Forecast Forward, Not Just Backward

Financial statements are essential for understanding your business, but they have one important limitation: they tell you what has already happened.

Your income statement shows the revenue you earned and the expenses you incurred. Your balance sheet shows what your business owns and owes. Your cash-flow statement explains how money moved through the business during a previous period.

These reports provide valuable information, but they cannot tell you what your cash position may look like next month.

That is where financial forecasting becomes important.

What Is a Financial Forecast?

A financial forecast estimates what may happen in your business based on the information currently available. It considers expected revenue, upcoming expenses, payment schedules, seasonal patterns, and other events that could affect your finances.

Unlike an annual budget, which may remain relatively fixed, a forecast should be updated as conditions change.

A 90-day forecast gives you a practical view of the near future. It is long enough to help you anticipate potential challenges, but short enough to be based on reasonably reliable information.

The purpose is not to predict every dollar perfectly. It is to give you greater visibility into what may be coming so you can prepare.

What Should a 90-Day Forecast Include?

A useful forecast should include the major sources and uses of cash expected over the next three months.

Expected Revenue

Estimate the revenue you reasonably expect to generate and collect. Consider:

• Current contracts and scheduled projects
• Recurring customer revenue
• Open proposals or pending sales
• Expected customer payment dates
• Seasonal changes in demand
• Potential project delays or cancellations

Be realistic about when revenue will be collected. Revenue earned in one month may not reach your bank account until several weeks later.

Payroll and Labor Costs

Payroll is often one of a business’s largest and most consistent obligations. Your forecast should account for:

• Regular wages and salaries
• Overtime
• Payroll taxes
• Employee benefits
• Bonuses or commissions
• Planned hiring or staffing changes

If your labor needs change based on workload or seasonality, include those expected changes in your projections.

Taxes

Tax obligations can create significant pressure on cash flow when they are not planned for properly.

Include upcoming estimated tax payments, payroll taxes, sales taxes, property taxes, and any other known obligations. Setting aside funds throughout the forecast period can help prevent a large tax payment from becoming an unexpected cash shortage.

Debt Payments

Your forecast should include all scheduled loan, line-of-credit, equipment-financing, and credit-card payments.

Understanding when these payments are due helps you see how debt obligations may affect the cash available for operations and growth.

Large Purchases and Investments

Include any significant expenses you expect to make during the next 90 days, such as:

• Equipment purchases or repairs
• Insurance renewals
• Software or technology investments
• Inventory or material purchases
• Marketing campaigns
• Facility improvements
• Professional fees

Planning for these expenses in advance allows you to evaluate whether the timing is right or whether the purchase should be delayed, financed, or adjusted.

Seasonal Changes

Many businesses experience predictable changes throughout the year. Revenue may increase during one season while labor, inventory, or material costs rise during another.

Your forecast should reflect the normal patterns of your business rather than assuming every month will look the same.

Use More Than One Scenario

Because forecasts are based on assumptions, it can be helpful to create more than one possible scenario.

A basic forecast might include:

• Expected case: What is most likely to happen based on current information?
• Best case: What happens if sales are stronger or customers pay sooner?
• Conservative case: What happens if revenue is delayed or expenses increase?

Comparing these scenarios can help you understand how much flexibility your business has and which risks require the most attention.

If your conservative forecast shows a potential cash shortage, you have time to improve collections, reduce spending, adjust the timing of a purchase, or explore financing options before the problem becomes urgent.

Make More Confident Decisions Today

A forward-looking forecast can help you answer important questions such as:

• Can we afford to hire another employee?
• Is this the right time to purchase equipment?
• Will we have enough cash to cover taxes?
• Can we pay down debt without creating a cash-flow problem?
• Do we need to improve collections?
• Should we delay an investment?
• How much cash should we keep in reserve?

Without a forecast, these decisions may be based primarily on your current bank balance. With a forecast, they can be based on a clearer view of what your business will need over the next several months.

Keep Your Forecast Current

A forecast is most useful when it is reviewed and updated regularly.

Compare your projections with what actually happened. Adjust expected revenue, payment timing, expenses, and other assumptions as new information becomes available. This turns your forecast into a living decision-making tool rather than a report that is created once and forgotten.

Financial statements help you learn from the past. A forecast helps you prepare for the future.

At Ladell CFO Services, we help business owners build practical financial forecasts that provide better visibility, reveal potential cash-flow challenges, and support more confident decisions. Let’s build a 90-day forecast for your business.