business plan forecast example

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

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

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

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

[Read more: Startup 2021: Business Plan Financials ]

Start with a sales forecast

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

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

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

Tim Berry, president and founder of Palo Alto Software

Create an expenses budget

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

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

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

Project your break-even point

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

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

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

Develop a cash flow projection

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

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

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

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How to write a sales forecast for a business plan

Table of Contents

What is a sales forecast?

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

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

In this guide, we’ll explore:

• How can you manage your forecasting?

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

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

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

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

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

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

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

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

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

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

To calculate your predicted revenue:

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

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

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

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

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

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

• Subtract the total predicted cost from your total predicted revenue

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

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

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

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

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

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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.

How to Create a Profit and Loss Forecast

Angelique O'Rourke

7 min. read

Updated May 10, 2024

An income statement, also called a profit and loss statement (or P&L), is a fundamental tool for understanding how the revenue and expenses of your business stack up.

Simply put, it tells anyone at-a-glance if your business is profitable or not. Typically, an income statement is a list of revenue and expenses, with the company’s net profit listed at the end (check out the  section on income statement examples below  to see what it looks like). 

Have you ever heard someone refer to a company’s “bottom line”? They’re talking about the last line in an income statement, the one that tells a reader the net profit of a company, or how profitable the company is over a given period of time (usually quarterly or annually) after all expenses have been accounted for.

This is the “profit” referred to when people say “profit and loss statement,” or what the “p” stands for in “P & L.” The “loss” is what happens when your expenses exceed your revenue; when a company is not profitable and therefore running at a loss.

As you read on, keep in mind that cash and profits aren’t the same thing. For more on how they’re different,  check out this article .

What’s included in an income statement?

The top line of your profit and loss statement will be the money that you have coming in, or your revenue from sales. This number should be your initial revenue from sales without any deductions.

The top line of your income statement is really just as important as the bottom line; all of the direct costs and expenses will be taken out of this beginning number. The smaller it is, the smaller the expenses have to be if you’re going to stay in the black.

If you’re  writing a business plan  document and don’t yet have money coming in, you might be wondering how you would arrive at a sales number for a financial forecast. It’s normal for the financials of a business plan to be your best educated guess at what the next few years of numbers will be. No one can predict the future, but you can make a reasonable plan.

Check out this article about forecasting sales  for more information.

Direct costs

Direct costs, also referred to as the cost of goods sold, or COGS, is just what it sounds like: How much does it cost you to make the product or deliver the service related to that sale? You wouldn’t include items such as rent for an office space in this area, but the things that directly contribute to the product you sell.

For example, to a bookstore, the direct cost of sales is what the store paid for the books it sold; but to a publisher, its direct costs include authors’ royalties, printing, paper, and ink. A manufacturer’s direct costs include materials and labor. A reseller’s direct costs are what the reseller paid to purchase the products it’s selling.

If you only sell services, it’s possible that you have no direct costs or very low direct costs as a percentage of sales; but even accountants and attorneys have subcontractors, research, and photocopying that can be included in direct costs.

Here’s a simple rule of thumb to distinguish between direct costs and regular expenses: If you pay for something, regardless of whether you make 1 sale or 100 sales, that’s a regular expense. Think salaries, utilities, insurance, and rent. If you only pay for something when you make a sale, that’s a direct cost. Think inventory and paper reports you deliver to clients.

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Gross margin

Gross margin is also referred to as gross profit. This number refers to the difference between the revenue and direct costs on your income statement.

Revenue – Direct Costs = Gross Margin

This number is very important because it conveys two critical pieces of information: 1.) how much of your revenue is being funneled into direct costs (the smaller the number, the better), and 2.) how much you have left over for all of the company’s other expenses. If the number after direct costs is smaller than the total of your operating expenses, you’ll know immediately that you’re not profitable.

Operating expenses

Operating expenses are where you list all of your regular expenses as line items, excluding your costs of goods sold.

So, you have to take stock of everything else your company pays for to keep the doors open: rent, payroll, utilities, marketing—include all of those fixed expenses here.

Remember that each individual purchase doesn’t need its own line item. For ease of reading, it’s better to group things together into categories of expenses—for example, office supplies, or advertising costs.

Operating income

Operating income is also referred to as EBITDA, or earnings before interest, taxes, depreciation, and amortization. You calculate your operating income by subtracting your total operating expenses from your gross margin.

Gross Margin – Operating Expenses = Operating Income

Operating income is considered the most reliable number reflecting a company’s profitability. As such, this is a line item to keep your eye on, especially if you’re  presenting to investors . Is it a number that inspires confidence?

This is fairly straightforward—here you would include any interest payments that the company is making on its loans. If this doesn’t apply to you, skip it.

Depreciation and amortization

These are non-cash expenses associated with your assets, both tangible and intangible. Depreciation is an accounting concept based on the idea that over time, a tangible asset, like a car or piece of machinery, loses its value, or depreciates. After several years, the asset will be worth less and you record that change in value as an expense on your P&L.

With intangible assets, you’ll use a concept called amortization to write off their cost over time. An example here would be a copyright or patent that your business might purchase from another company. If the patent lasts for 20 years and it cost your company $1 million to purchase the patent, you would then expense 1/20th of the cost every year for the life of the patent. This expense for an intangible asset would be included in the amortization row of the income statement.

This will reflect the income tax amount that has been paid, or the amount that you expect to pay, depending on whether you are recording planned or actual values. Some companies  set aside an estimated amount of money  to cover this expected expense.

Total expenses

Total expenses is exactly what it sounds like: it’s the total of all of your expenses, including interest, taxes, depreciation, and amortization.

The simplest way to calculate your total expenses is to just take your direct costs, add operating expenses, and then add the additional expenses of interest, taxes, depreciation, and amortization:

Total Expenses = Direct Costs + Operating Expenses + Interest + Taxes + Depreciation + Amortization

Net profit, also referred to as net income or net earnings, is the proverbial bottom line. This is the at-a-glance factor that will determine the answer to the question, are you in the red? You calculate net profit by subtracting total expenses from revenue:

Net Profit = Revenue – Total Expenses

Remember that this number started at the top line, with your revenue from sales. Then everything else was taken out of that initial sum. If this number is negative, you’ll know that you’re running at a loss. Either your expenses are too high, you’re revenue is in a slump, or both—and it might be time to reevaluate strategy.

• Income statement examples

Because the terminology surrounding income statements is variable and all businesses are different, not all of them will look exactly the same, but the core information of revenue minus all expenses (including direct costs) equals profit will be present in each one.

Here is an income statement from Nike, to give you a general idea:

An  income statement from Nike .

As you can see, while Nike uses a variety of terms to explain what their expenses are and name each line item as clearly as possible, the takeaway is still the bottom line, their net income.

See why 1.2 million entrepreneurs have written their business plans with LivePlan

Angelique is a skilled writer, editor, and social media specialist, as well as an actor and model with a demonstrated history of theater, film, commercial and print work.

Table of Contents

• What’s included in an income statement?

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Tim berry on business planning, starting and growing your business, and having a life in the meantime., standard business plan financials: sales forecast example.

Continuing my series on standard business plan financials , this is an example of a startup sales forecast. It’s a direct follow-up to yesterday’s How to Forecast Sales . The goal is to take a hypothetical case and open up the thinking involved, not so anybody just copies it, but rather to serve as an example. The underlying goal is to open up the idea that forecasting isn’t a technical feat; it’s something that anybody can do.

We had Garrett the bike store owner yesterday. Today it’s Magda, who wants to open up a new café in an office park. She wants a small locale, just six tables of four. She wants to serve coffee and lunches. She hasn’t contracted the locale yet, but she has a good idea of where she wants to locate it and what size she wants, so she wants to estimate realistic sales. She assumes a certain size and location and develops a base forecast to get started.

Establishing a base case

She starts with understanding her capacity. She does some simple math. She estimates that with six tables of four people each, she can do only about 24 sit-down lunches in an average day, because lunch is just a single hour. And then she adds to-go lunches, which she estimates will be about double the table lunches, so 48 per day. She estimates lunch beverages as .9 beverages for every lunch at the tables, and only .5 beverages for every to-go lunch. Then she calculates the coffee capacity as a maximum of one customer every two minutes, or 30 customers per hour; and she estimates how she expects the flow during the morning hours, with a maximum 30 coffees during the 8-9 a.m. hour. She also estimates some coffees at lunch, based on 3 coffees for every 10 lunches. You can see the results here, as a quick worksheet for calculations.

Where do those estimates come from? How does Magda know? Ideally, she knows because she has experience. She’s familiar with the café business as a former worker, owner, or close connection. Or perhaps she has a partner, spouse, friend, or even a consultant who can make educated guesses. And it helps to break the estimates down into smaller pieces, as you can see Magda has done here.

And, by the way, there is a lesson there about estimating and educated guesses: Magda calculates 97 coffees per day. That’s really 100. Always round your educated guesses. Exact numbers give a false sense of certainty.

Café monthly assumptions

She then estimates monthly capacity. You saw in Illustration 7-2 that she estimates 22 workdays per month, and multiplies coffees, lunches, and beverages, to generate the estimated unit numbers for a baseline sample month.

So that means the base case is about 1,500 lunches, about 1,000 beverages, and about 2,000 coffees in a month. Before she takes the next step, Magda adds up some numbers to see whether she should just abandon her idea. At $10 per lunch and $2 per coffee or beverage, that’s roughly $15,000 in lunches, $2,000 in lunch beverages, and $4,000 in coffees in a month. She probably calls that $20,000 as a rough estimate of a true full capacity. She could figure on a few thousand in rent, a few thousand in salaries, and then decide that she should continue planning, from the quick view, like it could be a viable business (And that, by the way, in a single paragraph, is a break-even analysis).

From base case to sales forecast

With those rough numbers established as capacity, and some logic for what drives sales, and how the new business might gear up, Magda then does a quick calculation of how she might realistically expect sales to go, compared to capacity, during her first year.

Month-by-month estimates for the first year

All of which brings us to a realistic sales forecast for Magda’s café in the office park (with some monthly columns removed for visibility’s sake). This is a spreadsheet view, so, if you’re a LivePlan user, all you need is to figure the assumptions and the software will do the calculations and arrangement.

Notice that Magda is being realistic. Although her capacity looks like about $20,000 of sales per month, she knows it will take a while to build the customer base and get the business up to that level. She starts out at only about half of what she calculated as full sales; and she gets closer to full sales towards the end of the first year, when her projected sales are more than $19,000.

Important: these are all just rough numbers, for general calculations. There is nothing exact about these estimates. Don’t be fooled by how exact they appear.

Notice how she’s working with educated guessing. She isn’t turning to some magic information source to find out what her sales will be. She doesn’t assume there is some magic “right answer.” She isn’t using quadratic equations and she doesn’t need an advanced degree in calculus. She does need to have some sense of what to realistically expect. Ideally she’s worked in a restaurant or knows somebody who has, so she has some reasonable information to draw on.

Estimating direct costs

We’ve seen direct costs already, in the previous section. They are also called COGS, or cost of goods sold, or unit costs. In Magda’s case, her direct costs or COGS are what she pays for the coffee beans, beverages, bread, meat, potatoes, and other ingredients in the food she serves.

Just as with the sales categories, forecast your direct costs in categories that match your chart of accounts.

So, with her unit sales estimates already there, Magda needs only add estimated direct costs per unit to finish the forecast. The math is as simple as it was for the sales, multiplying her estimated units times her per unit direct cost. Then it adds the rows and the columns appropriately.

Here again you see the idea of educated guessing, estimates, and summary. Magda doesn’t break down all the possibilities for lunches into details, differentiating the steak sandwich from the veggie sandwich, and everything in between; that level of detail is unmanageable in a forecast. She estimates the overall average direct cost. Coffees cost an average of 40 cents per coffee, and lunches about $5.00. She estimates because she’s familiar with the business. And if she weren’t familiar with the business, she’d  find a partner who is, or do a lot more research.

wow this was very helpful thanks!

Dear There,

Somehow, I found the above-mentioned is very interesting in its simplicity explanation and guide through. FYI , I am an SME level, you could say a beginner ,trying hard as an SME category to build on my new product.

Of course the above coffee case was an excellent example, but would like to have a realistic outlook for my new product. how about giving me a hand in this?

If I have an answer from your side I will in a position to share with my concern.

Mutaz thanks for the offer, and best of luck to you … I’m overbooked, oversubscribed, not able to help with specific forecasts. Thanks for asking. Tim

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• Sales forecasting: How to create a sale ...

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

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

What is a sales forecast?

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

Why is sales forecasting important?

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

An effective sales forecasting plan:

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

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

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

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

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

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

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

When you have an accurate prediction of your future sales, you can use your projections to adjust your current sales process.

Sales forecasting methods

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

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

Analyzing your business size and industry

Assessing the available data and tools

Understanding your sales cycle's complexity

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

Improved accuracy in sales target predictions

Enhanced understanding of market trends

Better alignment with your business goals

Opportunity stage forecasting

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

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

Pipeline forecasting method

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

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

Length of sales cycle forecasting

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

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

Intuitive forecasting

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

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

Historical forecasting

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

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

Multivariable analysis forecasting

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

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

How to calculate sales forecast

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

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

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

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

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

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

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

Sales forecast vs. sales goal

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

How to create a sales forecast

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

1. Track your business data

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

Number of units sold per month

Revenue of each product by month

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

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

Growth percentage

Number of sales representatives

Average sales cycle length

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

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

2. Set your metrics

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

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

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

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

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

Lead generation

Lead qualification

Initial contact

Making an offer

Negotiation

Closing the deal

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

3. Choose a forecasting method

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

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

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

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

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

4. Calculate your sales forecast

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

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

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

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

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

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

5. Adjust for external factors

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

Some external factors you can adjust your calculations around include:

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

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

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

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

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

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

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

Sales forecast template

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

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

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

Sales forecast examples

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

Sales forecasting example 1: E-commerce

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

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

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

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

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

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

Sales forecasting example 2: Software development

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

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

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

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

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

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

Pair your sales forecast with a strong sales process

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

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

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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. 

Get the template

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3 Popular Sales Forecast Examples For Small Businesses

• October 9, 2022
• Small Businesses

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

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

What is a sales forecast?

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

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

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

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

Why are sales forecasts important?

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

Sales forecasts help you set goals for your business

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

You show you understand your business

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

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

You know how much you need to raise

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

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

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

How to do a sales forecast?

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

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

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

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

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

Sales forecasts: 3 popular examples

1. location-based businesses.

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

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

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

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

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

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

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

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

For example:

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

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

2. Online businesses

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

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

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

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

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

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

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

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

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

3. Lead-acquisition businesses

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

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

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

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

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

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

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

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Sales | Templates

9 Free Sales Forecast Template Options for Small Business

Published March 7, 2023

Published Mar 7, 2023

REVIEWED BY: Jess Pingrey

WRITTEN BY: Jillian Ilao

This article is part of a larger series on Sales Management .

• 1 Simple Sales Forecast Template
• 2 Long-term Sales Forecast Template
• 3 Budget Sales Forecast Template
• 4 Month-to-month Sales Forecast Template
• 5 Individual Product Sales Forecast Template
• 6 Multi-product Sales Forecast Template
• 7 Retail Sales Forecast Template
• 8 Subscription-based Sales Forecast Template
• 9 B2B Lead Sales Forecast Template
• 10 CRMs with Built-in Sales Forecasting
• 11 Frequently Asked Questions (FAQ)
• 12 Bottom Line

Using a sales forecast, business owners can create realistic projections about incoming revenue and business performance based on their current data and how they have performed in the past. Sales forecasts may cover weekly, monthly, annual, and multi-annual projections, and can be done using Google Sheets or Excel templates, as well as through customer relationship management (CRM) software.

We’ve compiled nine free sales projection templates you can download. Each downloadable file contains an example forecast you can use as a reference. We also included a blank template you can copy and fill in with your own sales data.

Did you know? Sales forecasts create projections you can use for things like goal setting, performance measurement, budgeting, projecting growth, obtaining financing, and attracting investors. This is why it is important to use software tools or a CRM system that gives you realistic, data-driven forecasts.

1. Simple Sales Forecast Template

Our free simple sales forecast template will help you get started with sales estimates to plan and grow your business. You can modify this multi-year projection sheet in either Google Sheets or Excel. It can also generate future revenue estimates based on units sold, pipeline growth percentages, lead conversion rates, and your product pricing. This gives you an idea of how much your business can grow sales-wise in the next few years.

Sales projection template for multiple years

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FREE Sales Forecasting Template - One-Year

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FREE Sales Forecasting Template - Multi-Year

2. Long-term Sales Projection Forecast

Part of creating a sales plan is forecasting long-term revenue goals and sales projections, then laying out the strategies and tactics you’ll use to hit your performance goals. Long-term sales projection templates usually provide three- to five-year projections. These templates are accessible in both Excel and Google Sheets.

Long-term sales prediction templates are best for businesses looking to scale and want insights about how much working capital they can expect to be able to tap into for growth initiatives. This type of sales projection template is also often required when applying for commercial loans or through other channels such as outside investors or crowdfunding.

Three-year forecast template

Projection of units sold and gross profit from a three-year forecast template

Three-year projection of units sold

FREE 3-Year Forecast Template

FREE 5-Year Forecast Template

3. Budget Sales Projection Template

A budget sales forecast template shows expense estimates in relation to revenue, allowing you to calculate how much you can spend during a specified period. Budget templates will enable you to enter income projections and available cash to indicate your spending capabilities for that time frame.

This type of template is best for new and growing businesses trying to figure out their future available expenditures. Additionally, businesses interested in making a large asset purchase, such as a company vehicle, piece of equipment, or commercial real estate, can use this template to see how much of the asset can be self-financed.

Budget forecast template example

Budget forecast template for services example

FREE Budget Sales Forecast Template

4. Month-to-Month Sales Forecast Template

The month-to-month (or monthly) sales projection template shows sales projections for a year divided into monthly increments. This type of revenue forecast template makes it easier to estimate your incoming revenue. This is because you can break down your pricing model, such as the average number of units sold, on a monthly rather than an annual basis.

This monthly sales projection example is best for seasonal businesses that experience significant revenue fluctuations in some months compared to others. It’s also appropriate for businesses that want to view rolling 12-month projections as a key performance indicator (KPI). You can also use it to project one-year sales estimates before implementing major campaigns or initiatives, such as a growth strategy.

Month-to-month forecast template example

FREE Month-to-Month Forecast Template

5. Individual Product Sales Forecast Template

An individual product sales projection template can be used by businesses that sell one product or service or for projecting sales of a new (or any single) product or service. This forecast indicates how you expect the product to perform based on units sold and the price per unit monthly.

An individual product forecast template benefits businesses that sell products through a storefront or ecommerce medium. It helps businesses that are adding a new product to their arsenal in estimating sales exclusively for that product. It is also recommended for companies that need to track individual performance for the most popular or profitable products.

Individual product forecast template example

FREE Individual Product Forecast Template

6. Multi-product Sales Forecast Template

Use this revenue projection template to generate sales projections if your business sells multiple products. Through this type of template, you can compare the estimated performance of specific products by tracking the units sold and the price per unit. In turn, this will yield a total sales revenue estimate.

The multi-product forecasting template is best for retail or wholesale businesses selling various products. You can also use it to project the revenue of multiple product categories. Here, each “item” represents a category rather than an individual product, and the price per unit is calculated in aggregate.

Multi-product sales forecast template example

FREE Multi-product Forecast Template

7. Retail Sales Forecast Template

A retail sales projection template forecasts revenue for brick-and-mortar stores since it includes data related to foot traffic. The retail sales template calculates projected revenue by year based on foot traffic, the percentage of foot traffic that enters the store, and the scale of conversions or those who make a purchase. Since it has a field for “other revenue,” it can be used by retail stores selling online.

This business forecast template is mostly designed for brick-and-mortar retail businesses. However, a combination of ecommerce and brick-and-mortar businesses, as well as ecommerce operations, can also use this forecast template. The estimated customers passing store data fields can be replaced with website traffic to convert this sales forecast Excel sheet into an ecommerce sales forecasting template.

Retail forecast template example

FREE Retail Forecast Template

8. Subscription-based Sales Forecasting Template

Businesses relying on recurring revenue from sign-ups or contract renewals should use the subscription-based sales prediction spreadsheet. Enter data into the visitor and sign-up fields to show the visitor-to-sign-up conversion rate. Then, enter the number of new customers to show the percentage of sign-ups that convert to paying customers.

This business projection template also helps you track customer churn. It calculates your churn and retention rate based on the number of paying customers at the end of the period compared to the number at the beginning, plus the number of new customers added. Knowing your churn rate is essential since a high or increasing rate of customer turnover could indicate problems with your organization or its products or services.

How to Calculate Churn Rate:

To manually calculate churn rate, divide the number of lost customers by the total customers at the start of the time period, then multiply the result by 100. For example, if your business had 200 customers at the beginning of January and lost 12 customers by the end, you would divide 12 by 200. The answer is 0.06. Then, multiply that by 100, giving you a 6% monthly churn rate.

Churn Rate Calculator

Manual calculation of monthly customer churn rate

The fields of this template can be altered for use by contract renewal businesses like insurance agencies, information technology (IT) companies, and payroll processors. For example, subscribers can be replaced with “leads,” and new subscribers can be replaced with “presentations,” “free trials,” or “demos.” Then, change the churn rate to “non-renewed contracts” to estimate new and recurring business revenue year-to-year.

Subscription-based forecast template example

FREE Subscription-based Forecast Template

9. B2B Lead Sales Forecast Template

A business-to-business (B2B) lead forecast template estimates sales revenue from current deal opportunities in the sales pipeline through business leads. Businesses can use estimated deal values and the percent chance of closing those deals to obtain a sales projection.

This revenue projection template is best for B2B organizations, aka businesses selling to other businesses or organizations, rather than business-to-consumer (B2C) organizations. It can also be used for direct sales prospecting activities and for businesses that submit business proposals in response to solicitation requests.

FREE B2B Lead Forecast Template

CRMs With Built-in Sales Forecasting Features

Sales forecast sample templates are easy to modify. However, customer relationship management (CRM) systems generally offer more robust tools for managing revenue opportunities that can be converted into sales forecasts. They are valuable tools for providing sales predictions on premade charts through the data collected in the system. Below are examples of CRM platforms that could double as great sales forecasting software :

• HubSpot CRM

HubSpot CRM can instantly create revenue projections or automatically produce these reports for you monthly or quarterly at no additional cost, saving you time and helping your business stay on track.

Users can easily generate sales prediction reports on HubSpot with their historical data. (Source: HubSpot )

Starting price: Free for unlimited users or $45 per month (annual billing) for two users

Visit HubSpot

Pipedrive can take information such as potential deal value and probability of closing for a lead or opportunity to provide sales estimates in highly customizable templates.

Pipedrive weighted deal forecasting (Source: Pipedrive )

Starting price: $14.90 per user, per month (annual billing)

Visit Pipedrive

Zoho CRM provides sales forecasting through its native integration with Zoho Analytics, which analyzes and visualizes the data. Users can customize their forecasts by viewing them on different visual channels, including line, bar, and scatter charts.

Zoho Analytics sales prediction (Source: Zoho )

Starting price: Free for three users or $14 per user, per month (annual billing)

Providing the right tools for your sales team to organize leads, communicate with prospects, and analyze sales data is crucial for streamlining a sales operation, one of many responsibilities of a sales manager. Other insights for managing your sales team can be found in our ultimate guide to sales management .

Visit Zoho CRM

Frequently Asked Questions (FAQ)

Why is sales forecasting essential.

Sales forecasting provides a clear picture of your anticipated sales performance based on the number of opportunities in your pipeline and the industry that your business operates in. Having visibility will help you plan your business correctly—especially when the forecast is downward, and you need to scout for new opportunities to meet your sales targets.

What is a sales forecast template?

A sales forecast template is a predesigned spreadsheet that allows businesses to project their future sales revenue for a specific period. It is typically based on historical sales data figures and market trends. It also includes various factors that may potentially affect future sales performance, such as new product launches, seasonality, economic conditions, and changes in consumer behavior.

Bottom Line

Business forecast spreadsheets are available in both Excel and Google Sheets templates as well as other premade templates you can download, customize, and use. You may also take advantage of CRM features that organize, estimate, and visualize your company’s sales information, including sales predictions.

A CRM can save sales reps time in making projections as well as optimize your sales pipeline to generate leads and close more deals. We highly recommend CRMs such as HubSpot CRM , Pipedrive , and Zoho CRM , which all provide excellent sales forecasting features on top of robust sales management and lead nurturing tools.

About the Author

Jillian Ilao

Jill is a sales and customer service expert at Fit Small Business. Prior to joining the company, she has worked and produced marketing content for various small businesses and entrepreneurs from different markets, including Australia, the United Kingdom, the United States, and Singapore. She has extensive writing experience and has covered topics on business, lifestyle, finance, education, and technology.

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7 Financial Forecasting Methods to Predict Business Performance

• 21 Jun 2022

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

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

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

What Is Financial Forecasting?

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

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

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

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Forecasting with Pro Forma Statements

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

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

• Income statements
• Balance sheets
• Cash flow statements

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

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

7 Financial Forecasting Methods

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

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

Quantitative Methods

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

1. Percent of Sales

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

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

2. Straight Line

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

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

3. Moving Average

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

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

To calculate a moving average, use the following formula:

A1 + A2 + A3 … / N

Formula breakdown:

A = Average for a period

N = Total number of periods

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

4. Simple Linear Regression

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

The equation for simple linear regression is:

Y ⁠ = Dependent variable⁠ (the forecasted number)

B = Regression line's slope

X = Independent variable

A = Y-intercept

5. Multiple Linear Regression

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

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

Qualitative Methods

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

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

6. Delphi Method

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

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

7. Market Research

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

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

Improve Your Forecasting Skills

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

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

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

About the Author

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.

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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.