Financial forecasting allows you to estimate income, expenses and cashflow for the months and years ahead. For the 2025/26 tax year, a solid forecast helps you plan around tax obligations and stay ready for updates in personal allowances or corporation tax rates. For reference, the personal allowance remains at £12,570, the higher rate threshold at £50,270, the additional rate threshold at £125,140, and corporation tax is 25% for annual profits over £250,000. The dividend allowance is projected to stay at £500. 

According to the Federation of Small Businesses, over 99% of UK businesses are small to medium-sized enterprises, and many of these rely heavily on accurate financial planning to stay competitive. Whether you run a startup or a family business, the ability to forecast revenue, manage cashflow and assess potential risks can influence your profitability. In this blog, we explain why forecasting is so important and provide guidance on how to create, maintain and refine your forecasts.

 

Why financial forecasting matters

Financial forecasting helps you plan the direction of your business and supports a stable approach to growth. By examining past performance and tracking current trends, you make better decisions about budgets, hiring and investments. Without forecasts, you might act too slowly when sales fall or costs rise.

When you forecast effectively, you can time investments to match your revenue cycle. If you see that certain months bring in less income, you can manage spending to avoid dipping into overdrafts or facing sudden cash shortages. You can also anticipate the effects of external changes, such as updated tax thresholds, so that your business moves forward with fewer surprises.

 

Key benefits of accurate forecasting

1. Cashflow management: Cashflow remains a main driver for any business. A forecast highlights when your income might dip or expenses might spike, giving you the data needed to secure extra funds or adjust spending. If you see potential gaps in the months ahead, you can prepare in good time and avoid last-minute scrambles for credit.
2. Budget planning: Effective forecasts allow you to set a feasible budget and avoid overspending. Forecasting offers clarity on what is affordable, whether it’s staff training, new hires, technology upgrades or an investment in external consulting.
3. Risk reduction: Having a clear picture of future costs and revenues helps you respond faster to economic changes or unexpected regulations. If corporation tax rates shift from 25% for larger profits, you will see the impact on your bottom line. A prompt response can preserve profitability.
4. Better decision-making: Forecasting gives you accurate insights into your financial trajectory. You can assess if now is the right time to launch a new product or open an additional branch. If the forecasts show limited revenue growth, you may choose to refine your business plan before proceeding.
5. Long-term planning: Forecasting supports strategic thinking. This is especially important for family businesses planning ownership transitions or startups seeking investment. Knowing how your revenue and costs could evolve over three or five years helps you secure financing and allocate resources more effectively.

 

Practical tips for creating accurate forecasts

• Use real data: Collect historical figures from bookkeeping software and bank statements. Look for patterns in sales, recurring expenses and how certain times of the year affect revenue.
• Factor in known changes: Keep up with the tax brackets for 2025/26. If you’re a limited company, remain aware of the 25% corporation tax on annual profits above £250,000. If you’re a sole trader or partner, remember personal allowance thresholds.
• Account for seasonality: Businesses often see revenue spikes or dips at specific times. If you trade more in December, include this in your forecast. This helps you plan staffing and inventory.
• Review regularly: A forecast is a living document. If you only update it once a year, you risk working with outdated figures. Monthly or quarterly reviews show whether you’re above or below targets.
• Compare actuals vs forecast: Keep track of whether spending or revenue is deviating from your assumptions. If the difference is large, investigate the reasons and refine your approach.

 

Common challenges and how to address them

• Overestimating income: Optimism can lead you to expect higher sales than is realistic. Check your numbers against historical data. If you’re entering a new market, use conservative estimates.
• Underestimating costs: Taxes, supplier prices and wage bills can all increase. Build in a small buffer so that unplanned rises don’t derail your budget.
• Tax rule changes: The 2025/26 figures could shift if new legislation is enacted. Keep an eye on official updates from HMRC to ensure your forecast reflects any revisions.
• Time constraints: Many business owners focus on operational tasks and see forecasting as an extra step. If you can’t dedicate time, hire someone or delegate to a trusted staff member. Alternatively, consider professional support.

How technology and professional guidance can help with financial forecasting

Modern forecasting tools connect with your bookkeeping or accounting software to provide real-time insights. Automations can reduce manual data entry, highlight trends and let you run “what-if” scenarios. If you suspect a new product launch might increase your turnover by 20%, you can model how this will affect your monthly cashflow and tax liabilities.

Professional guidance offers further advantages. At Alton & Co, we help businesses of all sizes review their forecasts and plan for the coming months or years. Our outside perspective can highlight blind spots. We also draw on our experience across multiple sectors – allowing us to recommend proven tactics for smoothing cashflow, managing tax and supporting long-term goals.

If you are registering a new business or adjusting share structures, refer to Companies House for official guidance. In tandem with professional advice, these resources keep you informed of your legal obligations.

 

Bringing it all together

Forecasting is not just an exercise in gathering numbers. It is the key to shaping your business plans, managing potential risks and supporting consistent growth. In the 2025/26 tax year, your forecast will help you make decisions around corporation tax liabilities, personal allowances for directors or sole traders and dividend policies for shareholders. By examining scenarios, you prepare for the unexpected and seize opportunities more confidently.

A well-maintained forecast can be a unifying tool for your team. When everyone understands the financial outlook, they can prioritise tasks, control spending and spot problems early. If you foresee that January will be slower due to seasonal factors, you can schedule product launches or promotions for better-performing months. You might also use forecasts to plan when to seek external funding, or how to manage hiring in line with your growth targets.

Technology plays a big role in simplifying forecasting. Many cloud-based platforms sync with your accounting system, pulling in up-to-date data and generating scenarios in minutes. But even the best software can miss context only you or a professional adviser can provide – such as industry-specific regulations or upcoming market shifts. Our team at Alton & Co can work with you to interpret the results, align forecasts with strategic goals and adjust your plan as your business evolves.

Think of forecasting as an ongoing practice rather than a one-off task. The more you refine your estimates, the closer they get to reflecting reality. This not only supports day-to-day decisions but also reassures stakeholders like investors and lenders. By investing in strong forecasting methods, you show a firm grasp of your finances and increase your credibility in the eyes of partners and clients. Over time, you build a financial culture that values preparedness and agility.

Ready to sharpen your financial forecasting? Contact us to see how our expert advice can help you stay prepared in the 2025/26 tax year and beyond. We are here to support you every step of the way.

Do you have any questions about VAT in 2025? Contact us today.