How to create a financial forecast for a change management firm?
Developing and maintaining an up-to-date financial forecast for your change management 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 a change management 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 a change management firm?
The financial projections for your change management 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 change management 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 a change management firm financial forecast?
A change management firm's financial forecast needs to be built on the right foundation: your assumptions.
The data required to create your assumptions will depend on whether you are a new or existing change management firm.
If you are creating (or updating) the forecast of an existing change management firm, then your main inputs will be historical accounting data and operating metrics, and your team’s view on what to expect for the next three to five years.
If you are building financial projections for a new change management firm startup, you will need to rely on market research to form your go-to-market strategy and derive your sales forecast.
For a new venture, you will also need an itemised list of resources needed for the change management firm to operate, along with a list of equipment required to launch the venture (more on that below).
Now that you understand what is needed, let’s have a look at what elements will make up your change management firm's financial forecast.
The sales forecast for a change management firm
From experience, it is usually best to start creating your change management firm financial forecast by your sales forecast.
To create an accurate sales forecast for your change management firm, you will have to rely on the data collected in your market research, or if you're running an existing change management firm, the historical data of the business, to estimate two key variables:
- The average price
- The number of monthly transactions
To get there, you will need to consider the following factors:
- Organizational changes: As companies undergo changes such as mergers, acquisitions, or restructuring, they may require the services of a change management firm to help them navigate through the transition. This could lead to an increase in demand for your services and potentially drive up your average price as well.
- Industry-specific regulations: Changes in industry regulations or compliance requirements may require companies to make significant organizational changes. This could create a need for your services and potentially increase the average price of your services as the complexity of the work increases.
- Economic downturns: During economic downturns, companies may turn to change management firms to help them streamline processes, cut costs, and stay competitive. This could lead to an increase in demand for your services, but also potentially drive down your average price as companies may be looking for more cost-effective solutions.
- Technological advancements: As technology continues to advance, companies may need to adapt and change their processes and systems. This could create a demand for your services, but also potentially drive down your average price as companies may be looking for more efficient and cost-effective solutions.
- Global events: Major global events such as political changes, natural disasters, or pandemics can greatly impact businesses and their operations. This could create a need for your services as companies may need to quickly adapt to the changing landscape, potentially increasing your average price as well.
Once you have an idea of what your future sales will look like, it will be time to work on your overhead budget. Let’s see what this entails.
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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 operating expenses for a change management firm
The next step is to estimate the expenses needed to run your change management firm on a day-to-day basis.
These will vary based on the level of sales expected, and the location and size of your business.
But your change management firm's operating expenses should include the following items at a minimum:
- Staff Costs: This includes salaries, benefits, and training for your team of change management consultants and support staff.
- Accountancy Fees: You will need to hire a professional accountant to handle your firm's financial statements and tax filings.
- Insurance Costs: As a change management firm, you will need to have liability insurance to protect your business in case of any legal claims.
- Software Licences: Change management firms heavily rely on software to track projects, communication, and data analysis. You will need to purchase licenses for these tools.
- Banking Fees: Your firm will have regular banking fees for transactions, wire transfers, and other financial services.
- Marketing and Advertising: To attract clients, you will need to invest in marketing and advertising efforts, such as website development, social media, and print materials.
- Rent and Utilities: You will need a physical office space to meet with clients and conduct business, which will incur rent and utility costs.
- Travel Expenses: As a change management firm, you may need to travel to meet with clients or attend conferences and workshops. This will include airfare, accommodations, and transportation costs.
- Professional Memberships: Joining professional organizations and associations can provide valuable networking and educational opportunities, but they often come with membership fees.
- Consulting Fees: If you need to bring in outside expertise for specific projects, you will need to budget for consulting fees.
- Office Supplies: Your firm will have ongoing needs for office supplies, such as stationery, printer ink, and other materials.
- Training and Development: To stay current in the field of change management, you may need to invest in ongoing training and development for yourself and your team.
- Legal Fees: You may need to seek legal advice for contracts, intellectual property protection, or other legal matters, which will incur fees.
- Professional Development: Attending industry conferences, workshops, and seminars can help you stay up-to-date on the latest trends and best practices in change management.
- Office Equipment: Your firm will need basic office equipment, such as computers, printers, and telephones, which will need to be upgraded and replaced periodically.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small change management firm might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow a change management firm?
Your change management firm financial forecast will also need to include the capital expenditures (aka investments in plain English) and initial working capital items required for the creation or development of your business.
For a change management firm, these could include:
- Technology equipment: This includes items such as computers, software, and servers that are necessary for running your change management firm. These are considered fixed assets because they have a useful life of more than one year and will provide ongoing benefits to your business.
- Office furniture and equipment: To create a professional and productive work environment, you may need to invest in items such as desks, chairs, and filing cabinets. These are considered fixed assets because they will be used for more than one year and will contribute to your business's success.
- Training and development materials: While training and development expenses are typically considered operating expenses, materials such as books, manuals, and online courses may be considered capital expenditures if they have a useful life of more than one year and will provide long-term benefits to your firm.
- Office renovations: As your business grows, you may need to renovate your office space to accommodate more employees or create a more functional workspace. These expenses are considered capital expenditures because they will provide long-term benefits to your firm.
- Marketing and branding materials: While marketing and advertising expenses are typically considered operating expenses, items such as a new company logo or website design may be considered capital expenditures if they have a useful life of more than one year and will contribute to your firm's branding and success in the long run.
Again, this list will need to be adjusted according to the size and ambitions of your change management 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 change management firm
The next step in the creation of your financial forecast for your change management 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 a change management firm?
Now let's have a look at the main output tables of your change management 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 change management 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 change management firm will look different than for a startup.
The projected balance sheet
Your change management 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 projected cash flow statement
A projected cash flow statement for a change management firm is used to show how much cash the business is generating or consuming.
The cash flow forecast is usually organised by nature to show three key metrics:
- The operating cash flow: do the core business activities generate or consume cash?
- The investing cash flow: how much is the business investing in long-term assets (this is usually compared to the level of fixed assets on the balance sheet to assess whether the business is regularly maintaining and renewing its equipment)?
- The financing cash flow: is the business raising new financing or repaying financiers (debt repayment, dividends)?
Cash is king and keeping an eye on future cash flows is imperative for running a successful business. Therefore, you should pay close attention to your change management firm's cash flow forecast.
If you are trying to secure financing, note that it is customary to provide both yearly and monthly cash flow forecasts in a financial plan - so that the reader can analyze seasonal variation and ensure the change management firm is appropriately capitalised.
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 change management firm's financial forecast?
Creating your change management 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 change management 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.
Hiring a financial consultant or chartered accountant
Hiring a consultant or chartered accountant is also an efficient way to get a professional change management firm financial projection.
As you can imagine, this solution is much more expensive than using software. From experience, the creation of a simple financial forecast over three years (including a balance sheet, income statement, and cash flow statement) is likely to start around £700 or $1,000 excluding taxes.
The indicative estimate above, is for a small business, and a forecast done as a one-off. Using a financial consultant or accountant to track your actuals vs. forecast and to keep your financial forecast up to date on a monthly or quarterly basis will naturally cost a lot more.
If you choose this solution, make sure your service provider has first-hand experience in your industry, so that they may challenge your assumptions and offer insights (as opposed to just taking your figures at face value to create the forecast’s financial statements).
Why not use a spreadsheet such as Excel or Google Sheets to build your change management firm's financial forecast?
Creating an accurate and error-free change management 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 projection templates for inspiration
The Business Plan Shop has dozens of financial forecasting templates available.
Our examples contain both the financial forecast, and a written business plan which presents, in detail, the company, the team, the strategy, and the medium-term objectives.
Whether you are just starting out or already have your own change management firm, looking at our template is always a good way to get ideas on how to model financial items and what to write when creating a business plan to secure funding.
Takeaways
- A financial forecast shows expected growth, profitability, and cash generation metrics for your change management 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 a change management 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.
Also on The Business Plan Shop
- Financial forecast example
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- Financial forecast for a business idea
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Founder & CEO at The Business Plan Shop Ltd
