Why Every Business Owner Should Build a Financial Forecast

Hi, I'm Nicole! 👋

I'm an FP&A Consultant/Fractional CFO, and I help business owners understand their numbers so they can make better decisions and build financially healthy businesses.

One of the most valuable tools I use with clients is financial forecasting. It's also one of the most overlooked.

Why Forecasting Matters

For years at Swift, we had the same experience every year.

January through May would look fantastic. Revenue was strong, the bank account was growing, and we'd start talking about all the things we wanted to do.

Then summer would arrive. Revenue would drop, expenses would rise, and suddenly we'd start asking ourselves questions like "Are we okay? Did we do something wrong? Why does it feel like we're struggling all of a sudden?"

Then fall would come around, memberships would recover, and we'd start feeling good again. The cycle repeated itself year after year. It wasn't until we stepped back and started forecasting that we realized nothing was actually wrong. We were simply a seasonal business.

Once we understood that, everything changed. Instead of panicking every summer, we started planning for it. We built cash reserves during our stronger months and made decisions with a full understanding of what the next twelve months would likely look like.

That clarity alone reduced an incredible amount of stress. A financial forecast helps answer questions like:

• Can I afford to hire another employee?
• Can I afford to give myself a raise?
• When will cash be tight?
• How much should I charge for this new service?
• Can I afford to expand?
• What happens if sales are lower than expected?
• How do I handle bills coming due before sales receipts hit?
• How much do I need to save up now to cover upcoming expenses?

Without a forecast, these decisions often feel like guesses. With a forecast, they're much more informed.

Step 1: Start With History

One of the biggest misconceptions about forecasting is that it's some kind of magic. It's not. The easiest way to predict the future is to start by looking at the past.

Pull your Profit & Loss reports from the last one or two years and look for trends.

Ask yourself:

• What revenue streams do I have?
• Which months are strongest?
• Which months are weakest?
• What expenses happen every month?
• What expenses happen seasonally?

Your historical numbers provide the foundation for your forecast.

Step 2: List Every Revenue Stream

Next, break your revenue into categories. For example, a gym might have:

• Memberships
• Camps
• Birthday parties
• Private lessons
• Merchandise

Many businesses lump all revenue together, but doing so makes forecasting much harder.

When each revenue stream is separated, you can make assumptions about each one individually. Maybe memberships are growing. Maybe camps are staying flat. Maybe you're planning to launch a new service.

The more specific you are, the more useful your forecast becomes.

List these revenue streams by month and write down how much on average is HITTING YOUR BANK ACCOUNT each month. That means if you have a sales receipt due March 15th but it typically takes a month to collect for one reason or another, you need to plan for that sales receipt to be received in April.

Step 3: List Your Expenses

Now do the same thing for expenses. Start with recurring costs like:

• Payroll
• Rent
• Software
• Insurance
• Marketing
• Professional services

Then think about planned changes. Are you hiring someone? Increasing marketing spend? Moving locations? Adding equipment?

Your forecast should reflect what you expect to happen, not just what happened last year.

Again, list these expenses by month and write down when these expenses are planned to HIT YOUR BANK ACCOUNT. Again, let’s say payroll is due March 1st, but you have to process the payment by February 26th, you need to record that payroll in February.

Step 4: Think About Next Year

This is where forecasting becomes really valuable. Take a step back and ask: "What am I actually planning to do next year?"

Maybe you want to:

• Raise prices
• Hire another employee
• Add a new program
• Expand your marketing
• Reduce expenses

Once you've identified those goals, estimate how they will impact both revenue and expenses. The goal isn't perfection. The goal is creating a reasonable roadmap.

Build the impacts of those changes into your plan, both on the revenue and expense side.

Step 5: Record Your Cash Flow

Now look at your bank account balance and for each month, add in the total revenue and subtract our your total expenses. Do this for every month, starting with the ending balance of the previous month. If ever there is a negative bank account balance in any month within the next 12 months, you are going to have a cash flow issue.

There are a lot of ways to handle this. You can:

• Find expenses to cut
• Raise your prices
• Change when you collect sales receipts
• Pull from your cash reserves
• Inject cash from your personal savings (last ditch effort!)

Notice how I did not list “Sell More” as an option. While realistically, this is always an option, it is not under your control completely. Outside factors are at play here and sales are unpredictable. I as an FP&A like to focus only on what we can definitely control. There are excellent sales coaches out there that can help with sales if you identify that as a problem, but my job is to work with what is ALREADY happening in the business and make that the best it can be. Additional sales are always a great perk!

Once you identify you have a cash flow issue, the solution is often personal to each business. What is the root cause of the cash flow problem? Now that you’ve written everything down, it’s usually pretty easy to spot the real problem.

Step 5: Review and Adjust

A forecast isn't something you build once and never look at again. Your forecast should evolve as your business evolves.

Each month, compare what actually happened against what you projected. Some things will be higher. Some things will be lower. That's normal.

If there are clear problems when you first write down your forecast, you need to work on a solution NOW, even if it’s January and the problem happens in November. The sooner you recognize a problem, the longer you have to fix the problem.

Over time, you'll get better and better at predicting the future of your business.

Final Thoughts

Most business owners don't need more complicated spreadsheets. They need clarity.

A good forecast won't predict the future perfectly, but it will help you understand where your business is headed and allow you to make decisions before problems arise.

I've found that one of the biggest benefits of forecasting isn't just financial. It's peace of mind. When you understand the likely outcomes of your decisions, you spend less time worrying and more time focusing on growing your business.

That's exactly what I help business owners do through my FP&A/CFO services. My goal is simple: help you understand your numbers, make informed decisions, and build a business that's financially sustainable for the long term.

If that sounds helpful, feel free to reach out. I'd love to chat.