This is a common question for many early stage businesses looking to secure a loan or investment for the first time. Of course there are differing opinions on this topic but I believe the answer is either 1 or 3 years depending on your situation. Le me give you some scenarios for each option.
1 Year Forecast
- If you are an established company with many years of historic financials, then you probably only need a 1 year forecasted budget because the past is the best predictor of your future.
- If you are applying for a small loan
- If the term of your loan is only 12 months
3 Year Forecast
- If you are an early stage company looking for investment you will probably need at least 3 years because you want to be able to show potential investors when they will be able to expect a return, and that doesn’t typically happen in 1 year.
- If you are applying for a large SBA loan or other commercial business loan, you may need to put together several years worth of financial projections.
- If you are applying for private equity or venture capital funds, you will likely need to produce several years worth of plans and projections.
I recommend that you use a template or a tool like ProjectionHub to simplify the process of creating financial projections.