How to create a financial forecast for a human resources consulting firm?
Creating a financial forecast for your human resources consulting 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 human resources consulting 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 human resources consulting firm?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your human resources consulting firm and ensure that it can be financially viable in the years to come.
A financial plan for a human resources consulting firm 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 human resources consulting firm 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 human resources consulting firm'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 human resources consulting firm financial forecast?
A human resources consulting firm'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 human resources consulting firm.
If you are creating (or updating) the forecast of an existing human resources consulting firm, 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 human resources consulting firm 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 human resources consulting firm 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 human resources consulting firm's financial forecast.
The sales forecast for a human resources consulting firm
From experience, it is usually best to start creating your human resources consulting firm financial forecast by your sales forecast.
To create an accurate sales forecast for your human resources consulting firm, you will have to rely on the data collected in your market research, or if you're running an existing human resources consulting 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:
- Your reputation and experience in the industry can impact the average price of your services. As your reputation grows and you gain more experience, clients may be willing to pay a higher price for your expertise.
- The economic climate can also affect the average price of your services. During times of economic downturn, clients may be less willing to pay higher prices for human resources consulting services. On the other hand, during a strong economy, clients may be more willing to invest in your services and pay a higher price.
- The demand for human resources consulting services in your local area can also impact the average price of your services. If there is high demand for your services, you may be able to charge a higher price. However, if there is low demand, you may need to lower your prices to remain competitive.
- Your level of specialization and niche in the human resources consulting industry can also affect the average price of your services. If you have a highly specialized skill set or cater to a niche market, you may be able to charge a higher price for your services.
- The level of competition in your area can also impact the average price of your services. If there are many other human resources consulting firms in your area, you may need to adjust your prices to remain competitive. However, if you are the only firm offering certain services, you may be able to charge a higher price.
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 operating expenses for a human resources consulting firm
The next step is to estimate the expenses needed to run your human resources consulting 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 human resources consulting firm's operating expenses should include the following items at a minimum:
- Staff Costs: This includes salaries, benefits, and any other compensation for your employees. As a human resources consulting firm, your staff costs will likely be one of your largest operating expenses.
- Accountancy Fees: You will need to hire an accountant to help with taxes, bookkeeping, and other financial tasks. This is an essential expense for any business, including a human resources consulting firm.
- Insurance Costs: It is important to have insurance to protect your business from any potential risks or liabilities. This can include general liability insurance, professional liability insurance, and workers' compensation insurance.
- Software Licenses: As a human resources consulting firm, you will likely need to invest in various software programs to help with tasks such as payroll, scheduling, and document management. Make sure to budget for the costs of these licenses.
- Banking Fees: You will need a business bank account to manage your finances, and this may come with various fees such as monthly maintenance fees, ATM fees, and transaction fees. Consider these costs when forecasting your operating expenses.
- Marketing and Advertising: To attract clients, you will need to invest in marketing and advertising efforts. This can include creating a website, attending industry events, and running targeted ads on social media platforms.
- Office Rent: As a consulting firm, you will likely need a physical location to meet with clients and conduct business. This will come with the cost of rent, utilities, and other expenses related to maintaining an office space.
- Travel Expenses: Depending on the type of consulting work you do, you may need to travel to meet with clients or attend conferences. This can include airfare, hotel accommodations, and meals.
- Professional Memberships and Certifications: As a human resources consulting firm, it is important to stay up-to-date with industry trends and best practices. This may require joining professional organizations or obtaining certifications, which come with membership or renewal fees.
- Training and Development: To provide the best services to your clients, you may need to invest in ongoing training and development for yourself and your employees. This can include attending workshops, conferences, and online courses.
- Technology Expenses: In addition to software licenses, you may also need to purchase and maintain hardware such as computers, printers, and phones for your business operations.
- Legal Fees: It is important to have a lawyer on retainer to help with any legal issues that may arise. This can include drafting contracts, reviewing legal documents, and providing legal advice.
- Office Supplies: To keep your business running smoothly, you will need to purchase office supplies such as paper, pens, and printer ink. These costs may seem small, but they can add up over time.
- Employee Benefits: In addition to salaries, you may need to offer employee benefits such as health insurance, retirement plans, and paid time off. These costs can vary depending on the size of your business and the benefits offered.
- Utilities: You will need to budget for the cost of utilities for your office space, including electricity, water, and internet services.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small human resources consulting firm might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow a human resources consulting firm?
Your human resources consulting firm 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 human resources consulting firm, these could include:
- Office Space: As a human resources consulting firm, you will need a physical office space to conduct meetings with clients and house your team. This could include rent, utilities, and any necessary renovations or improvements.
- Furniture and Equipment: You will need furniture and equipment to outfit your office space, such as desks, chairs, computers, printers, and telephones. These items are essential for day-to-day operations and should be included in your expenditure forecast.
- Technology: In today's digital age, technology is crucial for a successful business. This may include software and hardware for managing payroll, benefits, and other HR tasks, as well as a website and online presence for marketing and communication purposes.
- Training and Development: While training and development expenses are typically considered operating expenses, there may be certain capital expenditures related to this category, such as purchasing training materials or investing in educational programs for your team.
- Legal and Professional Fees: As a consulting firm, you may need to seek legal or professional advice for various matters, such as creating contracts, developing policies and procedures, or hiring additional staff. These fees should be included in your expenditure forecast.
Again, this list will need to be adjusted according to the size and ambitions of your human resources consulting 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 human resources consulting firm
The next step in the creation of your financial forecast for your human resources consulting 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 human resources consulting firm?
Now let's have a look at the main output tables of your human resources consulting firm's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your human resources consulting firm is likely to be in the years to come.
For your human resources consulting firm 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 human resources consulting firms, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.
The projected balance sheet
Your human resources consulting firm'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 human resources consulting firm 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 human resources consulting firm'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 human resources consulting firm 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 human resources consulting firm's financial projections?
Building a human resources consulting firm financial forecast is not difficult provided that you use the right tool for the job. Let’s see what options are available below.
Using online financial forecasting software to build your human resources consulting firm'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.
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 human resources consulting firm 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 human resources consulting firm's financial forecast?
Creating an accurate and error-free human resources consulting 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 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 forecast shows expected growth, profitability, and cash generation metrics for your human resources consulting firm.
- Tracking actuals vs. forecast and having an up-to-date financial forecast is key to maintaining visibility on your future cash flows.
- Using financial forecasting software is the modern way of creating and maintaining financial projections.
We hope that this guide helped you gain a clearer perspective on the steps needed to create the financial forecast for a human resources consulting firm. Don't hesitate to contact us if you 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
- Financial forecast example
- How to project sales for a business?
- Financial forecast for a business idea
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Founder & CEO at The Business Plan Shop Ltd
