How to write financial projections for a business plan

BusinessPlanHub Editorial Team · Updated 29 September 2026

Business plan financial projections are three linked forecasts (a profit and loss, a cash flow and a balance sheet) built from one written set of assumptions. They estimate what the business will sell, spend and hold, month by month for the first year and annually after that. The financial projections are the part of a plan that gets tested: the narrative gets read, the numbers get taken apart.

The SBA’s guide asks for a five-year outlook with forecasted income statements, balance sheets, cash flow statements and capital expenditure budgets, quarterly or monthly for the first year, and says to match the projections to your funding request (SBA, “Write your business plan”, checked 29 September 2026). The eight steps below build all of that from a single sheet, then show, with a worked example, why a plan that makes a profit can still run out of money in month two.

1. Write the assumptions sheet before any statement

Every number in your projections should trace back to one line on one sheet. Price, volume, margin, wages, rent, payment terms, loan dates: each goes down once, with where it came from.

This is the page a lender or investor turns to first. An underwriter who can see that your rent is from a draft lease and your price is from three competitors’ menus has less to argue with. An underwriter who finds a growth rate with no source will assume the rest were guessed too.

2. Build revenue from price times volume

Revenue is price multiplied by volume, for each product line, for each month. Never type a revenue total directly into the forecast.

Why it matters: a reader can test “1,200 covers a month at $18” against your seat count and opening hours. Nobody can test “$260,000 in year one”. Splitting revenue into its drivers also shows where the ramp comes from. Are you selling more units, charging more, or adding a product line?

Volume is the assumption that gets pushed hardest, so tie it to a physical limit: ovens, chairs, billable hours, delivery slots. If month twelve needs more capacity than you have, the forecast has to show the spending that adds it.

3. Drive costs from the same sheet

Split costs into two kinds. Direct costs move with sales (ingredients, stock, card fees, sales commission) and are best written as a cost per unit or a percentage of revenue. Fixed costs arrive whether you sell anything or not (rent, salaries, insurance, software), and belong in the month they start.

Revenue minus direct costs is gross profit. Gross margin is the one ratio almost every reader checks first, because it decides how much volume you need to cover the fixed costs.

Case in point: the bakery sample plan models revenue of $340,000 in year one rising to $660,000 by year three, at a 58% gross margin in all three years. The figures are fictional, like all our samples. But a flat margin while volume almost doubles is exactly the kind of line a reader questions: do ingredient prices, waste and discounts to wholesale buyers really stay the same? If your margin holds steady, say why. If it moves, show the driver.

4. List every way cash and profit part company

The profit and loss records a sale when you make it and an expense when you incur it. The cash flow records money when it actually moves. For a new business the two can sit months apart.

The usual causes:

• Customer payment terms. Invoice on 60-day terms and January’s sales arrive in March.
• Supplier terms. A new account often has to pay on delivery, so costs leave before the matching sales come in.
• Stock bought ahead. Ingredients or inventory are paid for a month or more before they are sold.
• Equipment and fit-out. Paid upfront, but spread across years in the profit and loss as depreciation.
• Loan timing. Money arrives when the lender releases it, not when your spreadsheet says it will. Repayments of principal are cash out but never appear as a cost.
• Tax and deposits. Sales tax or VAT collected, rent deposits and quarterly tax payments move cash without changing profit.

Each of these needs its own line on the assumptions sheet from step 1. Here is what they do together.

5. Build year one month by month, and find the lowest cash point

The monthly cash flow forecast is the statement a lender reads hardest, and the number it is looking for is the lowest closing balance and the month it falls.

Suppose a small wholesale bakery supplies cafés. The numbers below are illustrative, invented for this guide and deliberately small:

• The owner puts in $42,000. Ovens and fit-out cost $30,000, paid before opening, so month one starts with $12,000.
• Sales ramp from $5,000 to $18,000 a month. Gross margin is 60%, so ingredients cost 40% of sales.
• Cafés pay on 60-day terms. Ingredients are bought a month ahead and paid for on delivery.
• Fixed costs are $6,000 a month. Equipment is depreciated at $400 a month.
• A $15,000 loan arrives in month four. Repayments of $450 a month, including $100 of interest, start in month five.

Read the two middle columns side by side. The profit and loss turns positive in month three and ends the year $30,400 up. The bank account is overdrawn from month two to month eight, and bottoms out at −$16,200 in month three.

Here’s the hard truth: the loan does not fix it. It lands a month after the lowest point, and it is smaller than the gap. Even if the same $15,000 arrived in month one, the balance would still dip below zero later in the year, because the shortfall comes from 60-day terms and ingredients paid upfront, not from the loan’s timing.

What the forecast tells this owner is useful. The funding request should be sized from the lowest cash point plus a buffer, not from the equipment list. Or the terms need to change: shorter terms for cafés, credit from the flour supplier, or a smaller first month of stock. That is the SBA’s “match them to your funding requests” in practice.

6. Close the balance sheet, and check the three statements agree

The balance sheet is where errors surface. If your three statements come from the same assumptions, assets will equal liabilities plus equity at every month-end. If they do not, something is typed in twice or missing.

For the illustrative bakery at the end of month twelve:

Notice where the missing cash went. $36,000 is sitting with customers and $7,200 is sitting in the store room. That is the profit the bank account never saw.

7. Extend to three or five years and match the funding request

After year one, switch to annual columns (or quarterly for year two if the business is still ramping). Keep the same drivers: next year’s revenue is still a price and a volume, and next year’s costs still come from the sheet.

Cover as many years as your reader asks for. The SBA’s guide asks for five. If your lender or investor gives you a checklist, theirs is the one to follow. Whatever the span, the funding request in your plan should appear in the forecast as a line of cash in, in the month you expect it, and every item it pays for should appear as cash out.

The financial plan section of our business plan template lists what to put alongside the statements: the funding request, the assumptions, and the lowest cash balance stated in words.

8. Stress-test the assumptions a reader will test first

Run the model again with the three assumptions most likely to be wrong: lower volume, slower customer payments and a later loan draw. If the business survives all three at once, say so in the plan. If it does not, show what you would do: a smaller hire, a delayed second product, an overdraft agreed in advance.

A lender or investor will make these changes in their own copy of your numbers anyway. Showing that you got there first is stronger than any paragraph about how conservative your figures are.

When a spreadsheet stops being enough

Everything above can be done in a spreadsheet, and for a simple business it should be. It gets hard when the links break: a price change that updates the profit and loss but not the cash flow, a balance sheet that stops balancing in month nine and nobody can find why. Our financial forecasts tool builds all three statements from one set of assumptions and flags figures outside the norms for your sector, and it comes with the DIY business plan toolkit if you want to write the rest of the plan yourself.

Your next step either way: open a blank sheet, write the assumptions table from step 1, and fill in the source column before you touch a single forecast.