How to create a financial forecast for a fintech company?
Developing and maintaining an up-to-date financial forecast for your fintech company 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 fintech company 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 fintech company?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your fintech company and ensure that it can be financially viable in the years to come.
A financial plan for a fintech 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 fintech 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 fintech 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 needed to build a fintech company 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 fintech company, 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 fintech company 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 fintech company, 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 fintech company's financial forecast.
The sales forecast for a fintech company
From experience, it is usually best to start creating your fintech company financial forecast by your sales forecast.
To create an accurate sales forecast for your fintech company, you will have to rely on the data collected in your market research, or if you're running an existing fintech 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:
- Consumer Confidence: Fluctuations in consumer confidence can have a direct impact on the average price and number of monthly transactions for your fintech company. In times of economic uncertainty, consumers may be more cautious with their spending, leading to a decrease in transaction volume and potentially a decrease in the average price of your services.
- Regulatory Changes: Changes in regulations within the financial industry can greatly affect your business's average price and number of monthly transactions. For example, if new regulations are implemented that make it more difficult for consumers to access your services, this could result in a decrease in both average price and transaction volume.
- Competitor Pricing: Your fintech company's average price may be impacted by the pricing strategies of your competitors. If your competitors are offering similar services at a lower price, this could lead to a decrease in your average price as you may need to lower your prices to remain competitive. This, in turn, could also affect the number of monthly transactions as consumers may be more likely to choose the cheaper option.
- Technology Advancements: As a fintech company, your business is heavily reliant on technology. Advancements in technology can greatly impact your average price and number of monthly transactions. For example, if a new technology is developed that makes your services more efficient and cost-effective, this could result in a decrease in your average price as you may need to lower prices to remain competitive. However, it could also lead to an increase in transaction volume as more consumers may be attracted to your services.
- Partnerships and Collaborations: Collaborating with other businesses or forming partnerships can have a significant impact on your average price and number of monthly transactions. For example, if you partner with a popular brand or business, this could increase the perceived value of your services and potentially result in an increase in average price. Additionally, partnerships can also lead to an increase in transaction volume as your services may be exposed to a wider audience through the partner's network.
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 fintech company
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your fintech 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 fintech company will include some of the following items:
- Staff costs: This includes salaries, bonuses, benefits, and any other expenses related to your employees.
- Accountancy fees: Fintech companies often have complex financial transactions and reporting requirements, so hiring an accountant or using accounting software can be a significant expense.
- Insurance costs: As a fintech company, you may be dealing with sensitive financial information and handling large sums of money. Therefore, having insurance to protect against potential cyber attacks, data breaches, or other risks is crucial.
- Software licenses: Fintech companies rely heavily on technology and software to operate. This includes licenses for financial software, data analytics tools, and other technology solutions.
- Banking fees: Fintech companies often have multiple bank accounts and make frequent transactions, which can result in significant banking fees.
- Marketing and advertising costs: To attract and retain customers, you may need to invest in marketing and advertising efforts, such as digital ads, social media campaigns, and events.
- Legal fees: Fintech companies may require legal services for contract drafting, compliance, intellectual property protection, and other legal matters.
- Rent/Office space: Having a physical office space can be necessary for fintech companies, resulting in rent and other associated expenses, such as utilities and maintenance costs.
- Consulting fees: As a fintech company, you may need to hire consultants to help with various aspects of your business, such as technology implementation, regulatory compliance, or strategic planning.
- Data and research costs: Staying up-to-date with market trends and consumer behavior is crucial in the fintech industry. This may require purchasing data and research from third-party providers.
- Travel and entertainment expenses: Fintech companies may need to attend industry conferences, meet with clients, or conduct business travel, resulting in travel and entertainment expenses.
- Telecommunication costs: Communication is essential in the fintech industry, and these expenses may include phone and internet services, as well as video conferencing tools.
- Training and development: As technology and the fintech industry continue to evolve, it's essential to invest in employee training and development to stay competitive.
- Office supplies and equipment: Running a fintech company requires various office supplies and equipment, such as computers, printers, and stationery.
- Utilities: This includes electricity, water, and other utilities necessary to keep your office running.
This list will need to be tailored to the specificities of your fintech company, but should offer a good starting point for your budget.
What investments are needed to start or grow a fintech company?
Your fintech company 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 fintech company, these could include:
- Computer hardware: As a fintech company, you will need to invest in computer hardware such as servers, laptops, and other devices to support your software and applications.
- Data center expenses: In order to store and process large amounts of data, you may need to invest in data center facilities or rent space from a third-party provider.
- Software development costs: Developing and maintaining software is a key aspect of running a fintech company, so you will need to budget for ongoing software development and maintenance costs.
- Security systems: As a fintech company, you will be handling sensitive financial information, so investing in robust security systems and protocols is crucial to protect your customers' data.
- Office equipment: While many fintech companies operate remotely, you may still need to invest in office equipment such as printers, scanners, and furniture for your physical office space.
Again, this list will need to be adjusted according to the size and ambitions of your fintech 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 fintech company
The next step in the creation of your financial forecast for your fintech 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 fintech company?
Now let's have a look at the main output tables of your fintech company's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your fintech company's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a fintech company 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 fintech 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 projected cash flow statement
A projected cash flow statement for a fintech 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 fintech 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 fintech 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 fintech company's financial forecast?
Using the right tool or solution will make the creation of your fintech company's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your fintech company's projections
The modern and easiest way is to use professional online financial forecasting 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.
Hiring a financial consultant or chartered accountant
Hiring a consultant or chartered accountant is also an efficient way to get a professional fintech 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 fintech company's financial forecast?
Creating an accurate and error-free fintech company 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 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 fintech 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 fintech 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 fintech 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 fintech 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 create a sales forecast for a business?
- Financial forecast for a business idea
Know someone who owns or is thinking of starting a fintech company? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
