What is Forecasting?

Financial forecasting is the process of estimating a company's future financial performance. It involves using historical data and a set of assumptions about the future to project key financial outcomes like revenue, expenses, and cash flow. A forecast is a critical component of a business plan and budget. For a detailed comparison, see our guide on Forecasting vs. Accounting.

For Startups: For startups, forecasting is essential for managing runway, making strategic decisions, and communicating with investors. A well-constructed forecast demonstrates that the founder has a deep understanding of the business's key drivers. Startups typically create a "bottom-up" forecast, built from assumptions about marketing spend, sales conversions, and customer churn, rather than a "top-down" forecast based on market size alone.

Example: A virtual CFO creates a 12-month rolling cash flow forecast for a startup, allowing the founder to see their projected cash balance month by month and plan their next fundraise accordingly.