How to create a financial forecast for a conveyancing firm?
Creating a financial forecast for your conveyancing firm, and ensuring it stays up to date, is the only way to maintain visibility on future cash flows.
This might sound complex, but with the right guidance and tools, creating an accurate financial forecast for your conveyancing firm is not that hard.
In this guide, we'll cover everything from the main goal of a financial projection, the data you need as input, to the tables that compose it, and the tools that can help you build a forecast efficiently.
Without further ado, let us begin!
Why create and maintain a financial forecast for a conveyancing firm?
The financial projections for your conveyancing 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 conveyancing 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 conveyancing firm financial forecast?
A conveyancing 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 conveyancing 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 a conveyancing 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 conveyancing 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 conveyancing firm's financial forecast.
The sales forecast for a conveyancing firm
From experience, it is usually best to start creating your conveyancing firm financial forecast by your sales forecast.
To create an accurate sales forecast for your conveyancing firm, you will have to rely on the data collected in your market research, or if you're running an existing conveyancing 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:
- Interest rates: Interest rates play a significant role in determining the average price of monthly transactions for a conveyancing firm. If interest rates rise, it may discourage potential buyers from purchasing a property, leading to a decrease in monthly transactions. On the other hand, if interest rates fall, it may increase the number of monthly transactions as it becomes more affordable for buyers to purchase a property.
- Changes in property laws: Changes in property laws by the government can have a direct impact on the average price of monthly transactions for a conveyancing firm. For example, if the government introduces new regulations that make it more difficult to buy or sell a property, it may result in a decrease in monthly transactions. Conversely, if the government introduces incentives for property transactions, it may lead to an increase in monthly transactions.
- Competition: The level of competition in the conveyancing industry can also affect the average price of monthly transactions. If there is an increase in the number of conveyancing firms in the market, it may lead to a decrease in prices in order to remain competitive. This, in turn, can lead to a decrease in the average price of monthly transactions for your firm.
- Economic conditions: Economic conditions such as a recession or a booming economy can have a significant impact on the average price of monthly transactions for a conveyancing firm. During a recession, people may be less likely to buy or sell properties, resulting in a decrease in monthly transactions. On the other hand, a booming economy may lead to an increase in property prices and an increase in the number of monthly transactions.
- Technology: Advancements in technology can also affect the average price of monthly transactions for a conveyancing firm. For example, the use of online platforms for property transactions may reduce the need for traditional conveyancing services, resulting in a decrease in monthly transactions. On the other hand, embracing technology and offering online services may attract more clients and increase the average price of monthly transactions.
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 conveyancing firm
The next step is to estimate the expenses needed to run your conveyancing 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 conveyancing firm's operating expenses should include the following items at a minimum:
- Staff costs: This includes salaries, bonuses, benefits, and payroll taxes for all employees in your conveyancing firm, including lawyers, paralegals, administrative staff, and support staff.
- Accountancy fees: As a conveyancing firm, you will need to hire an accountant to handle your financial records, tax returns, and other financial matters. This will incur fees for their services.
- Insurance costs: It is important to have insurance to protect your firm from potential risks and liabilities. This may include professional liability insurance, general liability insurance, and business property insurance.
- Software licenses: To efficiently manage your conveyancing work, you will need to invest in software licenses for case management, document management, and accounting software.
- Banking fees: You will need to maintain a business bank account for your conveyancing firm, which may incur monthly maintenance fees, transaction fees, and other charges.
- Rent and utilities: This includes the cost of renting office space for your firm, as well as utilities such as electricity, water, and internet.
- Advertising and marketing: To attract clients and promote your services, you may need to invest in advertising and marketing strategies such as social media ads, print ads, and website development.
- Professional development: As a conveyancing firm, it is important to stay up-to-date with industry trends and regulations. This may involve attending conferences, seminars, and training programs, which will incur expenses.
- Office supplies: This includes the cost of purchasing stationery, printer ink, paper, and other office supplies necessary for day-to-day operations.
- Professional memberships: Joining professional associations and organizations relevant to your field can provide networking opportunities and resources, but may also come with membership fees.
- Travel expenses: If your firm handles cases in different locations, you may incur travel expenses for client meetings, court appearances, and other business-related trips.
- Telephone and internet: Your conveyancing firm will need reliable telephone and internet services for communication with clients and other parties involved in cases.
- Legal fees: In some cases, your firm may need to seek legal advice or hire outside counsel, which will incur legal fees.
- Office equipment maintenance: To keep your office running smoothly, you may need to allocate funds for regular maintenance and repairs of office equipment such as computers, printers, and copiers.
- Office cleaning and maintenance: A clean and well-maintained office space is important for a professional image. This may involve hiring a cleaning service or allocating funds for office maintenance and repairs.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small conveyancing firm might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow a conveyancing firm?
Once you have an idea of how much sales you could achieve and what it will cost to run your conveyancing firm, it is time to look into the equipment required to launch or expand the activity.
For a conveyancing firm, capital expenditures and initial working capital items could include:
- Office Equipment: This includes items such as computers, printers, scanners, and other necessary office equipment. These items are essential for day-to-day operations and should be included in your expenditure forecast.
- Furniture and Fixtures: This category includes items such as desks, chairs, filing cabinets, and other office furniture. These items are necessary for creating a professional and functional workspace for your employees and should be budgeted for in your forecast.
- Technology Upgrades: As a conveyancing firm, you will likely rely heavily on technology for document management and communication with clients. Therefore, it is important to budget for regular technology upgrades to ensure your firm is equipped with the latest and most efficient tools.
- Leasehold Improvements: If you are leasing office space, you may need to make improvements or renovations to the space to suit your specific needs. These costs should be included in your forecast as they can have a significant impact on your firm's finances.
- Legal Software: Conveyancing firms require specialized software to efficiently manage and track legal documents and transactions. This software can be expensive, and it is important to budget for its purchase and any ongoing maintenance or subscription fees.
Again, this list will need to be adjusted according to the specificities of your conveyancing 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 conveyancing firm
The next step in the creation of your financial forecast for your conveyancing 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 conveyancing firm?
Now let's have a look at the main output tables of your conveyancing firm's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your conveyancing firm's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a conveyancing firm should normally show:
- Sales growing above inflation
- Stable or expanding (ideally) profit margins
- A net profit
This will of course depend on the stage of your business: a new venture might be loss-making until it reaches its breakeven point in year 2 or 3, for example.
The projected balance sheet
Your conveyancing 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 forecast
Your conveyancing firm'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 conveyancing firm:
- 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 conveyancing firm'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 conveyancing firm'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 conveyancing firm's financial forecast?
Creating your conveyancing 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 conveyancing 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 conveyancing 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 conveyancing firm's financial forecast?
Creating an accurate and error-free conveyancing 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 conveyancing 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 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 conveyancing firm.
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 conveyancing firm. 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 project sales for a business?
- Example of financial forecast for business idea
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Founder & CEO at The Business Plan Shop Ltd
