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A financial forecast for a small business is three lines you fill in month by month for the next 12 months: what you’ll sell, what it’ll cost, and how much cash is left in the bank. Start from last year’s real numbers, adjust for what you already know is coming, and pick a margin you can defend. A $10,000 month at a 40% margin has to cover $3,200 of fixed costs, so you’re forecasting $800 of profit. That’s the number to test.
Where do you start with a forecast?
With what already happened. Pull twelve months of sales and expenses from your books. No books yet? Bank statements will do for a first pass, though it’s slower and you’ll miss things.
Sort sales into the two or three lines you actually sell. Then sort costs into two piles. Some move with sales, like materials, card fees and delivery. Others don’t, like rent, insurance, software and your own pay.
Now ask what’s changing. A new client, a lost contract, a rent increase in March. Put each one in the month it lands. Most forecasts fail here, because people draw a straight line upward and call it a plan.
How do you forecast sales and margin?
Use price times volume, not a hopeful total. Twenty jobs at $500 tells you more than a ballpark “about $10,000”. It also shows you which number to push when the month looks short.
Margin is where people slip. Say an item costs you $18 and sells for $30. The profit margin calculator shows a 40.0% margin and a 66.7% markup on that one sale. Same $12 of profit, two very different percentages. If you price with a markup in your head but budget with a margin, your profit comes out short every month.
Forecast three cases, not one. A base case, a case where sales fall 20%, and one where your biggest customer pays a month late. You don’t need to believe the bad cases. You need to know if you’d survive them.
What does a worked example look like?
Take a shop that sells $10,000 a month with materials at 60% of sales. Gross profit is $4,000. Fixed costs of $3,200 leave $800 a month, or $9,600 for the year. That’s before your own pay and before any tax.
Tax depends on how you’re set up. If you’re a sole proprietor with $80,000 of net business income in Ontario, the self-employed tax calculator gives $22,126.47 of income tax and CPP together, and $57,873.53 left. That calculator leaves out GST/HST, EI and business expenses, so treat it as a floor for the set-aside.
If you’re incorporated and expect $300,000 of taxable income, the corporate tax calculator shows $35,088 of tax in Ontario for a calendar 2026 year, or 11.7%, leaving $264,912. That 11.7% is a blend, and we explain why below.
How do you build the cash line?
Take the same shop and watch the bank balance instead of the profit. Assume it starts the year with $12,000, invoices $10,000 every month, and pays $9,200 of costs each month ($6,000 of materials plus the $3,200 of fixed costs). Its customers pay in 60 days, and the shop is new enough that no older invoices are still coming in. HST is left out to keep it simple.
At the end of January the balance is $2,800 ($12,000 minus $9,200). At the end of February it’s minus $6,400. In March the January invoice is paid, so the balance rises by $800 to minus $5,600, and from then on it climbs $800 a month. The shop earns $800 a month all along, yet it needs a cushion of at least $6,400 beyond its opening cash to get through February. That’s the whole point of forecasting cash on its own line: profit looks fine while the bank account says otherwise.
Fixes are the usual ones. Ask for a deposit, shorten the payment terms, negotiate longer terms with your supplier, or line up a small credit facility before you need it, not during the squeeze.
How far ahead should you forecast?
Twelve months for sales and profit, and a rolling thirteen weeks for cash. Anything further out is a rough guess, and that’s fine as long as you treat it as one. Re-do the near-term cash view every month, and take a fresh look at the full year once the first quarter’s real numbers are in.
Which tax numbers go into the forecast?
A few, and they’re worth writing at the top of your sheet so you don’t chase them later.
| Item | Figure |
|---|---|
| Federal rate for a small Canadian-controlled private corporation | 9% on the first $500,000 of active business income |
| Ontario small business rate | 2.2% from 1 July 2026, after 3.2% before |
| Combined rate, Ontario, calendar 2026 year | about 11.7% (our blend, not a published rate) |
| Combined rate, Ontario, from 2027 | about 11.2% (derived by adding the two rates) |
| Combined general rate, Ontario | 26.5% |
| HST in Ontario | 13% |
| Instalment threshold, individuals | $3,000 of net tax owing |
The small business rate has limits the calculator doesn’t model. Large taxable capital, passive investment income and associated companies that share one $500,000 limit can all push your rate up. A year end other than December changes the blend too. Ontario’s small business rate drops from 3.2% to 2.2% on 1 July 2026, so the combined rate is 11.2% after that date, and a December year end blends the two into about 11.7% for 2026. Check your own T2 before you rely on it.
Where do forecasts go wrong?
Forgetting that HST isn’t yours. On a $20,000 invoice in Ontario, $2,600 of the $22,600 total belongs to the CRA. The GST/HST calculator splits it for you. If you forecast the full $22,600 as sales, you’re overstating revenue by 13%.
Leaving out your own pay is the second one. The third is a forecast that’s built once and never opened again. Put the real numbers next to it each month, and change the assumptions when the gap is bigger than you expected. A forecast you update is worth ten you file.
And don’t confuse profit with cash. A profitable month can still leave you short if customers pay in sixty days and suppliers want money in thirty. Forecast cash separately, and add loan payments, tax instalments and equipment purchases, which never show up as expenses.
What this page is based on
The corporate rates come from the Canada Revenue Agency‘s corporation tax rates page, its T2 return guide and its Ontario provincial tax page, as read in September 2026. The Ontario blend for 2026 and the 2027 figure are our own arithmetic on those pages. The other examples come from this site’s calculators. This is an independent guide, separate from any government body.
Frequently asked questions
How far ahead should a small business forecast?
Twelve months, month by month, is the usual start. Add a rolling view so the next quarter is always in front of you.
Do I need accounting software to forecast?
No. A spreadsheet with sales, costs and cash by month works. Software helps because it feeds in your actuals.
What is the difference between margin and markup?
Margin is profit as a share of the selling price. Markup is profit as a share of cost, so it's always the bigger number. An item that costs $18 and sells for $30 has a 40.0% margin and a 66.7% markup.
Should I forecast tax as well?
Yes. Set aside a share of profit for income tax and CPP, and remember that HST you collect isn't revenue.
How often should I update it?
Once a month, when your books are closed. Compare actual with forecast and change the assumptions that were wrong.
- Self-employed taxes in Canada: income, CPP and GST
How tax works when you are self-employed in Canada: reporting income and expenses, paying both halves of CPP, instalments and when to register for GST