Financial Budgeting: Your Long-Term Forecast

07/28/2016 05:14 to watch
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Forecasting is usually the toughest part of startup finance for entrepreneurs. But learning how to forecast and budget are critical. The point is not to try to predict the future. The point is to build a financial model that you can improve over time.

Suggested Readings

Founders School || The Art of Startup Finance || Financial Budgeting: Your Long-Term Forecast || Impact Guide (PDF).

Create a template for an operating budget.  Example here.

Create a template for a five year forecast.

Questions for You

What are the key drivers and milestones that will affect my costs and revenues?

What are the assumptions underlying our customer acquisition and revenue plan? Are they realistic?

Are there similar companies that have gone down our path before? Can we compare their historical experience with our forecast?

If we are seeking investment, do our projected capital requirements match what we’re asking for?

Questions for Your Team

What are the assumptions underlying our forecast?

How can we validate those assumptions?

Where do we have downside risk?

Where do we have upside opportunity?

Tools and Exercises

Create an operating budget with forecasts for each month of the upcoming year. Extend to quarterly for the next two years, then create an annual forecast for Y4 and Y5.

Forecast Example (PDF)

Evaluate your forecast as a team. Assign individuals to take the roles of optimist, pessimist, and realist. Look for downside risks and upside opportunities.

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