The term "budget forecast" generally encompasses several documents, although it is often used to refer specifically to the projected income statement. Unlike an accounting statement, which presents past financial data, the budget forecast is part of the financial forecast and focuses on the future. It therefore presents the company’s projected estimates in various formats, covering both profitability and cash flow. Let’s take a look at the different tables that may be included in a company’s comprehensive budget package.
A budget forecast is a set of financial documents that project a company’s revenues, expenses, and cash flows over a given future period (typically 12 to 36 months). Unlike accounting documents, which reflect past performance, a budget forecast focuses exclusively on the future. Its main objective is to anticipate financial needs and manage performance by regularly comparing actual results with initial forecasts. In practice, the term "budget" often refers to the projected income statement, but a complete budget package actually consists of four complementary documents that are interconnected:
These four statements form a coherent system: the projected income statement feeds into the cash flow statement, which in turn feeds into the balance sheet and the financing plan. That is why it is essential to prepare them in this logical order.
No, a projected budget is not a legal requirement for most French companies. Unlike annual financial statements (balance sheet, income statement, notes to the financial statements), which must be filed each year, a projected budget remains an optional internal management tool.
Please note, however, that there are certain exceptions in which a budget estimate becomes mandatory or virtually mandatory.
Companies subject to insolvency proceedings (preliminary insolvency proceedings, reorganization proceedings) must submit a detailed projected budget to the commercial court and the court-appointed administrator. Approval of the plan for continued operations or divestiture is contingent upon this document.
If your business is applying for a business loan, a line of credit, or a lease agreement, the bank will always require a projected budget covering a 12- to 36-month period. Without this document, your application will be automatically rejected.
Any investor (business angels, investment funds, venture capitalists) will request a detailed three- to five-year financial projection before considering an investment. This is a necessary step to demonstrate the project’s viability.
Programs designed to support business creation (ACRE, honor loans, BPI France grants) require the submission of a projected budget as part of the business plan to verify the project leader’s eligibility.
Organizations receiving public grants exceeding €153,000 per year must prepare a budget estimate and submit it to their funding sources (Article L. 612-4 of the Commercial Code).
But then, why create a budget estimate even if it isn't required?
Even in the absence of a legal requirement, 95% of successful small and medium-sized enterprises (SMEs) prepare an annual budget (source: BPI France study, 2024).
Here are the benefits of creating an annual budget for an SME:
In short, a projected budget is legally optional but strategically essential. A company without a projected budget is flying blind and increases its risk of financial difficulties.
The operating budget, also known as the projected income statement, presents projected expenses and revenues based on their billing dates (rather than payment dates). It allows you to assess the company’s future profitability by analyzing various business scenarios.
This type of forecast document translates the operating budget, as well as investments and financing, into cash flow movements. This estimate of cash inflows and outflows takes into account, in particular, invoice payment dates, VAT, and loan repayments. The cash flow budget helps identify periods of peak demand during which the company will need to seek financing.
This document is intended to assess changes in the company’s assets and liabilities at the end of the next fiscal year or even several years. It is derived from the projected income statement, as well as the financing plan and cash flow budget. It illustrates the future financial structure, for example following the completion of an investment project.
The projected cash flow statement includes cash outflows and inflows based on budget assumptions. It is used to explain changes in the company’s cash position.
This budget document provides details for the coming fiscal year:
A budget helps anticipate cash flow challenges, manage performance, secure funding, set goals, and quickly adjust strategy. It is the central financial management tool for any business.
Forward planning is one of the keys to keeping a business afloat, profitable, and financially sound. Regardless of the business model or industry, without sufficient cash flow, the company’s long-term viability is quickly jeopardized. Over time, the business must generate profits in order to invest, repay loans, and pay dividends to shareholders. A cash flow plan helps provide this financial outlook for the future and adjust the strategy if necessary.
In certain situations within a company’s operations, it is essential to prepare a comprehensive business plan that includes financial projections. This is the case, for example, when seeking investors, raising funds, or applying for a bank loan to finance an investment.
Another standard purpose of the annual budget is budget monitoring. Actual data from monthly accounting records are then compared to the budget for the periodto identify and analyze variances. This budget monitoring helps to quickly adjust both expenses and revenues in the event of a shortfall that is detrimental to the company. In this sense, the forecast is a powerful tool for operational and financial management control.
Budget documents are intended for both company executives and managers to guide day-to-day operations. As such, managers’ bonuses are often logically tied to the budgets of various departments, such as sales, HR, production, marketing, and so on. This makes sense, given that budget planning is typically based on their individual objectives.
The budget forecast is also used by shareholders and attendees of general meetings. It is provided to bankers and auditors for the relevant companies. As you can see, the level of detail in these forecast documents varies depending on the recipients. It all depends on the confidentiality requirements and the level of detail you wish to disclose in the budget.
Beyond its operational utility, the budget is a strategic communication tool that helps share a common vision with the company’s stakeholders.
With regard to shareholders and partners, it allows for:
- Reassuring them of the company’s ability to generate profitability
- Justifying strategic decisions (investments, hiring) with quantified projections
- Facilitating discussions at the general meeting with clear forward-looking documents
When dealing with business partners, a solid budget proposal demonstrates your financial stability and professionalism. Some major clients or strategic suppliers may request one before committing to a long-term business relationship.
Internally, communicating the budget’s key points to teams helps establish a common direction, holds managers accountable for their spending, and fosters a collective momentum around shared goals.
The process of creating a projected budget follows a six-step sequential approach. Here, we focus on the projected income statement, which serves as the foundation of the overall budget and allows you to assess your company’s projected profitability.
Good to know: Creating a projected budget typically takes between 2 and 4 weeks for an SME, depending on the complexity of the business and the level of detail required. This timeframe includes data collection, discussions with operational teams, and validation rounds.
Projected revenue serves as the starting point for any budget. It must be assessed in detail on a product-by-product (or service-by-service) basis in consultation with the sales teams. For each product line, estimate:
Projected revenue is the key component. It must be carefully assessed in terms of both volume and price in consultation with the sales team. When calculating projected revenue, the data should be tailored to each type of organization. Don’t forget to also include other operating income: grants, financial assistance, membership dues (for associations), or other recurring revenue related to your business.
Once you have prepared your projected sales figures, determine the gross margin percentage for each product line or product family. This percentage represents the difference between the selling price and the purchase or production cost.
Formula: Gross margin = Revenue - Cost of goods sold (raw materials, merchandise)
By multiplying your projected revenue by these gross margin rates, you automatically calculate the amount of merchandise or raw materials you need to budget for. This amount is then entered into the “cost of goods sold” line of your projected income statement. This step is crucial: if your gross margin is too low, you will never be able to cover your fixed costs, even with high revenue.
Variable costs are expenses whose amount fluctuates directly in line with your level of activity. The more you sell, the more these costs increase proportionally. To budget for them, start with your projected revenue and apply a historical ratio or unit cost to each line item. For example: if your sales commissions account for 3% of revenue, multiply your projected revenue by 0.03.
Tip: The distinction between fixed and variable costs may vary depending on your industry. Electricity is a fixed cost for a consulting firm, but a variable cost for a manufacturing plant.
Fixed costs (or overhead costs) generally remain stable regardless of your level of activity. They form the core of your annual expenses.
To budget for these, start with the current year's data and adjust accordingly:
• Known contractual increases (rent, salaries, insurance)
• Planned investments (hiring, new office space)
• Anticipated inflation on certain items
Please note: If you reach a new level of activity (such as constructing a new building or hiring a new team), your fixed costs will automatically increase.
Distinguishing between fixed and variable costs allows you to calculate your break-even point. This is the level of revenue at which your business begins to turn a profit.
Break-even formula: Fixed costs / Margin rate on variable costs
Formula for the variable cost margin ratio: Revenue - Variable expenses / Revenue
Once the operating statement has been prepared, the next step is to complete the projected budget with the financial and tax details:
• Financial income: interest earned on your cash investments
• Financial expenses: interest on bank loans, overdraft fees, cost of short-term credit
To estimate short-term financial expenses, assess how your working capital needs will change depending on business activity.
This section is usually left blank (with revenue and expenses at 0), unless you have planned any one-time transactions, such as the sale of a fixed asset.
If your business is subject to corporate income tax, calculate the estimated tax by applying the applicable tax rate to your pre-tax income:
• 15% on the first €42,500 of profit
• 25% on the amount above that
This gives you your projected net income, which is the bottom line of your projected income statement.
Once you’ve created your projected budget, certain financial indicators deserve special attention during your monthly monitoring. They allow you to assess your company’s financial health at a glance and anticipate potential challenges.
The gross margin measures the profitability of your business. It is calculated as follows:
(Cost of Goods Sold) / Revenue × 100
Why monitor it? A decline in the gross margin may indicate:
• Rising procurement costs that have not been passed on to retail prices
• An increase in trade discounts
• A shift in the product mix toward less profitable products
Alert threshold: A deviation of more than 3 points from the forecast warrants a detailed analysis.
The break-even point is the level of revenue at which a company begins to generate a profit.
Why track this? This metric allows you to:
• Determine when during the year you will reach profitability
• Measure your safety margin (the difference between actual revenue and the break-even point)
• Assess the impact of a decline in business on your bottom line
Warning threshold: If your cumulative monthly revenue remains below the break-even point beyond the eighth month, you risk ending the year in the red.
Working capital represents the cash flow gap between customer receipts and payments to suppliers and expenses.
Working Capital = Inventory + Accounts Receivable - Accounts PayableWhy monitor it? If working capital is growing faster than expected, it means:
• Your customers’ payment terms are lengthening
• Your inventory is increasing (overproduction, slow-moving inventory)
• You are paying your suppliers more quickly
Warning threshold: An increase in working capital of more than 20% compared to the forecast may create cash flow pressures.
The CAF measures a company's ability to generate cash flow from its operations, before paying dividends.
CAF = Net income + Depreciation and amortization + Provisions
Why track it? The CAF explains:
• Your ability to self-finance future investments
• Your flexibility in repaying loans
• Your financial independence from banks
Warning threshold: If your cash flow is negative or insufficient to cover your loan payments, you will need to reassess your investment strategy or seek external financing.
Whether out of optimism or a desire to "please" shareholders and banks, some executives artificially inflate their revenue forecasts without relying on solid data.
The consequences:
• Insufficient cash flow (revenue isn't coming in fast enough)
• Premature hiring or investments
• Loss of credibility with lenders during budget reviews
To avoid this, you can:
• Use your sales history as a basis (conversion rates, average order value, seasonality)
• Apply a safety margin of 10 to 15% to new revenue sources
• Develop three scenarios (optimistic, realistic, pessimistic) and base your budget on the realistic scenario
It’s helpful to understand these different steps for determining your projected results. But by following our recommendations below, you’ll maximize your chances of successfully completing the budgeting process. This is important, for example, when presenting an investment proposal to your banker.
For a budget forecast to be effective, it must be based on clear objectives. Its primary role is to help business leaders anticipate cash flows and make informed decisions to steer the company. It is therefore essential to define priorities, assess available resources, and identify value-creating activities—for example, through a hiring forecast.
But a budget doesn’t just come together on its own. It is based on assumptions about business activity and growth, which should ideally be validated with department heads. Involving them allows you to benefit from their on-the-ground expertise and ensure team buy-in, especially since they will often be evaluated the following year based on these figures.
Finally, it is important to strike the right balance between realism and ambition: goals must be achievable to ensure the budget’s credibility, while remaining challenging enough to maximize the company’s performance.
To develop a meaningful budget forecast, it is important to determine the level of detail you want to work with. Depending on the complexity of your business and your objectives, you can opt for a general estimate or, conversely, a more precise tracking system based on cost centers or expense categories. The more detailed your forecasts are, the more accurate your future tracking will be, but this also requires more time and diligence.
You also need to define the time horizon for your projections. The most common approach is to focus on the coming year, supplemented by an assessment of the current fiscal year’s results, which allows you to better anticipate the financial impacts of operational decisions. You can also opt for a longer-term plan, spanning 3 to 5 years, with a broader scope suited to a strategic vision.
In reality, a budget cannot be used to track spending for (N+1) without being broken down month by month. This is especially true for seasonal activities. In this case, build your forecasts from the outset on a period-by-period basis rather than for the entire year. This makes them more accurate, and company managers have precise data to track each month against actual accounting figures.
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Most entrepreneurs navigate between two budget scenarios. The first is conservative, even pessimistic, as it considers from the outset how to weather any difficulties that may arise. The second, more optimistic and ambitious, serves as a source of inspiration for a brighter future.
For example, test a hypothetical scenario with relatively low selling prices and marketing limited to just a few channels. The company does not have a sales team and offers only one product.
The second budget scenario includes a low-cost basic product as well as a more sophisticated item at a higher price point. Marketing efforts are expanded to include 3 to 4 different channels, supported by a marketing director and commission-based sales representatives. A new product is launched in the first year, followed by 4 or 5 others over the next two years.
Keeping an open mind toward ambitious goals helps stimulate employees’ creativity. So, when preparing the projected budget, don’t limit yourself to planning for the worst-case scenario. Also consider more favorable business and financial prospects to determine the direction you should take for the company’s growth.
Developing a projected budget requires a thorough understanding of your financial data and metrics. It is essential to have a firm grasp of business objectives (sales, revenue, market share), fixed and variable costs, financial expenses and income, VAT, and taxes. It is also important to track key financial ratios, such as gross margin, variable cost margin, and operating margin, so you can interpret and adjust your forecasts.
To improve accuracy and efficiency, it is recommended to use the right tools. While Excel remains a staple, specialized cash flow forecasting software offers significant time savings and greater reliability. It automates calculations, ensures data is kept up to date, and provides an intuitive interface, allowing managers to focus on analysis and decision-making rather than on formulas.
Creating accurate and reliable financial forecasts—especially when starting a business—requires a systematic approach and a solid understanding of financial and accounting processes. Consult your accountant and consider using a specialized cash flow tracking and forecasting tool like Fygr.
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