How to create a financial forecast for a music video production 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 music video production company.
Putting together a music video production 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 music video production 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 music video production company?
The financial projections for your music video production company 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 music video production company'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 music video production company financial forecast?
A music video production 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 music video production company.
If you are creating (or updating) the forecast of an existing music video production 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 music video production 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 music video production 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 music video production company's financial forecast.
The sales forecast for a music video production company
The sales forecast, also called topline projection, is normally where you will start when building your music video production company 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 music video production companies), and consider the elements below:
- Changes in popular music trends: As a music video production company, you are highly dependent on the popularity of certain music genres and artists. If there is a sudden shift in music trends that your company is not able to adapt to, it could affect the number of monthly transactions as clients may opt for other production companies that specialize in the current popular music.
- New technology: The constant evolution of technology can greatly impact your average price and number of monthly transactions. For example, the introduction of new camera equipment or editing software could increase your average price as clients may be willing to pay more for higher quality videos. On the other hand, if you are not able to keep up with the latest technology, it could affect the number of monthly transactions as clients may seek out companies with more advanced equipment.
- Competition: The presence of other music video production companies in your area can affect your average price and number of monthly transactions. If there are many competitors offering similar services, you may need to lower your prices to attract clients, resulting in a decrease in average price. Additionally, if your competitors have a larger client base or better reputation, it could impact the number of monthly transactions as clients may choose to work with them instead.
- Changes in consumer spending habits: The economic climate and consumer spending patterns can also have an impact on your business. If there is a downturn in the economy, clients may be less willing to spend money on music video production, resulting in a decrease in both average price and number of monthly transactions. On the other hand, during times of economic growth, clients may be more willing to invest in music videos, leading to an increase in both average price and number of monthly transactions.
- Celebrity endorsements: Partnering with popular artists or celebrities to create music videos can greatly affect your average price and number of monthly transactions. If you are able to secure high-profile clients, it could increase your average price as these clients may be willing to pay a premium for your services. Additionally, having well-known clients can also attract more business and increase the number of monthly transactions as other artists may want to work with your company to achieve the same level of success.
After the sales forecast comes the operating expenses budget, which we will now look into in more detail.
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 music video production company
The next step is to estimate the costs you’ll have to incur to operate your music video production company.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your music video production company's operating expenses should normally include the following items:
- Staff Costs: This includes salaries, benefits, and training expenses for your production team, editors, camera operators, and other staff members.
- Accountancy Fees: You will need to hire an accountant to manage your finances, file taxes, and ensure compliance with financial regulations.
- Insurance Costs: As a production company, you will need to have insurance to protect your equipment, crew, and clients in case of accidents or damages.
- Software Licences: You will need to purchase licences for video editing software, music licensing, and other tools necessary for your production process.
- Banking Fees: These include fees for bank accounts, credit card processing, wire transfers, and other financial transactions.
- Rent: You will need a physical space to operate your business, whether it's a studio, office, or storage facility.
- Marketing and Advertising: To attract clients and promote your services, you will need to invest in marketing and advertising efforts.
- Equipment Rental: Depending on the project, you may need to rent additional equipment such as lighting, sound equipment, or cameras.
- Travel Expenses: If your production takes place in different locations, you will need to cover travel expenses for your crew and equipment.
- Post-Production Costs: This includes expenses for color correction, sound mixing, and other post-production services.
- Utilities: You will need to cover expenses for electricity, water, internet, and other utilities necessary for your production process.
- Permits and Licenses: Depending on the location and project, you may need to obtain permits or licenses for filming, music usage, and other legal requirements.
- Office Supplies: This includes expenses for paper, ink, stationery, and other supplies necessary for your office operations.
- Training and Development: To keep your team's skills updated and improve their expertise, you may need to invest in training and development programs.
- Professional Fees: You may need to hire consultants, lawyers, or other professionals for specific projects or tasks.
This list is not exhaustive by any means, and will need to be tailored to your music video production company's specific circumstances.
What investments are needed to start or grow a music video production company?
Your music video production 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 music video production company, these could include:
- Camera equipment: This includes high-quality cameras, lenses, lighting equipment, and other related gear necessary for capturing high-quality footage for music videos.
- Editing software and computers: A music video production company will need powerful computers and editing software to edit and produce the final video. This can include programs like Adobe Premiere Pro or Final Cut Pro.
- Set and prop construction: Depending on the concept of the music video, the production company may need to construct sets and create or purchase props to bring the vision to life. This can include materials like wood, paint, and other construction supplies.
- Transportation costs: In order to film on location or transport equipment and crew to different shooting locations, a music video production company may need to purchase or rent vehicles such as trucks, vans, or trailers.
- Sound equipment: Sound is a crucial aspect of music videos, so a production company may need to invest in high-quality microphones, recording equipment, and speakers to capture and enhance the audio for the final video.
Again, this list will need to be adjusted according to the size and ambitions of your music video production 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 music video production company
The next step in the creation of your financial forecast for your music video production 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 music video production company?
Now let's have a look at the main output tables of your music video production company'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 music video production company'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 music video production company will look different than for a startup.
The projected balance sheet
The projected balance sheet gives an overview of your music video production company's financial structure at the end of the financial year.
It is composed of three categories of items: assets, liabilities and equity:
- Assets: are what the business possesses and uses to produce cash flows. It includes resources such as cash, buildings, equipment, and accounts receivable (money owed by clients).
- Liabilities: are the debts of your music video production company. They include accounts payable (money owed to suppliers), taxes due and bank loans.
- Equity: is the combination of what has been invested by the business owners and the cumulative profits 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 music video production 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 music video production 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 music video production 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 music video production 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 music video production company's financial forecast?
Using the right tool or solution will make the creation of your music video production company's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your music video production company'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 music video production 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 music video production company's financial forecast?
Creating an accurate and error-free music video production 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 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 music video production company.
- 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 music video production company. 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 revenues for a business?
- Financial forecast for a business idea
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Founder & CEO at The Business Plan Shop Ltd
