Revenue and cost forecast in a project – how to prepare it?

The revenue and cost forecast is one of the key elements of a grant application. Institutions assessing projects – whether under EU funds, national or regional programmes – treat it as evidence of the feasibility and profitability of the planned investment.

Errors at the forecasting stage result not only in a lower score, but often in the rejection of the application or the need to repay funds.

This article explains step by step how to prepare a credible and complete financial forecast in a grant project.

What is a financial forecast in a project and why does it matter?

In the context of grants, a financial forecast is a structured statement of projected cash flows, sales revenue and operating and investment costs. It usually covers the project implementation period and its durability period – most often 3 or 5 years from the final payment.

Its function in the application documentation is multidimensional:

• in certain types of projects, it forms the basis for calculating the funding gap and thus the amount of permissible funding,
• it confirms the applicant's ability to finance the own contribution and operating costs after the project ends,
• it documents the financial sustainability of the undertaking, the assessment of which is one of the substantive criteria in most calls,
• it demonstrates that the investment will not generate excessive profit exceeding the limits resulting from State aid rules.

In European Funds programmes implemented by PARP, BGK or regional institutions, financial forecasts are a mandatory or highly scored element. The detailed requirements are set out in each case in the call rules and the instructions for completing the application.

What elements should a financial forecast contain?

The scope of the forecast depends on the type of project, the value of the investment and the requirements of the specific programme. Nevertheless, the vast majority of calls require the following components.

Revenue forecast

The revenue forecast should indicate:

• sources of revenue (sales of products, services, rental, licences, etc.),
• sales volume in subsequent years broken down by category,
• assumed unit prices and their justification (market benchmarks, price lists, preliminary agreements),
• the annual revenue growth rate together with its justification,
• seasonality of the business, if it has a significant impact on cash flows.

Assessing institutions are particularly critical of applications in which revenue growth after the project ends is abrupt and unjustified. The assumptions adopted must be realistic, consistent with the company's financial history (if the business is already operating) and in line with market conditions.

Operating cost forecast

On the cost side, the forecast should include:

• variable costs (materials, raw materials, goods, subcontracting) linked to production or sales volume,
• fixed costs (salaries, rent, utilities, insurance, legal and accounting services),
• depreciation and amortisation of fixed assets and intangible assets financed under the project,
• financial costs, including interest on bank credit or loans taken out for the own contribution,
• planned provisions or expenditure on maintaining the infrastructure purchased.

Profit and loss account and cash flows

The cost and revenue forecast should be supplemented by:

• a projected profit and loss account (P&L) for the entire durability period,
• a cash flow forecast confirming the financial liquidity of the project,
• an opening and closing balance sheet, if required by the assessing institution.

Some programmes offer their own financial spreadsheet templates. It is worth using them, as assessing institutions verify the consistency of the data with the fields in the application. Document templates and financial guidelines are published by, among others, the Polish Agency for Enterprise Development (PARP) and the Ministry of Development Funds and Regional Policy on the portal funduszeeuropejskie.gov.pl.

How to build credible assumptions for the forecast?

The biggest mistake made by applicants is building the forecast “backwards from the result” – that is, adopting assumptions that justify a result decided in advance. The correct approach takes the reverse order: first a realistic analysis of the market and operational capabilities, then the figures that follow from it.

Data sources for revenue assumptions

A credible revenue forecast is built on the basis of:

• the company's historical financial data (at least the last 2–3 financial years),
• agreements, letters of intent or orders confirming future demand,
• market analyses, industry reports or data from Statistics Poland (GUS) concerning the given segment,
• comparison with entities with a similar business profile (benchmarking),
• an analysis of local or regional demand for the product or service offered.

Cost calculation methodology

Costs should be based on specific price quotations, market rates or internal operating data, not on “expert estimates” without documented support. In particular:

• salaries – should be based on current market rates or existing employment contracts,
• utility and operating costs – on the basis of historical consumption or technical standards,
• depreciation – in accordance with the applicable tax rates and accounting principles,
• financing costs – on the basis of bank offers or leasing agreements.

Sensitivity analysis

Increasingly, assessing institutions require or award points for a sensitivity analysis, i.e. checking how a change in key variables (e.g. a 10–20% fall in revenue, an increase in material costs) will affect the project's results. Its purpose is to confirm that the project remains financially sustainable even in a pessimistic scenario.

The most common mistakes in financial forecasts in grant applications

Based on advisory practice, the following categories of errors can be identified as those that most often result in a lower score or a request for supplementary information:

• lack of consistency between the financial forecast and the project schedule (e.g. revenue appears before the investment is completed),
• revenue growth assumptions not justified by market data – especially an abrupt increase in year 1 after the project ends,
• failure to account for fixed costs during the start-up period, when revenue is still low,
• ignoring the need to replace or service the fixed assets purchased,
• no link between the forecast assumptions and the description of the sales or marketing strategy,
• inconsistency between the data in the forecast and the data in the financial statements attached to the application,
• using an overly optimistic baseline scenario without a variant analysis.

The financial forecast, the funding gap and the level of funding

In certain types of revenue-generating projects – primarily in infrastructure investments, but also in some cultural, sports, tourism or energy projects – the financial forecast is directly linked to the calculation of the funding gap.

In the 2014–2020 perspective, this mechanism resulted from Article 61 of Regulation No 1303/2013. In the 2021–2027 perspective, the general rule on revenue-generating projects was not repeated in the Common Provisions Regulation. The funding gap or operating profit method now results primarily from State aid rules – including Commission Regulation (EU) No 651/2014 (GBER) for selected categories of aid – and from the rules of specific calls.

To put it simply: the higher the projected profitability of the project, the lower the permissible level of funding. Deliberately overstating costs or understating revenue may be considered an irregularity and result in a financial correction or exclusion from the possibility of applying for funds.

The detailed rules for calculating the funding gap, where applicable, are set out in the call rules and the relevant legal basis for granting State aid.

When is it worth using an expert's help with financial forecasting?

Preparing a financial forecast yourself is possible for simple investment projects with a clear revenue model. However, an adviser's support becomes important when:

• the project has multiple components or involves a new business model,
• the applicant has no financial history (start-up, new entity),
• a funding gap analysis or a cost-benefit analysis (CBA) is required,
• the programme requires a forecast for a period of 10–20 years (e.g. infrastructure projects),
• the assessing institution uses its own analytical tools and models with which the applicant has had no previous contact.

If you need support at the stage of preparing the financial documentation for your application, please get in touch.Contact an expert

The full scope of support is described in grant advisory services.

Check available grants for your project

Before you start preparing the forecast, it is worth verifying whether the planned investment qualifies for the support programmes currently available. The free grant search engine lets you check in just a few minutes the available financing instruments matched to your business profile, location and type of project.

Additional information on current calls, formal requirements and assessment criteria is available in the dotacje-online.pl knowledge base.