Any CFO will tell you that forecasting is one of their most critical tasks. For both public and privately traded companies, an incorrect forecast and misaligned results can lead to a tumbling stock price or seriously frustrated investors. Accurate forecasting won’t just affect your finance department – it’ll affect the running of your entire organization.

Getting your forecasting right is crucial. That means being careful in the detail you go to, the people you involve, and involving market data. It could also mean integrating revenue planning software or switching to a rolling forecast.

What is Quarterly Forecasting?

Quarterly forecasting is the process of estimating a company's financial performance for the next three-month period. This involves analyzing historical data and current market trends to predict future revenue and expenses with reasonable accuracy.

Quarterly forecasting helps finance teams build a forward-looking view of the business and informs strategic decisions and resource allocation for the upcoming quarter.

Why is forecasting revenue and expenses important?

Accurate forecasting of revenue and expenses provides a clear roadmap for your organization. It empowers finance leaders to guide the company toward efficient growth.

The key benefits of forecasting include:

• Strategic decision-making: Forecasts provide the insights needed to make informed choices about investments, hiring, and expansion.

• Resource allocation: Accurate forecasts help ensure resources are distributed where they will have the most impact.

• Risk management: Forecasting helps identify potential financial challenges early, allowing teams to take proactive measures.

• Performance measurement: Comparing actual results to forecasts highlights areas for improvement and supports accountability.

How to Forecast Revenue and Expenses: a 6-Step Guide

Creating a reliable quarterly forecast involves a structured approach. Following these steps ensures your forecast is comprehensive and data-driven.

1. Gather historical financial data

The foundation of any good forecast is clean historical data. Collect your financial statements from previous quarters, including income statements, balance sheets, and cash flow statements. This data provides a baseline for your projections. Ensure data quality by scrubbing for errors or inconsistencies before you begin.

2. Choose your forecasting methods

There are several forecasting methods, which can be grouped into two main types. Many finance teams use a combination of both for a more balanced view.

The main forecasting methods are:

• Quantitative methods: These use historical numerical data to predict future outcomes. Common techniques include time-series analysis, which identifies trends and seasonality, and regression analysis, which models the relationship between variables.

• Qualitative methods: These rely on expert judgment, market research, and scenario planning to forecast future performance, especially when historical data is limited or market conditions are changing.

3. Forecast your quarterly revenue

Start by projecting your sales for the next quarter. Apply your chosen forecasting method to your historical sales data. Consider internal factors such as upcoming marketing campaigns or pricing changes.

Also, account for external factors like economic conditions and the competitive landscape that could impact your revenue growth. Regularly reviewing these factors helps ensure your revenue forecast remains realistic and actionable.

4. Forecast your quarterly expenses

A detailed expense forecast is crucial for managing cash flow and profitability. Break down your expenses into major categories to improve accuracy.

Common expense categories include:

• Cost of goods sold (COGS): This cost is directly tied to your revenue. You can forecast it as a percentage of your projected revenue based on historical profit margins.

• Operating expenses: These include salaries, rent, utilities, and other overhead costs. Review past trends and adjust for any anticipated changes.

• One-time or variable costs: Account for any planned investments, project expenses, or seasonal fluctuations.

5. Consolidate and create a forecast statement

Combine your revenue and expense forecasts to build a pro-forma income statement for the quarter. Subtract your total projected expenses from your total projected revenue.

To calculate forecasted net profit or loss:
(Total projected revenue – total projected expenses)

This statement is a key document for communicating financial expectations to stakeholders and guiding business decisions.

6. Monitor, review, and adjust your forecast

A forecast is not a static document. It should be monitored continuously throughout the quarter. Compare your actual performance against your forecast to identify any budget variances.

This process allows you to adjust your strategies and update your forecast, maintaining a realistic financial outlook. Many teams adopt a rolling forecast for greater agility and responsiveness to change.

3 Common Forecasting Mistakes to Avoid

Even with a solid process, certain pitfalls can undermine the accuracy of your forecast. Being aware of these common mistakes can help you avoid them.

Watch out for these common forecasting mistakes:

• Relying only on historical data: The past is a guide, not a guarantee. Failing to account for new market trends, competitive actions, or changes in your business model can lead to inaccurate forecasts.

• Overlooking external factors: Ignoring economic shifts, regulatory changes, or industry disruptions can result in missed risks or opportunities.

• Failing to update forecasts regularly: Sticking to a static forecast prevents you from responding to real-time changes and can lead to missed targets.

Streamline Your Quarterly Forecasting with Abacum

The quarterly forecasting process can be complex and time-consuming. Abacum's Financial Planning and Analysis (FP&A) platform helps finance teams overcome these challenges by automating data gathering from all your systems, eliminating manual work, and ensuring data quality.

With Abacum, you can build, monitor, and adjust your forecasts in a unified workspace. This boosts collaboration and empowers your team to provide real-time, strategic insights that drive efficient growth.

Key benefits of using Abacum include:

• Automated data collection from multiple sources

• Real-time forecasting and scenario planning

• Improved collaboration across finance and business teams

• Actionable insights for smarter decision-making