How to create a financial forecast for a communication agency?
Developing and maintaining an up-to-date financial forecast for your communication agency 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 communication agency 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 communication agency?
In order to prosper, your business needs to have visibility on what lies ahead and the right financial resources to grow. This is where having a financial forecast for your communication agency becomes handy.
Creating a communication agency financial forecast forces you to take stock of where your business stands and where you want it to go.
Once you have clarity on the destination, you will need to draw up a plan to get there and assess what it means in terms of future profitability and cash flows for your communication agency.
Having this clear plan in place will give you the confidence needed to move forward with your business’s development.
Having an up-to-date financial forecast for a communication agency is also useful if your trading environment worsens, as the forecast enables you to adjust to your new market conditions and anticipate any potential cash shortfall.
Finally, your communication agency's financial projections will also help you secure financing, as banks and investors alike will want to see accurate projections before agreeing to finance your business.
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 needed to build a communication agency financial forecast?
The quality of your inputs is key when it comes to financial modelling: no matter how good the model is, if your inputs are off, so will the forecast.
If you are building a financial plan to start a communication agency, you will need to have done your market research and have a clear picture of your sales and marketing strategies so that you can project revenues with confidence.
You will also need to have a clear idea of what resources will be required to operate the communication agency on a daily basis, and to have done your research with regard to the equipment needed to launch your venture (see further down this guide).
If you are creating a financial forecast of an existing communication agency, things are usually simpler as you will be able to use your historical accounting data as a budgeting base, and complement that with your team’s view on what lies ahead for the years to come.
Let's now zoom in on what will go in your communication agency's financial forecast.
The sales forecast for a communication agency
The sales forecast, also called topline projection, is normally where you will start when building your communication agency 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 communication agencies), and consider the elements below:
- Economic conditions: Changes in the economy can greatly affect the average price and number of monthly transactions for your communication agency. In a recession, companies may cut back on their spending for marketing and advertising services, resulting in a decrease in your average price and number of transactions. On the other hand, in a booming economy, companies may have more funds to invest in their marketing strategies, leading to an increase in your average price and number of transactions.
- Technological advancements: With the constant evolution of technology, your communication agency may need to adapt and offer new services to stay competitive. This can result in changes to your average price, as new services may come with a higher price tag. Additionally, technological advancements may also affect the number of monthly transactions, as clients may be more inclined to invest in new, innovative services.
- Industry trends: Keeping up with industry trends is crucial for a communication agency. As clients' needs and preferences change, your agency may need to adjust its services and pricing accordingly. For example, if there is a shift towards digital marketing, your agency may need to offer more digital services, which can affect your average price and number of transactions.
- Competition: The presence of competition in the market can impact your communication agency's average price and number of monthly transactions. If there are many similar agencies offering the same services as yours, you may need to adjust your prices to stay competitive. Additionally, competition can also affect the number of transactions, as clients may choose to work with a different agency based on their pricing and services.
- Client relationships: The strength and longevity of your client relationships can greatly influence your communication agency's average price and number of transactions. If you have long-term, loyal clients who trust your services, you may be able to charge a higher price. On the other hand, if your client relationships are weak, clients may be less likely to invest in your services, resulting in a lower number of 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 a communication agency
The next step is to estimate the costs you’ll have to incur to operate your communication agency.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your communication agency's operating expenses should normally include the following items:
- Staff costs: This includes salaries, benefits, and bonuses for your agency's employees. It also covers any expenses related to hiring and training new staff members.
- Accountancy fees: These are the fees you pay to a professional accountant or accounting firm to manage your agency's financial records and tax filings.
- Insurance costs: This covers the cost of various insurance policies that your agency may need, such as liability insurance, professional indemnity insurance, and property insurance.
- Software licenses: As a communication agency, you may need specialized software for tasks such as graphic design, project management, and social media management. This expense covers the cost of purchasing and renewing these licenses.
- Banking fees: This includes any fees charged by your bank for services such as wire transfers, foreign currency exchange, and account maintenance.
- Rent and utilities: This covers the cost of renting office space for your agency, as well as utilities such as electricity, water, and internet.
- Marketing and advertising: As a communication agency, you may need to invest in marketing and advertising efforts to promote your services and attract new clients.
- Travel expenses: If your agency works with clients in different locations, you may need to cover travel expenses for meetings, events, and projects.
- Professional development: This covers the cost of training and development programs for your agency's employees to enhance their skills and knowledge.
- Office supplies and equipment: This includes the cost of purchasing and maintaining office supplies, equipment, and furniture for your agency.
- Telecommunication expenses: As a communication agency, you need reliable phone and internet services. This expense covers the cost of these services and any related equipment.
- Legal fees: This includes any fees paid to a lawyer or law firm for legal advice and services related to your agency's operations.
- Subscriptions and memberships: This covers the cost of any subscriptions or memberships that your agency needs for industry-specific publications, organizations, or networks.
- Printing and postage: If your agency sends physical materials or mailings to clients, this expense covers the cost of printing and postage.
- Entertainment expenses: This includes the cost of hosting clients or potential clients for meals, events, or other forms of entertainment to build relationships and partnerships.
This list is not exhaustive by any means, and will need to be tailored to your communication agency's specific circumstances.
What investments are needed to start or grow a communication agency?
Creating and expanding a communication agency also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a communication agency could include elements such as:
- Computer equipment and software: This includes computers, laptops, printers, and other necessary hardware for a communication agency. You may also need specialized software for graphic design, video editing, or project management.
- Furniture and fixtures: As a communication agency, you will need a professional and functional office space. This may include desks, chairs, conference tables, and other necessary furniture. You may also need to invest in specialized equipment such as recording studios or photography equipment.
- Office supplies and equipment: In addition to computers and furniture, you will also need to purchase office supplies such as paper, pens, and printer ink. You may also need to invest in equipment such as phones, fax machines, and copiers.
- Marketing and advertising materials: While marketing and advertising expenses are typically considered operating expenses, certain materials such as signage, banners, and promotional items may be considered capital expenditures as they are long-term assets for your agency.
- Website development and maintenance: In today's digital age, having a professional and functional website is essential for a communication agency. You may need to invest in website development and ongoing maintenance in order to attract clients and showcase your services.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your communication agency.
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 communication agency
The next step in the creation of your financial forecast for your communication agency 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 communication agency?
Now let's have a look at the main output tables of your communication agency'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 communication agency'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 communication agency will look different than for a startup.
The projected balance sheet
Your communication agency'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 forecast
Your communication agency's cash flow forecast shows how much cash your business is expected to consume or generate in the years to come.
It is best practice to organise the cash flow forecast by nature to better explain where cash is used or generated by the communication agency:
- Operating cash flow: shows how much cash is generated by the operating activities
- Investing cash flow: shows how much will be invested in capital expenditure to maintain or expand the business
- Financing cash flow: shows if the business is raising new capital or repaying financiers (debt repayment, dividends)
Keeping an eye on (and regularly updating) your communication agency's cash flow forecast is key to ensuring that your business has sufficient liquidity to operate normally and to detect financing requirements as early as possible.
If you are trying to raise capital, you will normally be asked to provide a monthly cash flow forecast in your communication agency's financial plan - so that banks or investors can assess seasonal variation and ensure your business 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 communication agency's financial forecast?
Creating your communication agency's financial forecast may sound fairly daunting, but the good news is that there are several ways to go about it.
Using online financial projection software to build your communication agency's forecast
The modern and easiest way to build a forecast is to use professional financial projection software 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 forecasting 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 communication agency 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 communication agency's financial forecast?
Creating an accurate and error-free communication agency 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 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 communication agency, 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
- Having a financial forecast enables you to visualise the expected growth, profitability, and cash generation for your business over the next three to five years.
- Tracking actuals vs. forecast and keeping your financial projections up-to-date is the only way to get a view on what your communication agency future cash flows may look like.
- Using financial forecasting software is the mordern and easy way to create and maintain your forecasts.
This is the end of our guide on how to build the financial forecast for a communication agency, we hope you found it useful. Don't hesitate to contact us if you want to share your feedback or 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
- Example of financial forecast
- How to project sales for a business?
- Example of financial forecast for business idea
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Founder & CEO at The Business Plan Shop Ltd
