Financial Forecast vs Projections: What’s the Difference?


12 min


March 20, 2024

Financial terminology can easily confuse anyone. In a field that requires precision, the last thing you want or need is confusion, especially when it comes to business. For this reason, we have provided a guide to financial forecasting terminology.

Understanding how to analyze and chart your company’s future performance represents an integral part of financial and business planning. Knowing the terminology helps to provide a sound foundation from which to learn and understand more.

Key Takeaways

  • Forecasts are based on current trends and data, serving short-term planning needs, while projections explore hypothetical ‘what-if’ scenarios for long-term strategies.
  • Forecasts rely on historical and current financial performance, making them a continuation of a company’s financial story; projections are speculative, based on future assumptions.
  • Internal management often uses forecasts for operational planning and decision-making; projections are aimed at investors or lenders to demonstrate potential growth.
  • Forecasts are updated regularly to reflect the latest information, contrasting with projections, which may remain static unless foundational assumptions change.
  • Due to their grounding in current data, forecasts are considered more reliable for short-term financial planning than projections, which depend heavily on the accuracy of their assumptions.

What is Financial Forecast?

A company’s financial forecast predicts what the business’s numbers will look like in the short term, often a year or less. Financial forecasts have multiple purposes, depending on the intended audience.

In some cases, a company might prepare a financial forecast for external consumption. Often businesses need to create these when reaching out to obtain needed capital. Whether they seek funding from investors or through a loan, financial forecasts come in handy. When you need to prove to others that your company will remain profitable, you would use a financial forecast.

Financial forecasts can also serve internal purposes. If reliable and backed by substantial evidence, they can provide valuable assistance in making informed decisions. Forecasts that show continued strength can serve as a reason to invest more company resources. Those with less than positive forecasts help to urge caution on spending and structural decisions.

what is a financial forecast

What is Financial Projections?

Financial projections are forward-looking estimates of a company’s financial performance, based on assumptions about future events and market conditions. These projections serve as a roadmap for the business, outlining expected revenue, expenses, cash flow, and other financial metrics over a specific period, often spanning several years. They are crucial for strategic planning, helping businesses set realistic goals, allocate resources efficiently, and anticipate potential challenges.

Unlike financial forecasts which are rooted in current data and trends, projections are more about exploring what could happen under various scenarios. This makes them particularly valuable for startups and companies looking to expand, invest in new projects, or secure funding from investors or lenders. Projections provide a vision of potential growth and profitability, encouraging strategic decisions aligned with long-term objectives.

For a deeper dive into financial projections and insights from experts, read our main article on the subject.

Financial Forecast with one click in Billdu!

Get data for your financial forecast from the Billdu dashboard in no time. Automate your invoicing, expense tracking, estimates and more with Billdu.

Free 30-day trialNo credit card requiredCancel anytime
Pro invoice maker for small businesses

Elements of a Financial Forecast

Financial forecasts often require the inclusion of three types of pro forma statements.

Pro forma financial statements serve as financial reports issued by an organization or even an individual. Often they use hypothetical conditions or educated assumptions about the future. Most often, an organization will use pro forma statements to present a picture of its finances to outsiders, such as investors.

There are several types of pro forma statements, including, but not limited to:

  1. Full-year pro forma projections, which include year-to-date results and financial projections of what the organization will look like at year’s end.
  2. Investment pro forma projections focus on elements of business finances that would inform an investor on whether or not the company would be worth engaging.
  3. Some pro forma statements emphasize risk analysis, projecting the results of potential decisions based upon financial, market, and other data.

Pro forma statements, since they come from the organization itself, will tend to focus on information that puts the company in a positive or optimistic light. Generally, investors and others take pro forma reports with a grain of salt unless the company has a strong reputation for transparency.

The pro forma reports that help to compose a financial forecast will have to include information on important aspects of the business’s finances. They will include income statements, cash flow statements, and the balance sheet. These reports may cover different time spans as well, so an overall narrative may need to link them together.

To create the building blocks of your financial forecast, you will need to bring together information to start crafting pro forma statements and other reports that the forecast will incorporate.

The first step in charting out the future lies in researching the past. Assemble financial statements from the past several years and start analyzing them. Find developments that produced impacts while also searching for any relevant trends. Where your business has been will give strong indications of where it is going. These will help to provide evidence to back up projections of income, cash flow, and your overall financial stability.

Next, you must determine your methodology for how to put together and present the projections that form the meat and potatoes of a financial forecast. You will also need to determine how to assemble and use your pro forma statements.

Elements of a Financial Forecast

Historical Versus Research-Based Financial Forecasting

Almost every financial forecast contains elements of research and historical based predictions. Most will rely more heavily on one than the other.

Historical-based financial forecasting is relatively easier to accomplish. It draws almost all information from sources that should be easily accessible. The information that you will draw from these will chart out for readers how your company has grown and developed. For example, if your company has grown consistently for three years, you can predict future growth, assuming that important variables remain unchanged, such as the market and company resources.

Companies usually use historical financial forecasting for internal use. It rarely draws on outside sources to build context from the market, changing government regulations, or other areas. External stakeholders, such as investors, will demand more information before acting on a financial forecast such as this.

Research-based financial forecasting involves much more than extrapolating potential future performance from one’s own paperwork. Since these types of forecasts are mostly produced for external consumption, they must reflect a more in-depth approach.

Research-based forecasts use information from at least a decade about not only company performance, but also contextual information, such as market conditions. Research-based forecasting also includes information about your competition and how it reacted to the same external conditions and stimuli. Companies that have not been around very long will rely more heavily on contextual info rather than their own company’s information.

Difference Between a Financial Forecast and the Budget

Although both terms refer to reports on how a business uses money, the budget represents a different kind of report than a financial forecast.

A budget serves as the organization’s plan on how it will spend money in the fiscal year. It works off of revenues already accumulated or those that the organization knows will be in place when the time comes to spend.

Budgets include, but are not limited to, the following elements:

  1. Estimates of both revenues and expenses
  2. Anticipated cash flows
  3. Anticipated reduction of debt, if any
  4. Revenue and spending goals for the year

Most of the time, budgets cover an entire fiscal year. In some cases, however, an organization may need to incorporate flexibility into the process, amending as conditions change.

Budgets should rarely, if ever, work off of assumptions or guesses.

This does not mean there is no relationship between a budget and a financial forecast. In fact, the two can feed off of each other for greater clarity. Should a trusted financial forecast, for example, reveal an upcoming windfall, the chief financial officer can amend the budget and allow for the funds to be spent.


Financial Forecast



An estimate of future financial outcomes based on current trends and data.

A detailed plan for income and expenses over a specific period.


To predict future financial performance for informed decision-making.

To set financial targets and limits for spending and revenue.

Time Horizon

Typically short to medium term, adjustable with changing circumstances.

Usually fixed for a specific period, often a fiscal year.


More flexible, updated regularly to reflect current conditions.

Less flexible, changes are less frequent and typically require formal revision.


Often on broader financial outcomes like revenue, profits, and cash flow.

Detailed, covering all income and expenditures across departments.


Strategic planning, investment decisions, and performance assessment.

Operational planning, resource allocation, and financial control.

Get data for your Financial Forecast, Projection with Billdu!

Check Billdu pricing plans today to start creating professional invoices and tracking your expenses and automatically generate key data inputs for your financial forecasts.

Free 30-day trialNo credit card requiredCancel anytime
Pro invoice maker for small businesses

Difference Between Financial Forecast and Sales Projections

Sales projections, like budgets, have purposes and information that overlap that of a financial forecast but also serve different purposes.

A sales projection simply indicates the amount of revenue forecasted that the company expects to generate through sales in a given period. It focuses mostly on external factors, such as market trends and the competition. Sales projections serve as a strong indicator of a company’s health.

They can form an important part of the supporting information for financial forecasts, but by themselves, they cannot replace the more comprehensive, big-picture look.

A sales projection’s primary purpose, however, lies in helping companies to make crucial decisions about:

  1. Inventory management
  2. Supply chain needs
  3. Pricing
  4. Marketing
  5. Sales Planning


Financial Forecast

Sales Projections


Encompasses the entire financial performance, including revenue, expenses, cash flow, and profitability.

Primarily focused on future sales revenue, estimating the number and value of sales expected.


Used for overall business planning, budgeting, and financial management.

Aimed at understanding potential sales performance and setting sales targets.


Based on a wide range of financial data, historical performance, and market conditions.

Often based on market trends, sales history, and future market potential.


Helps in strategic decision-making, investment strategies, and assessing financial health.

Essential for sales strategy, marketing planning, and resource allocation in sales efforts.


Of interest to management, investors, lenders, and stakeholders concerned with the overall financial health.

Primarily used by sales and marketing teams, although it informs wider business strategy.

financial forecast example

Difference Between Financial Forecast and Financial Projections

Financial forecasts and financial projections have similar and overlapping functions, but different purposes. While some financial projections cover a year, most try to describe conditions expected to develop over the long term.

One of the key differences between a financial forecast and a financial projection lies in scope. A financial forecast aims to predict likely events during a given period. Financial projections, however, expand from this to include any number of hypothetical scenarios, which can enhance a company’s ability to plan for the future.

Financial projections come in two forms. A short-term financial projection covers the first year of business and chart expectations month to month.  Mid-term projections cover three years and are broken down by year.

Financial projections also serve another essential purpose. They require your team to stand back and take a look at the business’s performance from an objective point of view. Financial projections also give your team the chance to creatively explore the potential opportunities and consequences of pursuing or ignoring certain decisions.


Financial Forecast

Financial Projections


An estimate of future financial outcomes based on existing business trends and data.

A speculative estimate of financial outcomes under various hypothetical scenarios.


To predict short to medium-term financial conditions for strategic planning.

To explore potential financial outcomes for long-term strategic planning, especially under uncertain conditions.


Grounded in historical data and current financial performance.

Based on assumptions about future events that may significantly alter business operations.


Regularly updated to reflect the most current conditions and data.

Less frequently updated, unless there’s a significant change in the underlying assumptions or for specific planning purposes.


Generally considered more reliable for near-term financial management due to its grounding in current data.

Potentially less reliable due to its speculative nature and dependence on assumptions about future events.

What a Financial Forecast Template Is and Why You Should Use One

A financial forecast template is an essential tool that streamlines the process of estimating your company’s future financial status based on analyzed data and current market trends. It organizes critical financial information into a user-friendly spreadsheet format, making it accessible and understandable.

The template is multifaceted, covering various critical areas to provide a detailed outlook of the company’s anticipated financial trajectory.

Current Financial Status

This segment focuses on your company’s present financial condition, emphasizing significant expenses such as payroll. It details various payroll components like salaries for part-time, full-time, and contract workers, taxes, and other payroll-related expenses, providing a clear view of the company’s current overheads.

financial forecast model

Future Payroll Projections

Building on the current financial data, the template allows for the projection of future payroll expenses. With the foundational data in place, projecting future years becomes more straightforward, with the template designed to automate calculations based on the inputted data.

Sales Projections

A critical component of the financial forecast, this section helps predict future sales by analyzing current sales data, including unit sales price, number of units sold, and per-unit costs. The template is designed to automatically calculate and project future sales figures based on this data.

Operating Costs and Projections

Just like with sales and payroll, inputting key operational expenses into the template allows for a clear projection of future operating costs, providing valuable insights into expected future expenses.

Income and Balance Sheet Projections

The template links data from sales and operating expenses to provide projected income statements and balance sheets, offering a comprehensive view of expected revenue and financial position in future periods.

Cash Flow Analysis

Incorporating data from income statements and balance sheets, the cash flow sections of the template offer a detailed analysis of current and projected cash flows, ensuring that the closing cash balance aligns with the balance sheet figures.

Financial Health Indicators

The final piece of the financial forecast template involves a thorough analysis of financial ratios, including profitability, efficiency, liquidity, leverage, and coverage ratios. These ratios, derived from the template’s previous sections, serve as indicators of the company’s financial health and stability, both currently and in projected future scenarios.

In essence, a financial forecast template not only simplifies the financial planning process but also provides valuable insights into your company’s future financial health, making it an indispensable tool for informed decision-making. For a more comprehensive exploration of financial forecast templates and expert insights, we invite you to read our main article on the topic.


Understanding the distinction between financial forecasts and financial projections is vital for effective financial planning. While forecasts focus on short to medium-term financial outcomes based on current data and trends, projections delve into the speculative exploration of future possibilities under different scenarios, catering more to long-term strategic decisions.

This key difference guides businesses in tailoring their financial strategies to meet both immediate and future needs.

Simplify Your Financial Projections Using Billdu!

Automate invoicing, expense tracking, communication and more and get an overview of your business financial performance in a click.

Free 30-day trialNo credit card requiredCancel anytime
Pro invoice maker for small businesses

Looking for Downloadable Invoice Templates?

We have them ready for you, select your format and get your invoice template now

SEO Specialist at Billdu

David Fačko is an SEO and Content Specialist at Billdu, a globally acclaimed invoicing software solution renowned for its effectiveness with freelancers and small businesses.

We use cookies to make your experience better, to improve our services, and for advertising. By continuing to browse our site, you agree to accept our cookie policy