What is a trading forecast?
The trading forecast (commonly known as Profit Forecast) reflects the medium term goals over at least the first year of trading and its main purpose is to demonstrate how viable the business is likely to be. By contrast to the Cash flow forecast, cash payments should correspond between the two forecasts but non financial items, such as depreciation, will not.

Why use a trading forecast?
The profit forecast will assist in deciding how much money is needed to reinvest in the business to fund expansion plans and allows a comparison of the progress made by the company against the original objectives set. Once trading figures for the initial 12 months have been compiled these can be used for future planning activities including 'scenario' planning such as :-

1. If prices are increased by 10% what impact will this have on profitability?
2. What impact will a 10% price increase have on existing customer base and how will it impact on obtaining new customers ?

Activity 2
A simplified trading forecast is is provided below to allow you to see how it is constructed from a cashflow forecast.(In the real world it would be broken down into more detailed components).

Pop up the cash flow forecast. Enter information into the cashflow forecast and see how it feeds through into the trading forecast.