Financial Forecast in a Business Plan

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on September 12, 2024

Are You Retirement Ready?

Table of contents, what is a financial forecast in a business plan.

A financial forecast in a business plan is a projection of the expected financial performance of a company over a specific period, often annually or quarterly. It provides insights into anticipated revenues, expenses, capital investments, and cash flows.

Rooted in both historical data and assumptions about future market conditions, this forecast helps stakeholders, including investors, lenders, and company leaders, gauge the business's potential profitability and financial health.

By comparing actual financial results with the forecast, businesses can identify gaps, make informed decisions, and adjust strategies accordingly.

Moreover, a well-constructed financial forecast demonstrates the company's understanding of its market and adds credibility to the business plan, increasing the likelihood of securing investments or loans.

In essence, it's a vital tool for planning, budgeting, and ensuring that a business remains on a sustainable financial trajectory.

Components of a Financial Forecast in a Business Plan

Sales and revenue forecast.

Businesses thrive on sales. Projecting future sales provides a cornerstone to any financial forecast. By analyzing market trends, past sales data, and growth strategies, businesses can predict revenue inflows.

This, in turn, dictates everything from inventory purchases to hiring strategies. In the ever-evolving marketplace, an accurate sales forecast is integral for optimal resource allocation and to prevent overhead costs that can cripple an enterprise.

Expense Forecast

As businesses strategize for growth, understanding expenditures becomes crucial. These can be both fixed, like rents and salaries, and variable, such as utility bills or raw material costs.

External factors like inflation, geopolitical scenarios, and supply chain disruptions can also influence business expenses. Therefore, an accurate expense forecast not only ensures sustainability but also charts out profitability margins.

Profit and Loss Statement (P&L Forecast)

Herein lies the essence of any business—profits. The P&L forecast provides a clear picture of the company's anticipated net profit or loss over a set period.

Distinguishing between gross profit, operational profit, and net profit helps streamline operations and understand where the bulk of revenues or costs stem from. A keen eye on this forecast can lead to timely interventions, ensuring financial stability.

Cash Flow Forecast

Cash is the lifeblood of a business. The cash flow forecast paints a picture of a business's liquidity by tracking both incoming and outgoing cash.

A well-managed cash flow ensures operational sustainability. A business might be profitable on paper, but if it lacks the liquidity to manage its immediate expenses, it can face significant hurdles.

Balance Sheet Forecast

A forward-looking balance sheet gives stakeholders a snapshot of a company's projected financial health, encompassing assets, liabilities, and owner’s equity.

Regularly updating and reviewing the balance sheet forecast can assist businesses in making informed financial decisions, whether it's taking on debt or making significant investments.

Capital Expenditure Forecast

For businesses looking towards expansion or major investments, the capital expenditure forecast is indispensable. It involves predictions related to expenses on assets that will benefit the business in the long run, like machinery, buildings, or technology.

Crucially, evaluating the potential return on these investments ensures that they generate value over time.

Importance of Financial Forecast in a Business Plan

Guide business strategies.

Financial forecasts are not just passive documents; they drive action. The insights derived from these forecasts shape a company's tactical and strategic decisions, ensuring alignment with financial expectations and goals.

Secure External Funding

For startups or businesses looking to expand, external funding often becomes essential. A robust financial forecast showcases the business's potential to prospective investors or lenders, bolstering its credibility and signaling its viability.

Risk Management

Financial projections serve as an early warning system. They highlight potential financial pitfalls, allowing businesses to devise countermeasures.

Whether it's diversifying sources of income, cutting down on non-essential expenses, or hedging against market volatility, these forecasts empower businesses to navigate challenges proactively.

Monitor Business Health

By juxtaposing actual financial outcomes with forecasts, businesses can gauge their performance. Discrepancies can lead to course corrections, ensuring that the business remains aligned with its broader financial and operational objectives.

Methods and Tools for Creating a Financial Forecast in a Business Plan

Quantitative methods.

Numbers often tell a compelling story. Time series analysis, econometric models, and other statistical tools provide a quantitative means to chart out a business's future. These rely heavily on historical data and established market trends to make informed predictions.

Qualitative Methods

Sometimes, numbers need a human touch. Techniques like the Delphi method or expert judgment pool insights from professionals to make predictions, especially when historical data might not be a reliable indicator.

While these methods might lack the objective precision of quantitative models, they provide valuable subjective insights, especially in rapidly evolving industries.

Modern Forecasting Tools

The digital age has democratized forecasting. Several software solutions, from simplistic spreadsheet templates to sophisticated AI-driven models, empower businesses to automate their financial forecasting processes.

Integration capabilities, real-time data processing, and advanced analytics further enhance their efficacy.

Challenges of Financial Forecast in a Business Plan

External economic factors.

While businesses can control their operations, external factors often remain unpredictable. Market volatilities, geopolitical events, or global crises can disrupt even the most meticulous forecasts, underscoring the importance of adaptability.

Internal Business Changes

Organizational restructuring, strategy pivots, or product launches can significantly alter a company's financial trajectory. Such internal changes necessitate regular revisions of the financial forecast to ensure it remains reflective of the business's evolving landscape.

Inherent Uncertainty

The future remains, by nature, uncertain. Even the most sophisticated forecasting models rely on assumptions and estimates.

Recognizing this inherent unpredictability, businesses should adopt a flexible approach, regularly revisiting their forecasts and adjusting them in light of new data or changing circumstances.

A financial forecast in a business plan is an indispensable tool that projects a company's future financial performance, derived from both historical data and future assumptions.

Essential components include sales and revenue predictions, expense projections, and comprehensive statements like the P&L and balance sheet forecasts.

The objective is not just to track figures but to guide strategy, secure funding, manage risks, and constantly monitor the company's financial health.

While modern tools and quantitative methods provide precision, qualitative insights capture the nuances of rapidly changing industries.

Challenges like external economic shifts, internal business alterations, and the inherent uncertainty of predicting the future underline the importance of flexibility and adaptability.

In essence, a robust financial forecast not only charts a course for a company's growth but also ensures it remains agile in the face of both expected and unforeseen challenges.

Financial Forecast in a Business Plan FAQs

Why is a financial forecast in a business plan crucial for startups.

A Financial Forecast in a Business Plan helps startups anticipate revenues and expenses, allowing them to strategize operations, secure funding, and ensure financial sustainability from the onset.

How often should a company update its Financial Forecast in a Business Plan?

While the frequency may vary depending on the industry and market dynamics, it's generally recommended to revisit and update the Financial Forecast in a Business Plan at least annually or when significant internal or external changes occur.

Can I create a Financial Forecast in a Business Plan without prior financial data?

Yes, startups and new businesses often rely on industry benchmarks, market research, and qualitative methods to create a Financial Forecast in a Business Plan, even without historical financial data.

How accurate is the Financial Forecast in a Business Plan?

While every effort is made to ensure accuracy, a Financial Forecast in a Business Plan is based on assumptions, projections, and available data. External factors and unforeseen changes can affect outcomes, making it essential to revisit and adjust forecasts regularly.

What tools can I use to automate the Financial Forecast in a Business Plan?

There are various software solutions, ranging from spreadsheet templates to sophisticated AI-driven platforms, designed to help businesses automate and enhance the accuracy of their Financial Forecast in a Business.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .

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