Create Financial Projections for Your Business Plan (2026)

You could have the best business idea in the world, and still hear “no” if your numbers don’t hold up.

A business plan financial projection turns passion into something fundable. And in a time where money’s tighter and scrutiny’s higher, you need all the help you can get.

According to the US Bank 2025 Small Business Survey, 36% of small business owners are already using generative AI to sharpen their financial planning, and another 21% plan to jump in this year. 

Ahead, learn how to prepare financial projections with templates, examples, and a step-by-step breakdown.

What are business plan financial projections?

A business plan financial projection uses what you know today to estimate where you’ll be in the near future: how much money you expect to bring in, what you’ll spend, when you’ll break even, and how your finances might shift over time.

Here’s what that can look like:

Most business plans include a three-year financial projection that covers revenue, operating costs, and profitability milestones.

Investors, lenders, and partners use these numbers to decide if your business is worth backing. But even if you’re not raising capital, projections give you a clearer line of sight on what’s working, what’s risky, and what needs to change to hit your goals.

Not to be confused with: Financial statements (what’s already happened), budgets (short-term spending plans), or dream boards (nice, but not helpful for understanding where your business will realistically go).

What are financial projections used for?

Financial projections serve different strategic purposes depending on your stage, goals, and audience.

Business planning

Financial projections help you pressure-test your decisions before you commit real money. You can model the impact of a pricing change, plan out when you’ll actually be able to afford new hires, and time equipment purchases around expected cash flow.

They’re also key for contingency planning. So, for example, if your forecast shows a cash crunch three months from now, you have time to adjust: delay a launch, renegotiate supplier terms, or shift your marketing strategy.

Once you’re up and running, projections become your reference point. If your real revenue starts slipping below your forecast, it’s a sign to dig in and take a hard look at your data. Look at your margins, your costs, your sales funnel. This allows you to fix the issue while it’s still small.

Investors

When potential investors consider putting their money into a venture, they want a return on that investment, or ROI.

The projections can figure in establishing the valuation of your business, equity stakes, plans for an exit, and more. Investors may also use your projections to make sure that the business is meeting goals and benchmarks.

Loans or lines of credit

Alongside your historical financials (like your cash flow statement and balance sheet), lenders use projections to assess credit risk, forecast repayment ability, and evaluate the overall financial liability your business may carry.

A strong projection shows you’ve accounted for debt service, seasonal dips, and operating expenses.

Your estimated revenue, margins, and asset value may also influence your loan terms, from how much you qualify for to your interest rate and repayment structure. Lenders may refer to your projections throughout the loan period to track whether your business is staying on course.

And if you’re offering up assets as collateral, your projected balance sheet plays a role there too, especially if you’re borrowing against future equipment, real estate, or inventory.

Key components of financial projections

Here’s what goes into a typical set:

Sales forecast

Everything else in your financial projections including expenses, cash flow, and profit, hinges on how much you expect to sell. That’s why your sales forecast is the foundation. 

Here’s how to calculate your sales forecast:

Start by projecting unit sales and pricing across a specific time frame (usually monthly, then annually). Here’s a basic formula:

Units sold x Price per unit = Forecasted revenue

From there, layer in adjustments for:

• Seasonality
• Product launches
• Discounts or promotions
• Customer churn (for subscription models)

Let’s say you sell eco-friendly refill kits at $25 each. Based on past performance and marketing plans, you expect:

• 500 units/month in Q1
• 800 units/month in Q2 after a retail launch
• 1,000 units/month in Q3–Q4 with paid ad spend

Your sales forecast for the year would look like: (500 x 3) + (800 x 3) + (1,000 × 6) = $222,500 annual revenue

Here’s what to base your sales forecast on:

• Historical sales data. Use it if you have it; look at average order volume (AOV), repeat purchase rates, and customer acquisition cost.
• Market research. Study competitors, industry benchmarks, and customer demand trends.
• Marketing and growth plans. Your forecast should reflect actual efforts like planned ad campaigns, new channels, or wholesale partnerships.
• Conversion rates. Use past performance or benchmarks to estimate how many leads will become paying customers.

Keep your forecast conservative for fundraising or loan applications. Investors want to see ambition, but they also want realism.

Pro tip: If you’re pre-revenue, start from the ground up: total addressable market > % you can realistically reach > conversion estimates > pricing > forecasted revenue.

Expense budget

Your expense budget shows what it costs to keep things running—it includes fixed and variable operating costs, plus any larger capital expenditures you plan to make.

A solid expense budget breaks your spending into three categories:

1. Fixed costs. This is your predictable monthly overhead.
2. Variable costs. These fluctuate based on sales volume.
3. Capital expenditures (CapEx). Larger, long-term investments.

Let’s say you’re launching a boutique coffee subscription business.

Here’s how your projected expenses might break down:

Here’s how to build your own expense budget:

• Start with real numbers. Historical data, vendor quotes, software-as-a-service (SaaS) pricing pages, and payroll schedules.
• Separate must-haves from nice-to-haves. Focus on core operations first like staff, rent, materials; before allocating to experimental marketing or future hires.
• Double-check seasonality or ramp-up patterns. Some expenses, like ad spend or packaging, might spike during sales pushes or holiday seasons.
• Use unit economics from your sales forecast to calculate variable costs. If your cost of goods sold (COGS) is $6 per box and you plan to ship 1,000 boxes per month, that’s $6,000 per month in variable costs.

Pro forma cash flow statement

Even profitable businesses go under when the cash runs out. That’s where a pro forma cash flow statement comes in: it shows how money moves in and out of your business month by month, and whether you can cover your expenses with what’s coming in.

Where your income statement might show a profit, your cash flow projection keeps you honest about when money actually lands in your account.

Here’s what to include:

• Cash inflows. Revenue from sales, funding, loans, and other sources.
• Cash outflows. Operating expenses, inventory purchases, loan repayments, and taxes.
• Net cash flow. The difference between inflows and outflows each period. Positive means a cash surplus. Negative is a funding gap.

Your net cash flow shows how your cash position changes over time, and helps you spot when you’ll need to raise capital, tighten spending, or delay a hire.

Pro forma income statement

Your pro forma income statement, also known as a projected profit and loss statement (P&L), forecasts revenue, expenses, and profit over a set period (usually monthly, quarterly, and annually for the first three to five years). 

The statement tells you (and your investors) whether the business model is financially viable.

You’ll want to follow a top-down format, showing how much you plan to earn, what it’ll cost to fulfill those orders, and what’s left after covering operating expenses, taxes, and interest.

These are the key line items to include:

• Revenue. Based on your sales forecast; can be broken down by product, channel, or service.
• COGS. Direct costs tied to producing or delivering the product (e.g. coffee beans, packaging, fulfillment labor).
• Gross profit. Revenue minus COGS; this is your margin before operating expenses like rent or marketing.
• Operating expenses. Salaries, rent, software, marketing, insurance, etc.
• EBIT (earnings before interest and taxes). Gross profit minus operating expenses.
• Interest and taxes. Includes loan interest, estimated tax liabilities.
• Net income. This is the final number, i.e., what’s left after all costs. This is your projected profit (or loss).

Pro forma balance sheet

A balance sheet shows a snapshot of your company’s financial position at a specific point in time. 

They’re called balance sheets because assets always equal liabilities plus shareholder equity. 

Three important elements are included as balance sheet items:

1. Assets. Assets are any tangible item of value that the company currently has on hand or will in the future, like cash, inventory, equipment, and accounts receivable. Intangible assets include copyrights, trademarks, patents and other intellectual property.
2. Liabilities. Liabilities are anything that the company owes, including taxes, wages, accounts payable, dividends, and unearned revenue, such as customer payments for goods you haven’t yet delivered.
3. Shareholder equity. The shareholder equity figure is derived by subtracting total liabilities from total assets. It reflects how much money, or capital, the company would have left over if the business paid all its liabilities at once or liquidated (this figure can be a negative number if liabilities exceed assets). Equity in business is the amount of capital that the owners and any other shareholders have tied up in the company.

Break-even analysis

A break-even analysis helps you calculate how much you need to sell before your business starts generating a profit.

The analysis pinpoints the sales volume at which your total revenue covers your total fixed and variable costs. Before that point, you’re operating at a loss. After that, every sale contributes to profit.

Here’s the formula: 

Break-even units = Fixed costs / (Price per unit – Variable cost per unit)

Let’s go back to our coffee subscription business example.

Say you’re selling each box for $25, and your fixed monthly costs total $4,468 per month. Now let’s calculate your variable cost per box:

• Coffee beans (COGS): $6
• Packaging & shipping: ~$1.50 (midpoint of 50¢ to $2 range)
• Shopify transaction fee: 2.9% of $25 plus 30¢ = $1.03

So the total variable cost per box comes out to ~$8.53.

Then this would be your break-even point formula: 

Break-even units = Fixed costs / (Price per unit - Variable cost per unit)
= $4,468 / ($25 - $8.53)
= $4,468 / $16.47 ≈ 271 boxes

So you’d need to sell ~271 boxes per month to break even. And box #272 will be your first dollar of profit.

5 steps for creating financial projections for your business

Financial projections follow the same core process whether you’re launching something new or building on years of traction.

The difference is what you’re building on: existing businesses can use real data from past performance, while startups rely more heavily on market research, competitive benchmarks, and calculated assumptions.

Here’s how to approach it, step by step:

1. Identify the purpose and time frame for your projections

Are you pitching investors? Applying for a loan? Planning an expansion? Trying to understand when you’ll turn a profit? 

Before building your projections, get clear on why you’re making them, and for whom.

Your answers will shape how detailed your projections need to be, and how far into the future they should go.

Then, define your time frame:

• Monthly projections(especially for Year 1). These help you spot short-term cash flow issues, ramp-up challenges, and seasonal trends. Ideal for early-stage businesses, loan applications, or budgeting the first year of a new product or store.
• Quarterly projections. These are useful for comparing performance across periods and making decisions at a strategic level, like when to hire, raise prices, or expand.
• Annual projections. These give you a long-term view and are most helpful after the first 12 to 18 months; often used in board reporting or investor decks for multi-year planning.

2. Collect relevant historical financial data and market analysis

This step is about gathering the data that will feed your projections. Startup financial projections often rely on market research, competitor analysis, and supplier quotes rather than past performance.

For existing businesses, this means pulling real numbers:

• Past revenue by product, channel, or customer segment
• Seasonality and churn rates
• Expense reports, payroll records, and supplier invoices
• Gross margins and net cash flow over time

For startups or pre-revenue businesses, you’ll need to build projections from scratch, but that doesn’t mean guessing.

Instead, use:

• Industry benchmarks (e.g., average revenue per customer, pricing models, COGS margins)
• Competitor analysis to estimate market share and pricing tolerance
• Target market research to estimate conversion rates, acquisition cost, and demand
• Cost quotes from suppliers or platforms to anchor your expense planning

Pro tip: Avoid the temptation to pad projections with wishful thinking. You’re not trying to impress with hockey-stick charts, you’re trying to show that you understand your market, your costs, and how growth really works.

3. Forecast expenses

Once you’ve projected revenue, map out what it’ll cost to run—and scale—the business. That means forecasting fixed, variable, and capital expenses.

Remember, your costs will shift as you grow. This step is about anticipating what’s next.

These are some common examples of expected changes:

• Hiring. Planning to scale fulfillment or bring on a full-time marketing lead in Q2? Factor in added salaries, benefits, and onboarding costs.
• Ad spend ramp-up. Many startups front-load paid media budgets in early months to drive acquisition, so plan for those spikes.
• Shipping cost changes. As order volume increases, your per-package shipping cost might drop; or rise if you shift carriers or expand internationally.
• Platform upgrades. Starting on Shopify Basic, but switching to Advanced or adding a third-party ERP next year? Bake that into your SaaS costs.
• Seasonal costs. Holiday campaigns, Black Friday fulfillment surcharges, or Q4 bonuses can meaningfully impact certain months.

Pro tip: Build your expense forecast month by month for at least Year 1. That’s where all the complexity lives; after that, you can project more linearly.

4. Forecast sales

Base your forecast on what you know today: past performance, customer demand, marketing plans, and market size. Then, model how your sales might evolve over time.

Instead of vaguely “accounting for anticipated changes,” map out concrete scenarios like:

• A new product launch in Q2 that adds a second revenue stream
• Seasonal spikes around holidays or back-to-school campaigns
• Wholesale or retail partnerships kicking in midyear
• A price increase in Q3 after reaching product-market fit
• Expansion into a new region or sales channel, like marketplaces or pop-ups

5. Build financial projections

Now that you’ve estimated revenue and expenses, you’re ready to build your full‑financial model. This means putting everything into your pro forma income statement, cash flow statement, and balance sheet so you can see how it all works together over time.

Here’s how to create your financial projections:

1. Plug in your numbers. Use a financial projections template to organize your revenue, expenses, and cash flow assumptions. Start with Shopify’s cash flow calculator and cash flow statement template to help you get started. 

2. Link your statements. Revenue and expense figures feed the income statement; the net cash flow feeds the cash flow statement; and assets, liabilities, and equity populate your balance sheet.

3. Create three scenarios.

• Most likely (base case): Your primary forecast based on realistic assumptions.
• Best case: What happens if your marketing hits, conversions exceed expectations, and costs stay controlled.
• Worst case: What if sales lag, costs rise, or you face a cash‑flow squeeze?

4. Compare outcomes. Use the scenario outputs to identify:

• When you break even
• When you’ll need additional cash or financing
• How changes in assumptions affect profitability, asset requirements, and debt levels

5. Document your assumptions. Be explicit about what drives each scenario (e.g., growth rate, cost inflation, churn rate) so you can revisit and revise as you go.

Pro tip: You can also use this financial forecast template by Corporate Finance Institute to structure your model with standard best practices for startups and small businesses. 

3 common mistakes to avoid

Here are three common pitfalls that derail financial forecasts:

1. Overestimating revenue … or underestimating time

Startups often build projections on best-case assumptions: rapid adoption, viral marketing, zero hiccups. 

But sales take longer than expected, and costs show up faster. Avoid the “hockey stick” trap—the common mistake of projecting slow or flat sales for a few months, followed by a sudden, unrealistic revenue spike. 

You’ll be surprised how many times investors have seen it. If you can’t clearly explain how you’ll get from flat to explosive growth (e.g., paid acquisition, retail deals, influencer partnerships), they’ll assume you’re just guessing.

2. Ignoring cash flow timing and seasonality

Your P&L might show a profit, but if cash is slow to arrive, you could still run out of money. 

Many businesses forget to factor in when revenue lands, not just how much. So, add in seasonality (e.g., Q4 surges, summer slumps) to avoid being blindsided by quiet months or inventory overload.

3. Failing to revisit or justify your assumptions

Your projections should evolve alongside your business. As you gather real data including actual conversion rates, shipping costs, and churn, you’ll want to adjust your forecast accordingly.

Update your projections regularly (monthly or quarterly), and document your assumptions. Investors don’t expect you to be right on the nose, but they do expect you to know how you got your numbers, and what might cause them to change.