Build a realistic financial forecast

Neither inflated nor sloppy. A credible forecast rests on assumptions you can defend, not on numbers that "look good." Here's the structure that holds up.

The financial forecast is the section funders read with the most attention — and the most suspicion. Most files err on the side of over-optimism: revenue that doubles every year, underestimated costs, profitability from month one. These projections fool no one. What's expected of you is consistency, not performance.

1. Start from assumptions, not results

A classic mistake: deciding first on the revenue you "want" to hit, then filling in the rest to make it fit. Do the opposite. Start from your concrete assumptions — customers per month, average basket, frequency — and let revenue follow. A forecast is built bottom-up.

2. Build the 3 key tables

A serious forecast rests on three documents that talk to each other:

• The projected income statement: revenue, costs, and the resulting profit.
• The cash-flow plan: the real money in and out, month by month.
• The financing plan: what you need and how you cover it.

The most common trap is confusing profitability with cash. You can be profitable on paper and run out of cash: cash flow is what kills young companies.

Why cash comes first at launch

At launch, you pay suppliers and costs before collecting from customers. This lag — working capital needs — must be anticipated in the cash-flow plan. A forecast that ignores it is incomplete.

3. Project over 3 years, with caution

Three years is the standard horizon. Year one is detailed month by month; the next two can stay annual. Stay conservative on growth: a modest trajectory you beat is better than a spectacular one you miss.

4. Prepare for the question that always comes

A funder will ask: "and what if you sell 30% less than planned?" Have the answer ready. Showing your project survives a downside scenario inspires more confidence than perfect projections. It's the mark of a clear-eyed founder.