--- title: "Business Owners: You Don't Need a Crystal Ball to See the Future, Just Your CPA" description: Machen McChesney explains to business owners how historical financial performance can be a good predictor of their future performance. image: https://info.machen.cpa/hubfs/Crystal%20ball%20502644724-2.jpg --- [Family of Services](http://machenmcchesney.com/about-us/family-of-companies/)  |  [CPA & Business Advisory](http://machenmcchesney.com)  |  [Payroll, HR & Benefits](http://focuspaysolutions.com/)  |  [Wealth Management](http://machenmcchesney.com/services/financial-planning-and-wealth-mangement-services/) Auburn-Opelika (334) 887-7022 | Montgomery (334) 244-8900 [![mm-re-cobrand-fd-blues](https://info.machen.cpa/hs-fs/hubfs/mm-re-cobrand-fd-blues.png?width=279&height=100&name=mm-re-cobrand-fd-blues.png)](http://machenmcchesney.com) Search this site on Google Search Google Search this site on Google Search Google - [Client Portal](https://machenmcchesney.sharefile.com/Authentication/Login) - 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[Tweet](https://twitter.com/share) Financial statements report *historical* financial performance. But sometimes management or external stakeholders want to evaluate how a business will perform in the *future*. Forward-looking estimates are critical when evaluating strategic decisions, such as debt and equity financing, capital improvement projects, shareholder buyouts, mergers, and reorganization plans. While company insiders may see the business through rose-colored glasses, external accountants can prepare prospective financial reports that are grounded in realistic, market-based assumptions. **3 reporting options** There are three types of reports to choose from when predicting future performance: **1. Forecasts.** These prospective statements present an entity’s expected financial position, results of operations, and cash flows. They’re based on assumptions about *expected* conditions and courses of action. **2. Projections.** These statements are based on assumptions about conditions expected to exist and the course of action expected to be taken, given one or more *hypothetical assumptions*. Financial projections may test investment proposals or demonstrate a best-case scenario. **3. Budgets.** Operating budgets are prepared in-house for *internal purposes*. They allocate money — usually revenue and expenses — for particular purposes over specified periods. Although the terms “forecast” and “projection” are sometimes used interchangeably, there are important distinctions under the attestation standards set forth by the American Institute of Certified Public Accountants (AICPA). **Leverage your financials** Historical financial statements are often used to generate forecasts, projections, and budgets. But accurate predictions usually require more work than simply multiplying last year’s operating results by a projected growth rate — especially over the long term. For example, a start-up business may be growing 30% annually, but that rate is likely unsustainable over time. Plus, the business’s facilities and fixed assets may lack sufficient capacity to handle growth expectations. If so, management may need to add assets or fixed expenses to take the company to the next level. Similarly, it may not make sense to assume that annual depreciation expense will reasonably approximate the need for future capital expenditures. Consider a tax-basis entity that has taken advantage of the expanded Section 179 and bonus depreciation deductions, which permit immediate expensing in the year qualifying fixed assets are purchased and placed in service. Because depreciation is so boosted by these tax incentives, this assumption may overstate depreciation and capital expenditures going forward. Various external factors, such as changes in competition, product obsolescence, and economic conditions, can affect future operations. So can events within a company. For example, new or divested product lines, recent asset purchases, in-process research and development, and outstanding litigation could all materially affect future financial results. **We can help** When preparing prospective financial statements, the underlying assumptions must be realistic and well thought out. Contact us for objective insights based on industry and market trends, rather than simplistic formulas, gut instinct, and wishful thinking. **For more information on the above article or any [audit & assurance services](https://machen.cpa/services/audit-assurance/), contact Melissa Motley, CPA, at (334) 887-7022 or by leaving us a message below.**  Topics: [Accounting & Outsourcing](https://info.machen.cpa/blog/topic/accounting-outsourcing) Search this site on Google Search Google ### Recent Posts ### Subscribe to Blog ### Posts by Category - [Business Tax (356)](https://info.machen.cpa/blog/topic/business-tax) - [Business Advisory (239)](https://info.machen.cpa/blog/topic/business-advisory) - [Payroll, HR & Benefits (124)](https://info.machen.cpa/blog/topic/payroll-hr-benefits) - [Audit & Assurance (113)](https://info.machen.cpa/blog/topic/audit-assurance) - [Accounting & Outsourcing (81)](https://info.machen.cpa/blog/topic/accounting-outsourcing) - [Individual Tax (75)](https://info.machen.cpa/blog/topic/individual-tax) - [Tax Planning (33)](https://info.machen.cpa/blog/topic/tax-planning) - [Tax Updates (25)](https://info.machen.cpa/blog/topic/tax-updates) - [Retirement & Wealth Management Planning (18)](https://info.machen.cpa/blog/topic/retirement-wealth-management-planning) - [Taxation (15)](https://info.machen.cpa/blog/topic/taxation) - [Alerts (13)](https://info.machen.cpa/blog/topic/alerts) - [Business Valuation (11)](https://info.machen.cpa/blog/topic/business-valuation) - [News & Events (11)](https://info.machen.cpa/blog/topic/news-events) - [Tax News (11)](https://info.machen.cpa/blog/topic/tax-news) - [Individual Tax Planning (10)](https://info.machen.cpa/blog/topic/individual-tax-planning) - [Not For Profit (10)](https://info.machen.cpa/blog/topic/not-for-profit) - [Retirement Planning (9)](https://info.machen.cpa/blog/topic/retirement-planning) - [Estate Planning (8)](https://info.machen.cpa/blog/topic/estate-planning) - [Manufacturing Industry Insights (7)](https://info.machen.cpa/blog/topic/manufacturing-industry-insights) - [Individuals (1)](https://info.machen.cpa/blog/topic/individuals) - [Insider (1)](https://info.machen.cpa/blog/topic/insider) - [Professional Standard News (1)](https://info.machen.cpa/blog/topic/professional-standard-news) see all [![Returning\_Value](https://info.machen.cpa/hs-fs/file-2504250850-jpg/Machen-Blog-Image/Returning_Value.jpg)](http://machenmcchesney.com/about-us/mission-and-values/) - [![AICPA](https://machenmcchesney.com/img/logos/aicpa.jpg)](https://www.aicpa-cima.com/) - [![NACVA](https://machenmcchesney.com/img/logos/nacva.jpg)](http://www.nacva.com/) - ![2026 INSIDE Public Accounting Top 400](https://machenmcchesney.com/img/2026-ipa-top-400.jpg) - ![2026 Best of Auburn-Opelika](https://machenmcchesney.com/img/2026-best-of-auburn-opelika.jpg) - [![2025 Best of OA](https://machenmcchesney.com/img/2025-best-of-oa.jpg)](https://oanow.com/exclusive/readerschoice/ballot-2025/) - ![2026 Best of OA Winner](https://machenmcchesney.com/img/2026-best-of-oa-winner.jpg) - [![2025 Accounting Today Regional Leaders](https://machenmcchesney.com/img/2025-accounting-today-regional-leaders.jpg)](https://www.accountingtoday.com/) - [![ClearlyRated Best of Accounting](https://machenmcchesney.com/img/2024-best-of-accounting.jpg)](https://www.clearlyrated.com/accounting) - [![ClearlyRated Best of Accounting Employee](https://machenmcchesney.com/img/2024-best-of-accounting-employee.jpg)](https://www.clearlyrated.com/accounting) 1820 East University Drive, Auburn, AL 36830 | Tel: (334) 887-7022 | Fax: (334) 887-7221 1761 Taliaferro Trail, Montgomery, AL 36117 | Tel: (334) 244-8900 | Fax: (334) 364-0927 † This is not a CPA firm. \* Assurance, attest, and audit services provided by Frazier & Deeter, LLC. “Frazier & Deeter” is the brand name under which Frazier & Deeter, LLC\* and Frazier & Deeter Advisory, LLC† and its subsidiary entities provide professional services. 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