Definition of ‘Financial Forecasts’
Business financial forecasts are estimates of financial statements (income statements, balance sheets, and cash flows) based on a set on assumptions which reflects what the business thinks is most likely to happen in the future.
For example, based on current trends the business might think that the most likely outcome will be that sales will increase by five percent over the next year, or they might anticipate that interest rates will rise by one percent. Using these and other assumptions the financial forecast will reflect what the business feels will be the most likely outcome.
Although the format looks the same, financial forecasts are different from financial projections. A financial projection is based on a set of underlying ‘what if’ assumptions which may not necessarily reflect what is believed to be the most likely outcome.
Financial forecasts are normally drawn up for a period of three to five years after the last balance sheet date, on a monthly, quarterly or annual basis depending on requirements.
As the starting point for most business plan financial forecasts is historic information, the financial forecasts should be in a similar format to the financial statements from the accounting system; this also makes comparisons to actual numbers easier at a later date.
For further information see the Wikipedia financial forecasts definition.
Using the Financial Projections Template
If you are looking to raise finance for a startup business, financial forecasts will almost certainly be needed, the process for creating financial forecasts is detailed in our How to Make Financial Forecasts section.
If you would like to create your own financial forecasts, then download our business plan financial forecasts template, which will produce income statements, balance sheets, cash flows, and important ratios for the next five years of trading.
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