Preparing a forecast

A forecast is your best guess at how much revenue your business will generate in the coming years. Just like with personal finances, you can’t really establish a budget unless you know how much money you’ll have available to spend. That’s what the forecast provides.

The forecast can be a difficult section for entrepreneurs to complete because they lack historical data upon which to base their projections. The key here is to make some reasonable assumptions that you can defend. Ideally you should look to track down analogous businesses so your data is equivalent to similar-sized companies targeting a similar market niche (and with similar resources).

But remember, business planning is not accounting. And forecasting is not about being 100% accurate; it is designed to help you assess the likely demand levels so that you can be properly equipped and have adequate resources in place. There’s no business owner who isn’t qualified to forecast revenue — all you need is common sense, the ability to research the factors, and the motivation to make an educated guess.

Your forecast should show projected revenue by month for the first 12 months — at least — and then revenue by year for the following two to five years. Three years, total, is generally enough for most business plans.

The articles in this section will show you how to complete each section of the LivePlan forecast, as well as how to understand the standard financial statements that are automatically created from your forecast.