Forecasting Finances

by Mateusz Kuczera

Published May 29, 2023

Gina, a small construction company owner, is at the bank discussing with Morgan, the banker, about a loan to finance the acquisition of a new backhoe.

“So, we said that your budget for the equipment is one hundred and fifty thousand,” says Morgan. “Is that correct?”

“Yep,” says Gina.

“Alright,” continues Morgan. “Have you made a business case for the purchase?”

“Uhm, nope. Why would I need that?”

“Well Gina, as lenders we need to know that firstly your business will be able to repay the loan. But we also need to know that your investment will bring some additional revenue into your business.”

“Yeah, I know,” she replies. “It will. Trust me. I know my business.”

Morgan pulls himself closer to his desk, puts his elbows on the mahogany counter and crosses his fingers in front of him and says “Gina, this is not how it works. You need to show us your business case and forecast your financials with numbers. Let’s call it a day for now. I’ll let you work on crunching the data and when you have something to show, let’s talk again. Oh and, let me know if you need a hand with financials. We’ll help you!”

“Got it,” says Gina before quickly standing up from her chair and silently walking out of the office.”

Forecasting finance is an essential aspect of managing a small business. It is the process of predicting future financial performance in order to make informed decisions, identify potential problems and plan for growth. Forecasting financials is also a necessary part of business casing.

To create accurate financial projections, whether it is for a single project or the entire company, several steps need to be completed to ensure the accuracy of the model.

Understand the Market

First and foremost, the market needs to be clearly understood. Market trends can help small business owners to identify potential risks and opportunities. By keeping an eye on the broader economic and market conditions, small business owners can make more informed decisions about the future of their business.

As an example, cost of labour and material is inherently tied to how the market evolves. With low inflation, cost will remain stable at historical levels. However, if there are inflation peaks, cost of several expenses of the business will increase over time. When forecasting over extended periods of time, cost must be modeled accurately.

Modeling income is similarly tricky. However, modeling income must take into consideration market conditions, competition, and capacity, to name a few. When all factors are considered, income variation in time can be forecasted. And when combined with expenses forecast, will give a first overview of the financial forecast.

Project Financials

When market trends are well understood, financial projections using financial models or spreadsheets should be made to forecast future financial performance. These projections should take into account historical financial data, industry trends, and economic conditions. By using financial projections, small business owners can make more accurate predictions about the future financial performance of their business.

Financial projection may also be used at the project level to justify the financials of a business case. For instance, in Gina’s case, she could attempt to identify how many new clients owning a backhoe will bring her, and can also attempt to evaluate how much each new contract will be worth. Armed with this information, she can forecast the increase in revenue for a year. To counterbalance revenue, she needs to consider loan and interest over time as well as wages paid to the backhoe operator. Put together, this consists of the basic information to calculate ROI, which will help drive the investment decision. And although simplified, this provides an overview of how financials fit in a business case.

Budget and Metrics

Based on the projections, a budget should be developed to track projected income and expenses for a specific period of time. To supplement the budget, key financial metrics such as revenue, profit margins, and cash flow should be monitored on a regular basis. By developing a budget and metrics, small business owners can get a clear picture of where the business is headed financially and identify potential areas of concern to react in a timely manner.

Flexibility and Communication

Forecasting finances is an ongoing process, and small business owners should be prepared to adjust their predictions as needed. By being flexible and adapting to changes, potential problems can be addressed and new opportunities developed into growth.

Communicating with employees and partners is important for forecasting finances as well. Employees can provide valuable insights and perspectives on the future of the business, and by involving them in the forecasting process, small business owners can make better decisions. And when the forecasts lead to a change in company direction, informing them about the change will drive engagement and promote retention.


Forecasting finance is of course an essential aspect of managing a small business. By understanding the market, projecting financials, developing a budget and metrics, communicating and seeking professional advice from a business consultant or financial advisor, small business owners can make more informed decisions, identify potential problems and plan for growth.

Ask the Professionals at Mondro

Business owners may not have the background and expertise to do financial forecasting by themselves. Consulting a professional such as a business consultant or financial advisor can provide a better assessment of the business forecast and provide guidance on how to improve the company's finances. At Mondro, our business consultants have the expertise to provide holistic financial projections and counsel which will help drive accurate business decisions.

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