How to create a financial forecast for a medical research lab?
Creating a financial forecast for your medical research lab, 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 medical research lab 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 medical research lab?
The financial projections for your medical research lab 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 medical research lab'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.
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What information is needed to build a medical research lab 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 medical research lab, 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 medical research lab 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 medical research lab, 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 medical research lab's financial forecast.
The sales forecast for a medical research lab
The sales forecast, also called topline projection, is normally where you will start when building your medical research lab 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 medical research labs), and consider the elements below:
- You will need to consider the impact of new regulations on the average price and number of monthly transactions for your medical research lab. For example, if there are stricter regulations on the disposal of hazardous materials, it may increase your costs and therefore impact your average price.
- Changes in technology can also have a significant impact on your sales forecast. For instance, if there is a new breakthrough in medical research technology, it may lead to an increase in the demand for your services and potentially increase your average price.
- The availability of funding for medical research can also affect your sales forecast. If there is a decrease in government funding, it may result in fewer projects and therefore decrease your number of monthly transactions.
- The emergence of new competitors in the medical research industry can also affect your average price and number of monthly transactions. If there is increased competition, you may need to lower your prices to remain competitive, or you may lose customers to other labs.
- The state of the economy can also play a role in your sales forecast. In times of economic downturn, there may be less funding available for medical research, which can impact your average price and number of monthly transactions. On the other hand, during economic prosperity, there may be more funding and opportunities for your lab.
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 medical research lab
The next step is to estimate the expenses needed to run your medical research lab 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 medical research lab's operating expenses should include the following items at a minimum:
- Staff costs: This includes salaries, benefits, and any other expenses related to hiring and retaining employees for your medical research lab. This could also include training and development costs for your staff.
- Accountancy fees: You may need to hire an accountant or accounting firm to help with financial management and tax preparation for your lab. This can include expenses for bookkeeping, tax filing, and financial reporting.
- Insurance costs: It is important to have insurance coverage for your medical research lab to protect against any potential risks or liabilities. This can include liability insurance, property insurance, and workers' compensation insurance.
- Software licenses: Your lab may need to use various software programs for data analysis, research, and other purposes. This can include expenses for purchasing and renewing software licenses.
- Banking fees: Your lab will likely have banking fees associated with maintaining business bank accounts, processing transactions, and other financial activities. These fees can include monthly service fees, transaction fees, and wire transfer fees.
- Office supplies: Your lab will need various office supplies such as pens, paper, printer ink, and other materials for day-to-day operations.
- Lab supplies: As a medical research lab, you will need specific supplies for conducting experiments and research. This can include lab equipment, chemicals, and other materials.
- Utilities: Your lab will have ongoing expenses for utilities such as electricity, water, and internet services.
- Rent or lease: If you do not own the building where your lab is located, you will have ongoing expenses for rent or lease payments.
- Professional fees: You may need to hire outside professionals for specific services such as legal advice, marketing, or IT support. These fees can add up and should be accounted for in your operating expenses.
- Travel expenses: Depending on the nature of your research, you may need to travel for conferences, meetings, or to conduct experiments. These expenses can include airfare, lodging, and transportation costs.
- Conference and training fees: Your lab may need to attend conferences or training programs to stay up-to-date with the latest research and techniques. These fees can include registration costs, travel expenses, and accommodation.
- Marketing and advertising: To promote your research and attract potential partners or funders, you may need to invest in marketing and advertising efforts. This can include expenses for print materials, digital advertising, and event sponsorships.
- Maintenance and repairs: Your lab equipment and facilities will require ongoing maintenance and occasional repairs. These expenses should be included in your operating budget.
- Taxes: Your lab will have various tax obligations, including income tax, payroll tax, and sales tax. These taxes should be factored into your operating expenses to ensure accurate financial planning.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small medical research lab might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow a medical research lab?
Your medical research lab 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 medical research lab, these could include:
- Laboratory Equipment: This includes items such as microscopes, centrifuges, spectrophotometers, and other specialized equipment necessary for conducting medical research.
- Computers and Software: These are essential for data analysis, record keeping, and communication within the lab. This may include desktop computers, laptops, data storage devices, and specialized software programs.
- Laboratory Furniture: This includes workstations, benches, chairs, and storage cabinets specifically designed for use in a medical research lab. These items are necessary for creating a functional and efficient workspace for lab personnel.
- Lab Supplies and Consumables: These are items that are used up or replaced frequently, such as chemicals, lab glassware, and disposable gloves. These expenses can add up quickly and should be factored into the lab's expenditure forecast.
- Building Renovation or Construction: If the lab is being established in a new location or requires renovation to accommodate specialized equipment, this would be considered a capital expenditure. This may include items such as ventilation systems, plumbing, and electrical upgrades.
Again, this list will need to be adjusted according to the size and ambitions of your medical research lab.
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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 financing plan of your medical research lab
The next step in the creation of your financial forecast for your medical research lab 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 medical research lab?
Now let's have a look at the main output tables of your medical research lab'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 medical research lab'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 medical research lab will look different than for a startup.
The projected balance sheet
Your medical research lab'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 projection
The cash flow forecast of your medical research lab will show how much cash the business is expected to generate or consume over the next three to five years.
There are multiple ways of presenting a cash flow forecast but from experience, it is better to organise it by nature in order to clearly show these elements:
- Operating cash flow: how much cash is generated by the medical research lab's operations
- Investing cash flow: what is the business investing to expand or maintain its equipment
- Financing cash flow: is the business raising additional funds or repaying financiers (debt repayment, dividends)
Your cash flow forecast is the most important element of your overall financial projection and that’s where you should focus your attention to ensure that your medical research lab is adequately funded.
Note: if you are preparing a financial forecast in order to try to secure funding, you will need to include both a yearly and monthly cash flow forecast in your medical research lab's financial plan.
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 medical research lab's financial forecast?
Creating your medical research lab'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 medical research lab'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.
Hiring a financial consultant or chartered accountant
Hiring a consultant or chartered accountant is also an efficient way to get a professional medical research lab 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 medical research lab's financial forecast?
Creating an accurate and error-free medical research lab 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
- 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 medical research lab 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 medical research lab, 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
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- Sample financial forecast for business idea
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Founder & CEO at The Business Plan Shop Ltd
