How to create a financial forecast for a commercial production company?
If you are serious about keeping visibility on your future cash flows, then you need to build and maintain a financial forecast for your commercial production company.
Putting together a commercial production company financial forecast may sound complex, but don’t worry, with the right tool, it’s easier than it looks, and The Business Plan Shop is here to guide you.
In this practical guide, we'll cover everything you need to know about building financial projections for your commercial production company.
We will start by looking at why they are key, what information is needed, what a forecast looks like once completed, and what solutions you can use to create yours.
Let's dive in!
Why create and maintain a financial forecast for a commercial production company?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your commercial production company and ensure that it can be financially viable in the years to come.
A financial plan for a commercial production company enables you to look at your business in detail - from income to operating costs and investments - to evaluate its expected profitability and future cash flows.
This gives you the visibility needed to plan future investments and expansion with confidence.
And, when your trading environment gets tougher, having an up to date commercial production company forecast enables you to detect potential upcoming financing shortfalls in advance, enabling you to make adjustments or secure financing before you run out of cash.
It’s also important to remember that your commercial production company's financial forecast will be essential when looking for financing. You can be 100% certain that banks and investors will ask to see your numbers, so make sure they’re set out accurately and attractively.
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 commercial production company financial forecast?
A commercial production company'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 commercial production company, 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 a commercial production company 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 commercial production company 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 commercial production company's financial forecast.
The sales forecast for a commercial production company
From experience, it is usually best to start creating your commercial production company financial forecast by your sales forecast.
To create an accurate sales forecast for your commercial production company, you will have to rely on the data collected in your market research, or if you're running an existing commercial production company, 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:
- Economic Factors: Economic conditions can have a significant impact on the average price and number of monthly transactions for your commercial production company. For example, a recession may lead to a decrease in demand for your services, resulting in lower prices and fewer transactions.
- Industry Trends: Keeping up with the latest industry trends can also affect your average price and number of monthly transactions. If there is a growing demand for a specific type of production, you may be able to charge higher prices and see an increase in transactions.
- Competition: The level of competition in your market can also have a direct impact on your sales forecast. If there are many other production companies offering similar services, you may need to lower your prices to remain competitive and attract customers.
- Technology Advancements: The advancement of technology can also affect your business's average price and number of monthly transactions. For example, if new software or equipment becomes available, you may need to invest in it to keep up with industry standards, which can increase your costs and potentially affect your pricing.
- Client Relationships: The strength of your relationships with clients can also play a role in your sales forecast. If you have a loyal customer base who consistently uses your services, you may be able to charge higher prices and have a more stable number of monthly transactions. On the other hand, if you struggle to retain clients, you may need to adjust your prices to attract new business.
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.
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 operating expenses for a commercial production company
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your commercial production company 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 a commercial production company will include some of the following items:
- Staff costs: This includes salaries, benefits, and any other expenses related to your employees. As a commercial production company, your staff costs will be a significant portion of your operating expenses.
- Accountancy fees: It's important to have accurate financial records and tax filings as a commercial production company. You may need to hire an accountant to help with this, resulting in accountancy fees.
- Insurance costs: Protecting your business and assets is crucial, especially in the unpredictable world of commercial production. You may need to pay for insurance for your equipment, liability insurance, and other insurance policies.
- Software licenses: As a commercial production company, you will likely use various software programs for video editing, project management, and other tasks. These programs often require annual or monthly license fees.
- Banking fees: Managing your finances and cash flow is essential for any business, and this includes paying for banking fees. These can include transaction fees, wire transfer fees, and other related charges.
- Rent/lease costs: If you have an office or studio space for your production company, you will need to pay for rent or lease expenses. This can be a significant expense, depending on the location and size of your space.
- Marketing and advertising: In order to attract clients and promote your production services, you may need to allocate a budget for marketing and advertising expenses. This can include online ads, print materials, and other promotional efforts.
- Travel expenses: As a commercial production company, you may need to travel for client meetings, location shoots, and other business-related trips. These travel expenses can include airfare, lodging, and transportation costs.
- Equipment rental and maintenance: In addition to owning equipment, you may need to rent specialized equipment for certain projects. You will also need to budget for equipment maintenance and repairs to keep your equipment in good working condition.
- Professional development: As a production company, it's important to stay updated on the latest technology and techniques in the industry. This may require attending workshops, conferences, or other professional development opportunities.
- Utilities: Running an office or studio space will require paying for utilities such as electricity, water, and internet. These are ongoing expenses that need to be factored into your operating costs.
- Legal fees: In the production industry, there may be legal considerations such as contracts, intellectual property rights, and other legal matters. You may need to hire a lawyer or pay for legal services to ensure your business is protected.
- Office supplies: Running an office or studio space also means you will need to purchase office supplies such as paper, ink, and other materials. These may seem like small expenses, but they can add up over time.
- Office equipment: Along with supplies, you may need to purchase or lease office equipment such as computers, printers, and furniture. These are necessary for running your business and should be included in your operating expenses.
- Employee benefits: In addition to salaries, you may offer your employees benefits such as health insurance, retirement plans, and other perks. These costs should be factored into your operating expenses as well.
This list will need to be tailored to the specificities of your commercial production company, but should offer a good starting point for your budget.
What investments are needed to start or grow a commercial production company?
Creating and expanding a commercial production company also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a commercial production company could include elements such as:
- Camera equipment: This includes high-quality cameras, lenses, and other accessories necessary for filming and capturing footage.
- Studio space: A commercial production company may need to rent or purchase a studio space for filming, editing, and other production activities.
- Editing software: Professional video editing software is essential for creating high-quality commercial productions.
- Lighting equipment: Proper lighting is crucial for creating a visually appealing and professional-looking commercial.
- Audio equipment: Quality sound is just as important as visuals in a commercial, so investing in microphones, mixers, and other audio equipment is necessary.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your commercial production company.
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 commercial production company
The next step in the creation of your financial forecast for your commercial production company 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 commercial production company?
Now let's have a look at the main output tables of your commercial production company'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 commercial production company'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 commercial production company will look different than for a startup.
The projected balance sheet
Your commercial production company's forecasted balance sheet enables you to assess your financial structure and working capital requirements.
It is composed of three types of elements: assets, liabilities and equity:
- Assets: represent what the business owns and uses to produce cash flows. It includes resources such as cash, equipment, and accounts receivable (money owed by clients).
- Liabilities: represent funds advanced to the business by lenders and other creditors. It includes items such as accounts payable (money owed to suppliers), taxes due and loans.
- 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 commercial production company 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 commercial production company'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 commercial production company 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 commercial production company's financial forecast?
Using the right tool or solution will make the creation of your commercial production company's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your commercial production company'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 commercial production company 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 commercial production company's financial forecast?
Creating an accurate and error-free commercial production company financial forecast on Excel (or any spreadsheet) is very technical and requires both a strong grasp of accounting principles and solid skills in financial modelling.
Most entrepreneurs lack the expertise required to create an accurate financial forecast using spreadsheet software like Excel or Google Sheets. As a result, it is unlikely anyone will trust your numbers.
The second reason is that it is inefficient. Building forecasts on spreadsheets was the only option in the 1990s and early 2000s, nowadays technology has advanced and software can do it much faster and much more accurately.
This is why professional forecasters all use software. With the rise of AI, software is also becoming smarter at helping us detect mistakes in our forecasts and helping us analyse the numbers to make better decisions.
Finally, like everything with spreadsheets, tracking actuals vs. forecasts and updating your forecast as the year progresses is manual, tedious, error-prone, and time-consuming. Whereas financial forecasting 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 projection shows expected growth, profitability, and cash generation for your business over the next three to five years.
- Tracking actuals vs. forecast and keeping your financial forecast up-to-date is the only way to maintain visibility on future cash flows.
- Using financial forecasting software makes it easy to create and maintain up-to-date projections for your commercial production company.
You have reached the end of our guide. We hope you now have a better understanding of how to create a financial forecast for a commercial production company. Don't hesitate to contact our team if you have any questions or want to share your experience building forecasts!
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
- Example of financial projections
- How to create a turnover forecast for a business?
- Financial forecast for a business idea
Know someone who runs or wants to start a commercial production company? Share our financial projection guide with them!
Founder & CEO at The Business Plan Shop Ltd
