Planning
Forecasting isn't predicting the future — it's making decisions with structured information. Here's how to build your first forecast step by step.
Runway, P&L, treasury and CFO advisory in real time. No Excel. No headaches.
Create a free account"I don't have a crystal ball, I can't predict the future." It's the line we hear most often from founders when we talk about financial forecasting. And they're right: nobody can predict the future. But forecasting isn't about predicting; it's about making decisions with structured information about possible scenarios.
Financial forecasting is the process of projecting future revenue, expenses and cash based on historical data, explicit assumptions and market dynamics. Its goal is not to get the exact numbers right, but to:
A forecast is not a budget (although they are related). The budget is what you plan to spend; the forecast is what you think will happen given what you know today. The forecast gets updated. The budget gets defended.
Weekly cash flow over 13 weeks (one quarter). It's the most granular level and the most important for operational management. It detects liquidity problems with time to act.
At this level, the inputs are almost certain: customers already invoiced, payroll, rent, scheduled payments. Very little room for assumptions.
Monthly forecasting over one year. Here you start using assumptions: sales growth rate, expected churn, planned hires, seasonality. It's the basis for hiring, marketing and product decisions.
A strategic projection with a wide margin of error. It's used for investor pitches, valuation, and planning funding rounds. At this level, precision doesn't matter — what matters is narrative coherence and assumptions you can defend.
At least 6 months of real data. Revenue by product line, expenses by category, active customers. Without history, any forecast is pure guesswork.
Don't project "revenue: $50K, $55K, $60K." Project the drivers: number of new customers, average price, conversion rate. Revenue is the result, not the cause. Modeling drivers lets you change assumptions quickly.
Conservative: what happens if we grow half as much as expected?
Base: our current best estimate.
Optimistic: what happens if everything goes well?
Running the business on the base scenario and having contingency plans for the conservative one is the right approach. Budgeting to the optimistic scenario is a recipe for disaster.
Taxes, annual payments, loan repayments, planned investments. The expenses that "hit all at once" are the ones that break poorly built forecasts.
A forecast only works if you compare it with reality. Every month, look at how far off you were and why. Poorly calibrated assumptions? An unforeseen external factor? Use that information to improve the next forecast.
Projecting constant month-over-month growth when you know there's seasonality. December and January behave differently from June. Model it.
We tend to be optimistic about what we'll earn and realistic about what we'll spend. The result: forecasts that are too positive. Be equally critical on both sides.
"What if we lose our biggest customer?" "What if the round is delayed 3 months?" If you don't have an answer to these questions, your forecast isn't helping you make decisions — it's just an accounting exercise.
The forecast is what you think will happen. The target is what you want to happen. Sometimes they match, but not always. If you confuse them, you end up adjusting the assumptions so the forecast shows the target — and that destroys the whole point of the exercise.
Excel/Google Sheets is still the most widely used tool for forecasting. It's flexible and everyone knows how to use it. But it has two problems: data is updated manually (risk of error) and formulas break frequently.
Specialized planning software (Pigment, Cube, Causal) offers advanced forecasting, but it's designed for large teams. For a small business, the ideal combination is: automated transactions in a financial system + an editable forecast in Sheets. That way you get accurate real data and flexibility for your assumptions.
To ground your first forecast, start with the 90-day cash flow forecast and measure your real runway with the runway calculator.
Hayes Strategic keeps your history always up to date to feed your forecasts with accurate data.