What is Financial Forecasting?
Financial forecasting is the practice of estimating future financial outcomes (revenue, costs, profit, cash flow, balance sheet) based on historical data, market assumptions, and management plans, used in budgeting, capital raising, and strategic decisions.
How It Works
- Top-down: start with market size and capture a share.
- Bottom-up: build from unit volumes × prices, customer cohorts, or sales pipeline.
- Driver-based: link revenue and cost drivers to operational KPIs.
- Time horizon: 12-month rolling for operational, 3 to 5 years for strategic.
Saudi Context
Saudi SMEs applying for SIDF, Monsha’at, or Kafalah-backed loans must submit a 3 to 5 year financial forecast covering income statement, balance sheet, cash flow, and key ratios. Forecasts must account for Saudization-driven payroll growth, ZATCA-compliant e-invoicing costs, and VAT timing.
Example
A Saudi e-commerce startup forecasts SAR 5,000,000 revenue in Year 1, 80% growth in Year 2 (SAR 9,000,000), 60% in Year 3 (SAR 14,400,000), based on customer acquisition pipeline and average order value.