How to create a financial forecast for an electrical engineering consulting firm?
Developing and maintaining an up-to-date financial forecast for your electrical engineering consulting firm is key in order to maintain visibility on your business’s future cash flows.
If you feel overwhelmed at the thought of putting together an electrical engineering consulting firm financial forecast then don’t worry as this guide is here to help you.
We'll cover everything from: the main objectives of a financial forecast, the data you need to gather before starting, to the tables that compose it, and the tools that will help you create and maintain your forecast efficiently.
Let's get started!
Why create and maintain a financial forecast for an electrical engineering consulting firm?
The financial projections for your electrical engineering consulting firm act as a financial blueprint to guide its growth with confidence and ensure its long-term financial viability.
To create them, you will need to look at your business in detail - from sales to operating costs and investments - to assess how much profit it can generate in the years to come and what will be the associated cash flows.
During challenging market conditions, maintaining an up-to-date financial forecast enables early detection of potential financial shortfalls, allowing for timely adjustments or securing financing before facing a cash crisis.
Your electrical engineering consulting firm's financial forecast will also prove invaluable when seeking financing. Banks and investors will undoubtedly request a thorough examination of your financial figures, making precision and presentation essential.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
What information is used as input to build an electrical engineering consulting firm financial forecast?
A electrical engineering consulting firm's financial forecast is only as good as the inputs used to build it.
If you are creating (or updating) the forecast of an existing electrical engineering consulting firm, then you mostly need your accounting information, key historical operating non-financial data, and your team’s input on what to expect for the coming years.
If you are building financial projections for an electrical engineering consulting firm startup, you will need to have done your research and have a clear picture of your competitive environment and go-to-market strategy so that you can forecast sales accurately.
For a new venture, you will also need a precise list of the resources needed to keep the electrical engineering consulting firm running on a day-to-day basis and a list of the equipment and expenditures required to start the business (more on that later).
Let's now take a closer look at the elements that make up your electrical engineering consulting firm's financial forecast.
The sales forecast for an electrical engineering consulting firm
The sales forecast, also called topline projection, is normally where you will start when building your electrical engineering consulting firm financial forecast.
Creating a coherent sales projection boils down to estimating two key drivers:
- The average price
- The number of monthly transactions
To do this, you will need to rely on historical data (for an existing business), market research data (for both new and existing electrical engineering consulting firms), and consider the elements below:
- Industry Competition: As more electrical engineering consulting firms enter the market, competition for projects may increase, leading to potential price decreases in order to remain competitive.
- Technology Advancements: As new technologies emerge, clients may be willing to pay a higher price for consulting services that utilize these advancements, leading to potential price increases.
- Economic Conditions: During a recession or economic downturn, clients may have less budget for consulting services, leading to a decrease in the number of monthly transactions.
- Regulatory Changes: Changes in government regulations or codes may require clients to seek consulting services for compliance, potentially leading to an increase in the number of monthly transactions.
- Client Relationships: Strong relationships with clients can lead to repeat business and potential referrals, increasing the average price and number of monthly transactions.
After the sales forecast comes the operating expenses budget, which we will now look into in more detail.
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The operating expenses for an electrical engineering consulting firm
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your electrical engineering consulting firm on a daily basis.
Expenses normally vary based on how much revenue you anticipate (which is why, from experience, it is always better to start your forecast with the topline projection), and where your business is based.
Operating expenses for an electrical engineering consulting firm will include some of the following items:
- Staff costs: This includes salaries, benefits, and payroll taxes for all employees, including engineers, technicians, and administrative staff.
- Accountancy fees: You will need to hire an accountant to manage your company's financial records, prepare taxes, and provide financial advice.
- Insurance costs: As an electrical engineering consulting firm, you will need to have professional liability insurance to protect against any potential lawsuits from clients.
- Software licences: You will need to purchase licences for engineering design software, project management software, and other tools necessary for your business.
- Banking fees: This includes fees for business bank accounts, credit card processing, and other banking services.
- Rent: If you have an office space, you will need to pay rent or lease fees.
- Utilities: This includes electricity, water, and internet services for your office.
- Marketing and advertising: You may need to allocate funds for marketing and advertising efforts to attract new clients.
- Travel expenses: You may need to travel to meet with clients or attend conferences, so you should budget for airfare, accommodations, and other travel expenses.
- Professional development: It's important to keep your skills and knowledge up-to-date, so budget for professional development courses and training.
- Office supplies: This includes computer equipment, stationery, and other supplies necessary for day-to-day operations.
- Professional memberships: You may need to join professional organizations for networking and access to resources.
- Legal fees: You may need to seek legal advice for contracts, intellectual property protection, or other legal matters.
- Taxes: Don't forget to budget for income taxes and any other applicable taxes for your business.
- Employee benefits: In addition to salaries and benefits, you may also offer other employee benefits such as healthcare, retirement plans, and paid time off.
This list will need to be tailored to the specificities of your electrical engineering consulting firm, but should offer a good starting point for your budget.
What investments are needed to start or grow an electrical engineering consulting firm?
Once you have an idea of how much sales you could achieve and what it will cost to run your electrical engineering consulting firm, it is time to look into the equipment required to launch or expand the activity.
For an electrical engineering consulting firm, capital expenditures and initial working capital items could include:
- Computers and software: As an electrical engineering consulting firm, having up-to-date computers and software is essential for efficient project management, design, and analysis. This may include purchasing new computers or upgrading existing ones, as well as investing in specialized software for engineering tasks.
- Testing and measurement equipment: In order to provide accurate and high-quality services, an electrical engineering consulting firm may need to invest in testing and measurement equipment such as oscilloscopes, multimeters, and signal generators. These tools are necessary for conducting thorough analyses and troubleshooting electrical systems.
- Office furniture and equipment: A professional and well-equipped office space is important for creating a good impression on clients and providing a comfortable working environment for employees. This may include purchasing desks, chairs, filing cabinets, and other office equipment necessary for day-to-day operations.
- Communication and networking equipment: As a consulting firm, effective communication and networking are crucial for staying connected with clients and colleagues. This may involve investing in tools such as VoIP systems, video conferencing equipment, and networking hardware to ensure smooth communication and collaboration.
- Vehicles: Depending on the scope of services offered, an electrical engineering consulting firm may need to invest in company vehicles for site visits, client meetings, and other business-related travel. This could include purchasing or leasing vehicles such as vans or trucks, as well as covering maintenance and fuel expenses.
Again, this list will need to be adjusted according to the specificities of your electrical engineering consulting firm.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
The financing plan of your electrical engineering consulting firm
The next step in the creation of your financial forecast for your electrical engineering consulting firm is to think about how you might finance your business.
You will have to assess how much capital will come from shareholders (equity) and how much can be secured through banks.
Bank loans will have to be modelled so that you can separate the interest expenses from the repayments of principal, and include all this data in your forecast.
Issuing share capital and obtaining a bank loan are two of the most common ways that entrepreneurs finance their businesses.
What tables compose the financial plan for an electrical engineering consulting firm?
Now let's have a look at the main output tables of your electrical engineering consulting firm's financial forecast.
The forecasted profit & loss statement
The profit & loss forecast gives you a clear picture of your business’ expected growth over the first three to five years, and whether it’s likely to be profitable or not.
A healthy electrical engineering consulting firm's P&L statement should show:
- Sales growing at (minimum) or above (better) inflation
- Stable (minimum) or expanding (better) profit margins
- A healthy level of net profitability
This will of course depend on the stage of your business: numbers for an established electrical engineering consulting firm will look different than for a startup.
The projected balance sheet
Your electrical engineering consulting firm's projected balance sheet provides a snapshot of your business’s financial position at year-end.
It is composed of three types of elements: assets, liabilities and equity:
- Assets: represent what the business possesses including cash, equipment, and accounts receivable (money owed by clients).
- Liabilities: represent funds advanced to the business by lenders and other creditors. They include accounts payable (money owed to suppliers), taxes payable and loans from banks and financial institutions.
- Equity: is the combination of what has been invested by the business owners and the cumulative profits and losses generated by the business to date (which are called retained earnings). Equity is a proxy for the value of the owner's stake in the business.
The cash flow projection
The cash flow forecast of your electrical engineering consulting firm will show how much cash the business is expected to generate or consume over the next three to five years.
There are multiple ways of presenting a cash flow forecast but from experience, it is better to organise it by nature in order to clearly show these elements:
- Operating cash flow: how much cash is generated by the electrical engineering consulting firm's operations
- Investing cash flow: what is the business investing to expand or maintain its equipment
- Financing cash flow: is the business raising additional funds or repaying financiers (debt repayment, dividends)
Your cash flow forecast is the most important element of your overall financial projection and that’s where you should focus your attention to ensure that your electrical engineering consulting firm is adequately funded.
Note: if you are preparing a financial forecast in order to try to secure funding, you will need to include both a yearly and monthly cash flow forecast in your electrical engineering consulting firm's financial plan.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Which tool should you use to create your electrical engineering consulting firm's financial forecast?
Creating your electrical engineering consulting firm's financial forecast may sound fairly daunting, but the good news is that there are several ways to go about it.
Using online financial forecasting software to build your electrical engineering consulting firm's projections
The modern and easiest way is to use an online financial forecasting tool such as the one we offer at The Business Plan Shop.
There are several advantages to using specialised software:
- You can easily create your financial forecast by letting the software take care of the financial calculations for you without errors
- You have access to complete financial forecast templates
- You get a complete financial forecast ready to be sent to your bank or investors
- You can easily track your actual financial performance against your financial forecast, and recalibrate your forecast as the year goes by
- You can create scenarios to stress test your forecast's main assumptions
- You can easily update your forecast as time goes by to maintain visibility on future cash flows
- You have a friendly support team on standby to assist you when you are stuck
- It’s cost-efficient and much cheaper than using an accountant or consultant (see below)
If you are interested in this type of solution, you can try our projection software for free by signing up here.
Calling in a financial consultant or chartered accountant
Enlisting the help of a consultant or accountant is also a good way to obtain a professional electrical engineering consulting firm financial forecast.
The downside of this solution is its cost. From experience, obtaining a simple financial forecast over three years (including a balance sheet, income statement, and cash flow statement) is likely to cost a minimum of £700 or $1,000.
The indicative cost above, is for a small business, and a forecast is done as a one-shot exercise. Using a consultant or accountant to track your actuals vs. forecast and to keep your financial projections up to date on a monthly or quarterly basis will cost a lot more.
If you opt for this solution, make sure your accountant has in-depth knowledge of your industry, so that they may challenge your figures and offer insights (as opposed to just taking your assumptions at face value to create the forecast).
Why not use a spreadsheet such as Excel or Google Sheets to build your electrical engineering consulting firm's financial forecast?
Creating an accurate and error-free electrical engineering consulting firm financial forecast with a spreadsheet is very technical and requires a deep knowledge of accounting and an understanding of financial modelling.
Very few business owners are financially savvy enough to be able to build a forecast themselves on Excel without making mistakes.
Lenders and investors know this, which is why forecasts created on Excel by the business owner are often frowned upon.
Having numbers one can trust is key when it comes to financial forecasting and to that end using software is much safer.
Using financial forecasting software is also faster than using a spreadsheet, and, with the rise of artificial intelligence, software is also becoming smarter at helping us analyse the numbers to make smarter decisions.
Finally, like everything with spreadsheets, tracking actuals vs. forecasts and keeping your projections up to date as the year progresses is manual, tedious, and error-prone. Whereas financial projection software like The Business Plan Shop is built for this.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Use our financial forecast templates for inspiration
The Business Plan Shop has dozens of financial forecast examples available.
Our templates contain both a financial forecast and a written business plan which presents, in detail, the company, the team, the strategy, and the medium-term objectives.
Our templates are a great source of inspiration, whether you just want to see what a complete business plan looks like, or are looking for concrete examples of how you should model financial elements in your own forecast.
Takeaways
- A financial forecast shows expected growth, profitability, and cash generation metrics for your electrical engineering consulting firm.
- Tracking actuals vs. forecast and having an up-to-date financial forecast is key to maintaining visibility on your future cash flows.
- Using financial forecasting software is the modern way of creating and maintaining financial projections.
We hope that this guide helped you gain a clearer perspective on the steps needed to create the financial forecast for an electrical engineering consulting firm. Don't hesitate to contact us if you have any questions!
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
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