Business

how to create a financial forecast for a new business

Creating a financial forecast for a new business is essential for planning your future, attracting investors, and making confident decisions. Even if you’re just starting, a basic forecast helps you set realistic goals, spot cash flow problems early, and stay financially prepared.

bbygirl123

Jun 24, 2025 - 10:50

Here’s a step-by-step guide to building a simple and effective financial forecast:

📊 How to Create a Financial Forecast for a New Business

✅ 1. Set a Forecast Timeframe

Most new businesses forecast for:

12 months (short-term) → monthly projections
3–5 years (long-term) → annual projections

📌 For startups, focus on the first 12–24 months with more detail.

✅ 2. Estimate Your Sales (Revenue Forecast)

Start by projecting how much you’ll sell and how much you’ll charge.

Steps:

Identify your revenue streams (products, services, subscriptions, etc.)
Estimate units sold or clients per month
Multiply by your price per unit/service

Example:

Month	Units Sold	Price	Revenue
Jan	50	$40	$2,000

📌 Use conservative estimates. Start slow and ramp up realistically.

✅ 3. Project Direct Costs (COGS)

These are the costs directly tied to producing your goods/services.

Examples:

Raw materials
Packaging
Contractor/freelancer fees
Product manufacturing

📌 Formula:

Gross Profit = Revenue – Cost of Goods Sold (COGS)

✅ 4. List Your Operating Expenses

These are ongoing costs you’ll pay regardless of how much you sell.

Common categories:

Rent or coworking space
Internet, phone, utilities
Software and subscriptions (e.g., Canva, Zoom)
Marketing and advertising
Salaries or your own pay
Insurance and legal fees

📌 Use historical averages if available, or research industry benchmarks.

✅ 5. Forecast Cash Flow

Cash flow is the timing of money in and out—not just profit.

Build a cash flow forecast by month:

Month	Starting Cash	Cash In	Cash Out	Ending Cash
Jan	$0	$2,000	$1,800	$200

📌 Include things like loan repayments, equipment purchases, or tax payments.

✅ 6. Include Capital Expenditures (One-Time Costs)

Account for big, one-time purchases like:

Equipment
Website development
Branding & launch marketing
Office furniture or tools

📌 These don’t show up in your monthly operating expenses but impact your cash flow.

✅ 7. Add Loan or Investment Projections

If you’re raising money or getting a loan:

Show the amount raised, date, and how it will be used
Include any interest repayments or equity stake if relevant

📌 Helps investors and banks trust your financial planning.

✅ 8. Build Your Profit & Loss (P&L) Forecast

Your P&L summarizes:

Revenue
COGS
Operating Expenses
Profit before tax (Net Income)

Sample layout:

Month	Revenue	COGS	Expenses	Net Profit
Jan	$2,000	$500	$1,200	$300

✅ 9. Run Best, Worst, and Realistic Scenarios

Create 3 versions of your forecast:

Best case: strong sales, low expenses
Realistic case: modest sales, average costs
Worst case: low sales, high startup costs

📌 This helps you prepare for uncertainty and manage risk.

✅ 10. Review and Update Monthly

A forecast isn’t “set and forget.” Compare actual numbers vs projected regularly.

Adjust as you learn:

Which months are stronger or slower
Where you overspent or undersold
If you need to raise prices, cut costs, or change strategy

🧠 Bonus Tips

Tip	Why It Helps
Start lean	Keep expenses low until revenue builds
Use a spreadsheet or software	Easier to adjust and visualize
Use industry benchmarks	Get real-world estimates
Share with investors or banks	Builds credibility for funding

🧰 Tools to Build Your Forecast

Tool	Best For
Google Sheets / Excel	Full control and flexibility (free templates available)
LivePlan	Easy startup forecasting + investor-ready reports
QuickBooks / Xero	If you're already using for accounting
Finmark / Brixx	Visual cash flow and scenario planning