Create a Financial Forecast
How to Create a Financial Forecast for Your Business Step-by-Step
For small business owners, a financial forecast is more than just a report—it’s a roadmap that guides you from where your business is today to where you want it to be tomorrow. Much like a well-planned journey, forecasting for your business provides the milestones and directions needed to navigate opportunities, overcome obstacles, and achieve growth.
Financial forecasting is a process that gives business owners a clear, data-driven view of their business’s future. In this post, we’ll walk you through our process for creating a customized financial forecast for your business.
Get started on your financial forecasting journey today! Simplify the process and create accurate projections for your business. Click here to download your small business financial forecast projections template!
Step 1: Gather and Review Your Historical Financial Data
The first step in building your financial forecast is understanding where your business currently stands. To do this, we start by gathering all available historical financial data, including:
If your business is new and lacks historical data, we rely on industry benchmarks to build a foundational understanding. This step ensures we have a solid base to work from, allowing us to forecast with accuracy and relevance.
Step 2: Define the Forecasting Period
Next, determine the timeframe for your forecast based on your needs and goals. We recommend starting with a 12-month period, because it provides actionable insights without overextending into uncertainty.
Step 3: Establish Key Assumptions
For any forecast to be effective, it needs to be based on clear, realistic assumptions. These assumptions serve as the framework of your forecast.
Step 4: Estimate Revenue
Revenue estimation is where we begin to see the financial picture take shape. Using both historical data and our agreed-upon assumptions, we estimate your future revenue by:
For newer businesses, lean on industry data, market research, and competitive analysis to produce an informed revenue estimate.
Step 5: Estimate Expenses
After estimating revenue, we turn our attention to your expenses. We break down these costs into two main categories:
We analyze historical expense patterns to establish a baseline, then layer in expected increases or decreases. This helps us create a realistic expense forecast that can adjust with your business’s growth.
Step 6: Create a Cash Flow Projection
One of the most critical aspects of any financial forecast is cash flow management. We develop a cash flow projection that will help you anticipate periods when you may need additional funds or when you’re positioned for surplus cash. Our cash flow projection includes:
This forecast allows us to pinpoint months where cash flow might be tight and suggest strategies for covering gaps, such as securing a line of credit or adjusting payment terms.
Step 7: Develop Financial Statements
Now that we’ve gathered all of the necessary data, we compile it into three key financial statements that form the core of your forecast: Income Statement (Profit & Loss): This outlines projected revenue, expenses, and profit over the forecast period, providing insight into overall profitability. Cash Flow Statement: This shows anticipated cash inflows and outflows, highlighting periods when liquidity might need attention. Balance Sheet: This provides a snapshot of your business’s projected assets, liabilities, and equity, giving you a broader view of financial health.
These statements are invaluable for financial planning and can be easily reviewed on a monthly or quarterly basis.
Step 8: Regular Review and Adjustment
A forecast is only effective if it’s kept up-to-date. As part of our service, we review your forecast regularly to compare actual performance with projections. This allows us to identify trends early, make adjustments, and keep your forecast aligned with real-world changes. Our regular reviews involve:
Here’s a guide on how to make the most of your financial forecast throughout the year.
Step 9: Strategic Guidance Based on Your Forecast
Once your forecast is complete, we help you use it to make strategic decisions. Our insights from your forecast can support decisions around:
With our tailored approach to forecasting, you’ll have a clear understanding of where your business is heading and be well-prepared for any financial challenges or opportunities that lie ahead.
For personalized guidance, please schedule a consultation appointment with a Principal at Bernstein Financial Services to help you determine your optimal planning strategies.
The information provided in this blog post is for general informational purposes only and is not intended as legal advice. Every business and financial situation is unique, and the strategies discussed may not be applicable to your specific circumstances.
Financial forecasting is a process that gives business owners a clear, data-driven view of their business’s future. In this post, we’ll walk you through our process for creating a customized financial forecast for your business.
Get started on your financial forecasting journey today! Simplify the process and create accurate projections for your business. Click here to download your small business financial forecast projections template!
Step 1: Gather and Review Your Historical Financial Data
The first step in building your financial forecast is understanding where your business currently stands. To do this, we start by gathering all available historical financial data, including:
- Income statements (profit and loss statements)
- Cash flow statements
- Balance sheets
If your business is new and lacks historical data, we rely on industry benchmarks to build a foundational understanding. This step ensures we have a solid base to work from, allowing us to forecast with accuracy and relevance.
Step 2: Define the Forecasting Period
Next, determine the timeframe for your forecast based on your needs and goals. We recommend starting with a 12-month period, because it provides actionable insights without overextending into uncertainty.
- Short-term forecasts (monthly or quarterly, up to 1 year) are helpful for managing cash flow, budgeting, and immediate decision-making.
- Long-term forecasts (1 to 5 years) support strategic planning for growth, major investments, or expansion projects.
Step 3: Establish Key Assumptions
For any forecast to be effective, it needs to be based on clear, realistic assumptions. These assumptions serve as the framework of your forecast.
- Expected revenue growth: assumptions about sales trends, market demand, and seasonal factors.
- Projected cost changes: potential increases in costs due to inflation, market conditions, or anticipated business changes.
- Pricing adjustments: If you’re planning to change your prices, estimate the impact this will have on demand and profitability.
Step 4: Estimate Revenue
Revenue estimation is where we begin to see the financial picture take shape. Using both historical data and our agreed-upon assumptions, we estimate your future revenue by:
- Analyzing past performance: We look at historical revenue data to identify growth patterns and trends.
- Segmenting revenue streams: If you offer multiple products or services, we forecast revenue for each stream individually to create a comprehensive view.
- Factoring in growth expectations: Based on our discussions and assumptions, we project potential growth month by month.
For newer businesses, lean on industry data, market research, and competitive analysis to produce an informed revenue estimate.
Step 5: Estimate Expenses
After estimating revenue, we turn our attention to your expenses. We break down these costs into two main categories:
- Fixed costs: These include rent, salaries, insurance, and other costs that remain constant regardless of sales.
- Variable costs: These expenses, like materials, commissions, and shipping, fluctuate with changes in sales volume.
We analyze historical expense patterns to establish a baseline, then layer in expected increases or decreases. This helps us create a realistic expense forecast that can adjust with your business’s growth.
Step 6: Create a Cash Flow Projection
One of the most critical aspects of any financial forecast is cash flow management. We develop a cash flow projection that will help you anticipate periods when you may need additional funds or when you’re positioned for surplus cash. Our cash flow projection includes:
- Opening balance: The cash you currently have available.
- Cash inflows: Projected revenue and other income sources.
- Cash outflows: Anticipated expenses, loan payments, and any other outgoing payments.
This forecast allows us to pinpoint months where cash flow might be tight and suggest strategies for covering gaps, such as securing a line of credit or adjusting payment terms.
Step 7: Develop Financial Statements
Now that we’ve gathered all of the necessary data, we compile it into three key financial statements that form the core of your forecast: Income Statement (Profit & Loss): This outlines projected revenue, expenses, and profit over the forecast period, providing insight into overall profitability. Cash Flow Statement: This shows anticipated cash inflows and outflows, highlighting periods when liquidity might need attention. Balance Sheet: This provides a snapshot of your business’s projected assets, liabilities, and equity, giving you a broader view of financial health.
These statements are invaluable for financial planning and can be easily reviewed on a monthly or quarterly basis.
Step 8: Regular Review and Adjustment
A forecast is only effective if it’s kept up-to-date. As part of our service, we review your forecast regularly to compare actual performance with projections. This allows us to identify trends early, make adjustments, and keep your forecast aligned with real-world changes. Our regular reviews involve:
- Comparing actual results to forecasted figures: We analyze variances to refine future assumptions and projections.
- Updating assumptions as needed: If market conditions change or your business pivots, we revisit the assumptions to ensure they remain accurate.
Here’s a guide on how to make the most of your financial forecast throughout the year.
Step 9: Strategic Guidance Based on Your Forecast
Once your forecast is complete, we help you use it to make strategic decisions. Our insights from your forecast can support decisions around:
- Cash flow management: By identifying potential cash shortages, we help you plan in advance, so you’re never caught off guard.
- Growth planning: We show you when and how you’re financially ready for investments like hiring, equipment purchases, or expansion.
- Goal setting: We can work with you to create realistic revenue targets, budgets, and spending plans that align with your growth trajectory.
With our tailored approach to forecasting, you’ll have a clear understanding of where your business is heading and be well-prepared for any financial challenges or opportunities that lie ahead.
For personalized guidance, please schedule a consultation appointment with a Principal at Bernstein Financial Services to help you determine your optimal planning strategies.
The information provided in this blog post is for general informational purposes only and is not intended as legal advice. Every business and financial situation is unique, and the strategies discussed may not be applicable to your specific circumstances.
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