Complete forecast: the seven-step method, with a worked example

Why build a complete forecast?

A complete forecast turns your project into figures. It usually covers three financial years and links four elements: sales, costs, cash and financing. As a result, every choice made on paper shows its effect on profitability and on your bank balance straight away.

First, this work helps you convince yourself. Then it helps you convince others: a banker, a partner, an investor or a support body. Finally, it becomes a management tool after launch, since you compare actual figures with the plan every month.

In Belgium, setting up an SRL, SA or SC (the main limited company forms) also requires a financial plan handed to the notary. A complete forecast provides all the material for that document. Our guide to the mandatory financial plan for an SRL or SA sets out its legal content.

What a complete forecast contains

Four tables form the core of the file.

• The projected income statement measures profitability for each year.
• The cash flow plan tracks money in and money out, month by month.
• The financing plan sets long-term needs against long-term resources.
• The projected balance sheet shows assets and liabilities at each year end.

These tables do not live separate lives. A sale creates profit, then a receipt, then a change in cash. Likewise, a loan brings in funds, costs interest and requires repayments. Our article on the three tables to master explains those links.

The seven-step method

To build a complete forecast, follow the steps in this order.

1. Set your sales assumptions

Start from price and volume, never from a global total. For example, a graphic designer charges €450 a day and aims for 10 billable days a month. That gives €4,500 a month at cruising speed. However, you will not reach that pace in month one, so plan a gradual ramp-up.

In a complete forecast, you must be able to justify every assumption. Cite the rates you have observed, signed quotes, your working capacity and seasonality in your sector.

2. List fixed and variable costs

A complete forecast separates two families of costs. Fixed costs stay the same whatever your activity level: rent, insurance, software, accountant. Variable costs follow sales: purchases, subcontracting, commissions, delivery charges. Above all, do not forget self-employed social contributions or your own pay.

3. Cost your investments

Anything that lasts more than a year counts as an investment: equipment, a vehicle, fit-out, a website. That spending leaves your cash on the day you buy. The income statement, however, spreads it over time through depreciation. A complete forecast therefore spreads that cost across several years.

4. Work out your working capital need

Working capital bridges the gap between spending and receipts. If customers pay at 60 days while suppliers want payment at 30 days, you advance the money. A complete forecast puts a figure on that need, since it explains many cash squeezes in profitable companies.

5. Build the monthly cash flow plan

In a complete forecast, place each flow in the month when money actually moves. Take your sales and costs, then add the VAT you collect and pay over. Also include capital contributions, loans and their repayments. The running balance must never fall below zero. Otherwise, you need extra funding or a revised timetable.

6. Close the financing plan

First, add up long-term needs: investments, starting working capital and a safety buffer. Opposite them, list your resources: personal contributions, a bank loan, public support. If needs exceed resources, the gap shows the amount you still have to find. A bank looks in particular at how much the founders put in.

7. Test a cautious scenario

A complete forecast shows at least two scenarios. The first follows your realistic assumptions. The second, for instance, cuts sales by 20% and delays the first receipts by two months. If the business holds up in that scenario, your file gains a great deal of credibility.

Example: a complete forecast over three years

Take a fictional case, purely as an illustration. A consultant starts with €15,000 of her own money and a €10,000 loan. She invests €8,000 in equipment and keeps the rest as a cash buffer. Her sales grow from €50,000 in year one to €70,000 in year three.

On paper, the business makes a profit from the first year. Yet the cash flow plan reveals a dip in month four, while the first invoices remain unpaid. Thanks to her complete forecast, she sees the dip coming and arranges an overdraft facility before launch. Her banker therefore sees a known risk rather than a nasty surprise.

The most common mistakes

Five mistakes often weaken a complete forecast.

• Overestimating first-year sales.
• Leaving VAT out of the cash flow plan.
• Ignoring working capital and customer payment terms.
• Omitting your own pay.
• Presenting tables that do not reconcile.

Before a meeting, also read our list of the mistakes that get a loan refused.

How long does it take?

In a spreadsheet, a complete forecast often takes several days of work. You have to build formulas, link tabs and check every total. With Juristelo, you answer guided questions and the software assembles tables that already reconcile. You then export your complete forecast to Word or PDF, after a 7-day free trial.

For Belgian company formation steps, also see the website of the FPS Economy.