How to Start Your Financial Forecast

11 November 2021

In conversation with small business owners for our research report - Predicting the Numbers: The Relationship Between SMEs and Financial Forecasting - it became clear that SMEs face a lot of barriers when it comes to forecasting their finances. In a bid to address the issues that they face, we have put a series together of our best advice for those looking to start, maintain, and step up their business using financial forecasting.

If you’re just starting your forecasting mission, all the information out there can feel daunting. Yet, with all that information out there, how often do you come across a guide that suits your SME? Our guess is hardly ever. SMEs are complex and can’t easily be fit into a model, including a forecasting model. So it’s important that you are clear on exactly how to tackle this project. You can develop your model as you get more familiar with it, but we’re starting with the basics. We strongly advise collaborating with a finance expert who understands the specifics of your business, but before you get to that point there is some information you can collect to give you a good starting point.



Your business exists to serve you. Whether it’s brand new or a decade old, you got into business for a reason and it’s important to get to the root of that before you head into forecasting for the future. What needs to change today for your life to be different tomorrow? 

For some, it’s enough money to take an extra day off a week, for others it might be supporting a cause close to their heart – whatever your reason why, get clear on it. Once you have your ultimate goals, both personal and professional, you can begin to understand how your numbers can get you there.

Money coming in

This can be fairly straightforward if you have past data to draw on, but even then, it’s likely that you are ready to make some changes one way or another. So, take into account the sales process from start to finish, not just the assumed income. 

Some in depth market research can give you all the answers you need here, from prices to the average spend of likely customers. Once you have a baseline to work from, you can run scenarios showing various uptakes or dips in sales to understand how you can handle them. But to get started, you need a realistic view of your sales over the next 12 months. 

You also need to consider any funding opportunities on the horizon. Knowing how and when these could come into play will help you get a better picture of your cash flow.


Money going out

In conversation with Ash Phillips, founder of Dffrnt, he pointed out that a lot of SME owners approach this section with fear – but they shouldn’t. While you should be prepared to take a pay cut in the infancy of your business, it’s worth factoring in your salary as soon as possible.

‘So many people don’t factor in salary as an outgoing, this should be one of your core outgoings from day one’ Ash Phillips, Dffrnt

Along with your salary and that of your employees, any other costs that are recurring or just one offs need to be considered. If you’re planning on buying new equipment in the near future, then take note. If you think a lead generation campaign is needed for you to grow your client base then include that too. There’s value in understanding the predictable costs that you can’t usually control (like rent or utility bills) so that you can make clearer decisions around the costs you can control. 


The ups and downs

In every industry, there are things that cause an upswing in sales, and times where things will dip. It could be seasonal, vary throughout the month, or be dependent on specific events. Obviously it’s important to take these into account when planning your financial future, just like you have to assume your car will break down from time to time – it’s much better to have the cash on hand than be forced into the red. 

It’s worth taking some time to spot these patterns, whether that’s from past data or some more market research. Of course there will always be an element of the unknown (no one saw the pandemic coming, for example) but maximising the opportunity to profit from your busy season will help protect you from quieter periods. 


Opportunities and threats

Most people in business will be aware of the SWOT model, which encourages you to analyse the strengths, weaknesses, opportunities and threats when it comes to your company. If you haven’t already completed this kind of exercise in order to understand your market position, then it’s a good idea to do it ready to set up your financial plan. 

Take some time to think about the things that could potentially damage your business or it’s growth. This will put you in the driving seat, either to stop them happening all together or to minimise the impact if they do happen, similar to a risk assessment. If a key member of the team leaves abruptly for instance, how will you protect your business? 

Then there’s the positive side of things. We can all be vulnerable to thinking about the worst case scenario, but what if everything went right? Funding opportunities, successful marketing campaigns, some high value, organic endorsements – get thinking about the potential situations which could support your growth. 

Don’t do it alone!

All of these elements will help inform a realistic and accurate forecast. But the best advice we can give you is to get help. The world of SMEs is a supportive one – reach out to your contacts, or network through local or industry groups to meet people who have been there before. It can be true that too many opinions make things muddy, but getting a different perspective, from the right people, can help you spot flaws in your plan. 

Finally, of course, getting the right financial experts involved can make or break your financial projections. If you work with large institutions, you probably already know that they tend to box SMEs in. However, small financial advisors come with their own risks of being unreliable. At FD Works we know what it’s like to run an SME, from startup to success. Not only can we provide you with a customisable financial forecasting model, but we’re here to support you through every step with valuable insights based on your individual circumstance. 

If you’re interested in purchasing our forecasting model, need some more help on getting started, or think we can support you with any other element of your business then get in touch on  01454 300 999 or email