How to create a financial forecast for a policy research institute?
Creating a financial forecast for your policy research institute, 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 policy research institute 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 policy research institute?
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 policy research institute becomes handy.
Creating a policy research institute 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 policy research institute.
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 policy research institute 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 policy research institute'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 needed to build a policy research institute 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 policy research institute, 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 policy research institute 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 policy research institute, 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 policy research institute's financial forecast.
The sales forecast for a policy research institute
From experience, it is usually best to start creating your policy research institute financial forecast by your sales forecast.
To create an accurate sales forecast for your policy research institute, you will have to rely on the data collected in your market research, or if you're running an existing policy research institute, 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:
- Economic conditions: Changes in the overall economic conditions of the country can affect the average price and number of transactions for your policy research institute. In times of economic downturn, businesses and organizations may be less likely to invest in policy research, resulting in a decrease in the average price of your services and number of monthly transactions.
- Government policies: Changes in government policies and regulations can have a direct impact on the demand for policy research. For example, if a new policy is introduced that requires businesses to conduct more research, your institute may see an increase in both the average price and number of monthly transactions as demand for your services increases.
- Technological advancements: Advancements in technology can affect the way policy research is conducted and may impact the average price and number of transactions for your institute. For instance, if new software or tools are developed that make research more efficient, you may be able to offer your services at a lower price, resulting in an increase in the number of monthly transactions.
- Industry trends: Changes in industry trends can also have an impact on your sales forecast. If there is a growing demand for a specific type of policy research, you may need to adjust your prices to remain competitive and meet the demand. On the other hand, if there is a decline in demand for a specific type of research, you may need to focus on other areas to maintain your average price and number of monthly transactions.
- Political climate: The political climate can also affect the demand for policy research. For example, if there is a major election or policy change on the horizon, businesses and organizations may be more inclined to invest in research to stay informed and prepared. This can result in an increase in the average price and number of monthly transactions for your institute.
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 policy research institute
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your policy research institute 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 policy research institute will include some of the following items:
- Staff Costs: This includes salaries, benefits, and any other expenses related to your employees. As a policy research institute, your staff will be the backbone of your organization, conducting research, analyzing data, and communicating with stakeholders.
- Accountancy Fees: To ensure accurate financial reporting and compliance with tax laws, you will need to hire an accountant or accounting firm to handle your financials. This can include bookkeeping, tax preparation, and other financial services.
- Insurance Costs: As with any organization, your policy research institute will need to have insurance coverage to protect against potential risks and liabilities. This can include general liability, professional liability, and workers' compensation insurance.
- Software Licences: To conduct research and analyze data, your institute will need to invest in various software programs. This can include statistical analysis software, data visualization tools, and project management software.
- Banking Fees: Your institute will likely have a business bank account to manage expenses and receive payments. This may include monthly service fees, transaction fees, and wire transfer fees.
- Rent/Office Space: Depending on the size of your institute, you may need to rent office space to accommodate your staff and operations. This can include rent, utilities, and maintenance costs.
- Travel Expenses: As a policy research institute, you may need to travel for conferences, meetings, and field research. This can include airfare, lodging, and transportation costs.
- Marketing and Advertising: To promote your institute and its research, you may need to invest in marketing and advertising efforts. This can include website development, social media advertising, and print materials.
- Professional Memberships: To stay up-to-date on industry trends and network with other professionals, you may need to pay for memberships to professional organizations and associations.
- Office Supplies: From paper and pens to printer ink and toner, your institute will need various office supplies for day-to-day operations.
- Training and Development: To ensure your staff has the necessary skills and knowledge to conduct research and analyze data, you may need to invest in training and development programs.
- Conferences and Events: As a policy research institute, you may want to host conferences and events to share your research and engage with stakeholders. This can include venue rental, catering, and other event expenses.
- Legal Fees: To ensure compliance with laws and regulations, you may need to consult with a lawyer or law firm. This can include contract review, intellectual property protection, and other legal services.
- Printing and Publishing Costs: If you plan to publish research reports or other materials, you will need to budget for printing and publishing costs.
- Employee Benefits: In addition to salaries, you may offer your employees benefits such as health insurance, retirement plans, and paid time off. These costs should also be factored into your operating expenses forecast.
This list will need to be tailored to the specificities of your policy research institute, but should offer a good starting point for your budget.
What investments are needed to start or grow a policy research institute?
Creating and expanding a policy research institute also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a policy research institute could include elements such as:
- Building Renovations - As a policy research institute, you may need to invest in renovating your building to create a more conducive and modern work environment. This could include updates to office spaces, conference rooms, and common areas.
- Technology Upgrades - In today's digital age, it is essential for a policy research institute to have up-to-date technology. This could include purchasing new computers, software, servers, and other equipment to ensure efficient and effective research and analysis.
- Research Equipment - As a policy research institute, you may require specialized equipment for conducting research in various fields. This could include purchasing laboratory equipment, survey tools, or data collection software to improve the quality and accuracy of your research.
- Library Resources - A policy research institute relies heavily on access to information and resources. Investing in a comprehensive library with a wide range of books, journals, and online databases can greatly enhance the capabilities and credibility of your institute.
- Furniture and Fixtures - In order to create a professional and comfortable work environment, it is important to invest in high-quality furniture and fixtures. This could include desks, chairs, shelving units, and other necessary items for your employees and visitors.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your policy research institute.
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 policy research institute
The next step in the creation of your financial forecast for your policy research institute 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 policy research institute?
Now let's have a look at the main output tables of your policy research institute's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your policy research institute's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a policy research institute 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
The projected balance sheet gives an overview of your policy research institute'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 policy research institute. 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 policy research institute'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 policy research institute:
- 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 policy research institute'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 policy research institute'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 policy research institute's financial forecast?
Creating your policy research institute'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 policy research institute'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
Outsourcing the creation of your policy research institute financial forecast is another possible solution.
This will cost more than using software as you can expect as your price will have to cover the accountant’s time, software cost, and profit margin.
Price can vary greatly based on the complexity of your business. For a small business, from experience, a simple three-year financial forecast (including a balance sheet, income statement, and cash flow statement) will start at around £700 or $1,000.
Bear in mind that this is for forecasts produced at a single point in time, updating or tracking your forecast against actuals will cost extra.
If you decide to outsource your forecasting:
- Make sure the professional has direct experience in your industry and is able to challenge your assumptions constructively.
- Steer away from consultants using sectorial ratios to build their client’s financial forecasts (these projections are worthless for a small business).
Why not use a spreadsheet such as Excel or Google Sheets to build your policy research institute's financial forecast?
Creating an accurate and error-free policy research institute 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 forecasting templates available.
Our examples contain both the financial forecast, and a written business plan which presents, in detail, the company, the team, the strategy, and the medium-term objectives.
Whether you are just starting out or already have your own policy research institute, looking at our template is always a good way to get ideas on how to model financial items and what to write when creating a business plan to secure funding.
Takeaways
- A financial projection shows expected growth, profitability, and cash generation for your business over the next three to five years.
- Tracking actuals vs. forecast and keeping your financial forecast up-to-date is the only way to maintain visibility on future cash flows.
- Using financial forecasting software makes it easy to create and maintain up-to-date projections for your policy research institute.
You have reached the end of our guide. We hope you now have a better understanding of how to create a financial forecast for a policy research institute. Don't hesitate to contact our team if you have any questions or want to share your experience building forecasts!
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 projections
- How to create a sales forecast for a business?
- Sample financial forecast for business idea
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Founder & CEO at The Business Plan Shop Ltd
