How to create a financial forecast for a financial planning 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 financial planning company.
Putting together a financial planning 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 financial planning 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 financial planning company?
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 financial planning company becomes handy.
Creating a financial planning company 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 financial planning company.
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 financial planning company 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 financial planning company'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 used as input to build a financial planning company financial forecast?
A financial planning company'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 financial planning company.
If you are creating (or updating) the forecast of an existing financial planning company, 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 financial planning company 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 financial planning company 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 financial planning company's financial forecast.
The sales forecast for a financial planning company
From experience, it is usually best to start creating your financial planning company financial forecast by your sales forecast.
To create an accurate sales forecast for your financial planning company, you will have to rely on the data collected in your market research, or if you're running an existing financial planning 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:
- The performance of the stock market may significantly impact the average price of your financial planning services. If the market experiences a downturn, clients may be less willing to pay higher fees for your services.
- Inflation rates can also influence the average price of your financial planning services. As the cost of living increases, clients may be more hesitant to pay higher fees, which could lead to a decrease in your average price.
- The age of your client base can also affect your average price. If your clients are nearing retirement age, they may be more willing to pay higher fees for personalized and comprehensive financial planning services.
- The economic climate can have a significant impact on the number of monthly transactions for your financial planning company. During times of economic instability, clients may be more likely to seek out your services to ensure their financial security.
- Your reputation and track record can also play a role in determining the number of monthly transactions for your financial planning company. Satisfied clients are likely to refer their friends and family to your services, which can lead to an increase in 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.
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 financial planning company
The next step is to estimate the expenses needed to run your financial planning company 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 financial planning company's operating expenses should include the following items at a minimum:
- Staff costs: This includes salaries, benefits, and any other expenses related to your employees. As a financial planning company, your staff will play a crucial role in providing services to your clients.
- Accountancy fees: You will need to hire an accountant or outsource accounting services to ensure accurate financial records and tax compliance.
- Insurance costs: As with any business, it is important to have insurance coverage to protect your company from potential risks and liabilities.
- Software licenses: You will need to invest in software programs specifically designed for financial planning, such as financial modeling tools and client management software.
- Banking fees: Your company will have various banking needs, such as maintaining a business account, processing transactions, and wire transfers. These will incur fees that need to be accounted for.
- Marketing and advertising: To attract and retain clients, you will need to invest in marketing and advertising efforts, such as creating a website, running social media campaigns, and attending industry events.
- Rent or lease: If you have a physical office space, you will need to pay rent or lease fees. This can also include utilities and maintenance costs.
- Professional development: As a financial planning company, it is important to stay updated on industry trends and regulations. This may require attending conferences, seminars, and other professional development courses.
- Legal fees: You may need to consult with a lawyer for legal advice or drafting contracts for your business.
- Office supplies: This includes all the necessary supplies to run your business such as stationery, printer ink, and other office supplies.
- Telephone and internet: A reliable telephone and internet connection are essential for communicating with clients and conducting research.
- Travel expenses: Depending on your business model, you may need to travel to meet with clients or attend conferences. This will incur expenses such as airfare, accommodation, and meals.
- Licensing and certifications: As a financial planning company, you may need to obtain certain licenses and certifications to operate. These may come with fees and renewal costs.
- Taxes: It is important to account for all taxes associated with your business, including income tax, payroll tax, and sales tax.
- Office equipment and maintenance: This can include computers, printers, and other office equipment, as well as any maintenance or repair costs.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small financial planning company might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow a financial planning company?
Creating and expanding a financial planning company also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a financial planning company could include elements such as:
- Office furniture and equipment: This includes items such as desks, chairs, computers, printers, and other necessary equipment for your office space. These are essential for the day-to-day operations of your financial planning company.
- Software and technology: As a financial planning company, you will need specialized software and technology to assist with financial analysis, forecasting, and client management. These can be costly but are crucial for the success of your business.
- Professional development and training: In order to stay current and competitive in the financial planning industry, it is important to invest in ongoing training and development for yourself and your employees. This can include attending conferences, workshops, and obtaining certifications.
- Office space: Your office space is a fixed asset that will require initial investment and ongoing maintenance costs. This can include rent, utilities, and any necessary renovations or upgrades to the space.
- Marketing materials: While marketing and advertising expenses are considered operating expenses, the creation of marketing materials such as brochures, business cards, and a company website can be considered a capital expenditure. These materials are important for promoting your services and attracting potential clients.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your financial planning 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 financial planning company
The next step in the creation of your financial forecast for your financial planning 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 financial planning company?
Now let's have a look at the main output tables of your financial planning company's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your financial planning company is likely to be in the years to come.
For your financial planning company to be financially viable, your projected P&L should ideally show:
- Sales growing above inflation (the higher the better)
- Profit margins which are stable or expanding (the higher the better)
- A net profit at the end of each financial year (the higher the better)
This is for established financial planning company, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.
The projected balance sheet
Your financial planning company'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 financial planning company'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 financial planning company:
- 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 financial planning company'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 financial planning company'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 financial planning company's financial forecast?
Using the right tool or solution will make the creation of your financial planning company's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial projection software to build your financial planning company'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 financial planning company 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 financial planning company's financial forecast?
Creating an accurate and error-free financial planning 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 projection templates for inspiration
The Business Plan Shop has dozens of financial forecast templates available.
Our examples contain a complete business plan with a financial forecast and a written presentation of the company, the team, the strategy, and the medium-term objectives.
Whether you are just starting out or already have your own financial planning company, looking at our financial forecast template is a good way to:
- Understand what a complete business plan should look like
- Understand how you should model financial items for your financial planning company
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 financial planning company 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 financial planning company, 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 revenues for a business?
- Sample financial forecast for business idea
Know someone who owns or is thinking of starting a financial planning company? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
