How to prepare financial projections for a business plan
Start with operating drivers and cash timing; produce the financial statements from those schedules.
SBA’s business-planning guidance describes a five-year outlook with forecast income statements, balance sheets, cash flow and capital spending, with greater detail in the first year. Ask the receiving lender what it needs for your case. Official planning guidance.
1. Fix the scope and opening position
State what the business will sell, where it will operate and whether it is a startup, expansion or acquisition. Build opening sources and uses before forecasting operations. A refundable deposit, equipment purchase, preopening expense and cash reserve have different effects on the opening balance sheet.
2. Make the sales calculation observable
Choose a unit that the operator can count: tickets, appointments, jobs, members or occupied sessions. Multiply volume by an appropriate price and allow for the opening ramp. Then compare required volume with physical capacity and local demand evidence. An available bay does not guarantee a paying customer; spare café seating does not prove ordering throughput.
3. Build costs from the operation
Separate transaction costs from the base commitments. Model staff hours, wage rates and employer costs visibly. Include the working owner’s compensation if the project must fund that role. A staff roster usually does not fall automatically in proportion to sales. Add rent, utilities, insurance, routine repairs and administration with clearly dated assumptions.
4. Follow cash and debt separately from profit
Inventory may be paid for before a sale. Customer receipts may settle after it. Equipment is paid for when acquired, while depreciation spreads its accounting cost. Interest is an expense; loan principal repays a liability. These timing differences must feed a cash forecast, not be buried in one “profit” line.
5. Link the statements and test adverse conditions
| Review | Question to resolve |
|---|---|
| Opening funding | Does every use have an identified source, with evidence for the owner contribution? |
| Balance sheet | Do assets equal liabilities plus equity in every month? |
| Cash bridge | Does opening cash plus operating, investing and financing movements equal closing cash? |
| Capacity and staffing | Can the roster and assets serve the forecast volume? |
| Downside liquidity | When is cash lowest if opening is delayed, demand is weaker or a major asset fails? |
6. Write the narrative from the checked model
The plan should explain the same funding request, owner role, operating capacity and risks used in the forecast. Keep a version date and update all exhibits together. Do not manually change a summary number to make the request look more attractive.
Our café example shows why a positive cash balance funded by a reserve is different from first-year repayment capacity. The wash example shows how uptime and customer utilization affect a different revenue engine. Their methodology and exclusions remain part of the result.
Sources checked 1 October 2026. The examples are educational forecasts, not personalized underwriting.
One month, three connected statements
This small fictional service business isolates the links between statements. It is a teaching example, not a recommended budget or loan offer. The owner contributes $10,000 and the business borrows $10,000 at opening. Equipment costs $12,000, leaving $8,000 of cash. There are no receivables, inventory, deposits or taxes in this simplified example.
| Item | Amount | Treatment |
|---|---|---|
| Owner funds | 10,000 | Equity |
| Loan received | 10,000 | Debt; not revenue |
| Equipment purchased | 12,000 | Fixed asset; not all expensed immediately |
| Cash retained | 8,000 | Opening cash |
| Total assets | 20,000 | Cash 8,000 + equipment 12,000 |
| Debt + equity | 20,000 | Loan 10,000 + owner funds 10,000 |
In Month 1, all sales are collected and all operating costs are paid. Revenue is 8,000; direct costs are 3,000; paid payroll, rent and other overhead total 3,000. Equipment depreciation is 200. The assumed debt payment is 300, split into 100 interest and 200 principal for this month only. This payment split is illustrative; a real loan needs an amortization schedule.
| Statement | Calculation | Result |
|---|---|---|
| Income: EBITDA | 8,000 − 3,000 − 3,000 | 2,000 |
| Income: net profit | 2,000 − 200 depreciation − 100 interest | 1,700 |
| Operating cash flow | 1,700 profit + 200 noncash depreciation | 1,900 |
| Financing cash flow | Principal repaid | −200 |
| Net cash movement | 1,900 − 200 | 1,700 |
| Closing cash | 8,000 + 1,700 | 9,700 |
| Closing equipment, net | 12,000 − 200 | 11,800 |
| Closing total assets | 9,700 + 11,800 | 21,500 |
| Closing debt | 10,000 − 200 | 9,800 |
| Closing equity | 10,000 + 1,700 retained profit | 11,700 |
| Liabilities + equity check | 9,800 + 11,700 | 21,500 |
Principal reduces cash and debt; it does not reduce accounting profit. Depreciation reduces profit and asset carrying value without another cash purchase. Borrowing creates cash and a liability at opening; recording it as sales would overstate income. This example includes interest in operating cash flow and principal in financing cash flow. Keep that convention consistent throughout the model.
Download the connected-statement example (CSV). Check the closing balance-sheet equality and the cash movement before adding more complexity. For full operating cases, see the coffee-shop monthly cash scenarios and remodeling project-unit calculation.
Change collection timing without changing sales
Suppose 2,000 of the same month's sales is still unpaid at month end. Net profit remains 1,700, but operating cash falls from 1,900 to −100 after the 2,000 increase in receivables. After the 200 principal payment, net cash movement is −300 and closing cash is 7,700. Receivables are 2,000; equipment remains 11,800. Total assets are still 21,500 and the balance sheet still balances.
This is why a revenue forecast is insufficient for a loan request. Remodeling milestone collections, repair-shop card settlement and childcare payment terms can all create different timing from the sale itself. Record receivable days, supplier terms, stock requirements and prepayments explicitly. A customer deposit may create an obligation before it becomes earned revenue; model its treatment from the actual contract.
Review the assumptions that could break the projection
- Demand: attach actual observations, signed work or presales with their limitations. A capacity calculation is an upper bound, not customer evidence.
- Coverage: calculate paid hours separately from billable or occupied hours. Include the owner and replacement/relief coverage.
- Opening scope: use quantity schedules and matched quotes. Distinguish retained assets from new works and separate tax, delivery and installation.
- Cash: find the lowest monthly balance under realistic delay and lower-demand cases. Size funding from uses and cash need before comparing historical loan amounts.
- Debt: use a current proposed rate, term, fees and repayment schedule. Historical SBA approval rates do not price this loan.
- Reconciliation: opening sources equal uses; principal reconciles the debt balance; closing assets equal liabilities plus equity; cash movement explains every balance change.
Keep one input register with units, dates and evidence links. When a quote changes, replace the affected assumption and rerun all statements and scenarios; do not change the headline total alone. The case methodology explains what the site's calculations do and what remains unverified.