How to create a financial forecast for a public works company?
Developing and maintaining an up-to-date financial forecast for your public works 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 public works 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 public works company?
The financial projections for your public works 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 public works 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.
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What information is used as input to build a public works company financial forecast?
A public works company's financial forecast is only as good as the inputs used to build it.
If you are creating (or updating) the forecast of an existing public works company, then you mostly need your accounting information, key historical operating non-financial data, and your team’s input on what to expect for the coming years.
If you are building financial projections for a public works company startup, you will need to have done your research and have a clear picture of your competitive environment and go-to-market strategy so that you can forecast sales accurately.
For a new venture, you will also need a precise list of the resources needed to keep the public works company running on a day-to-day basis and a list of the equipment and expenditures required to start the business (more on that later).
Let's now take a closer look at the elements that make up your public works company's financial forecast.
The sales forecast for a public works company
The sales forecast, also called topline projection, is normally where you will start when building your public works 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 public works companies), and consider the elements below:
- Seasonal Weather: The weather can greatly impact the demand for public works services, as certain projects may be more difficult or impossible to carry out during extreme weather conditions. For example, heavy snowfall may delay road construction projects, leading to a decrease in average price and number of monthly transactions during the winter months.
- Economic Growth: Economic growth can directly affect the demand for public works services. When the economy is booming, there may be an increase in construction projects and infrastructure improvements, leading to a higher average price and number of monthly transactions for your company.
- Government Funding: Public works projects are often funded by government agencies, and changes in government budgets can impact the demand for your services. If there is a decrease in government funding for infrastructure projects, it could lead to a decrease in your average price and number of monthly transactions.
- Population Growth: As the population in an area grows, there may be a need for new public works projects to accommodate the increasing number of residents. This can lead to an increase in your average price and number of monthly transactions as your company is hired to complete these projects.
- Competition: The presence of competitors in your market can also affect your average price and number of monthly transactions. If there are many public works companies operating in your area, you may need to lower your prices to remain competitive, leading to a decrease in average price and an increase in number of monthly transactions as customers are attracted to your lower prices.
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 public works company
The next step is to estimate the expenses needed to run your public works company 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 public works company's operating expenses should include the following items at a minimum:
- Staff Costs: This includes salaries, benefits, and training for all employees, including managers, engineers, and support staff.
- Accountancy Fees: As a public works company, you will need to hire accountants to manage your financial records, prepare tax returns, and handle any audits.
- Insurance Costs: It is important to have insurance coverage for your company's assets, equipment, and liability in case of accidents or damages.
- Software Licenses: To efficiently manage your operations, you will need to invest in software licenses for project management, accounting, and other essential tools.
- Banking Fees: As you will be handling large amounts of money, you will need to pay for banking services such as wire transfers, check processing, and account maintenance fees.
- Fuel and Vehicle Maintenance: Public works companies typically have a fleet of vehicles for transportation and maintenance of equipment, which requires regular fuel and maintenance expenses.
- Equipment Rental: In addition to owning equipment, there may be times when you need to rent specialized equipment for specific projects, such as excavators or cranes.
- Office Supplies: This includes basic office supplies such as paper, pens, and printer ink, as well as specialized supplies for engineering and construction projects.
- Utilities: Running a public works company requires a lot of energy, so you will need to budget for electricity, water, and heating expenses.
- Advertising and Marketing: To attract new clients and projects, you may need to invest in advertising and marketing efforts, such as creating a website, printing brochures, and attending industry conferences.
- Training and Development: As technology and industry standards evolve, you will need to invest in training and development opportunities for your employees to stay updated and competitive.
- Legal Fees: In the event of legal disputes or contracts, you may need to hire lawyers or pay legal fees for consultation and representation.
- Travel Expenses: Public works companies often have projects in different locations, so you will need to budget for travel expenses, including flights, accommodations, and meals.
- Safety and Health: As a responsible employer, you will need to prioritize the safety and health of your employees by investing in protective equipment, training, and compliance with regulations.
- Taxes and Permits: Your company will need to pay taxes on income and property, as well as obtain permits and licenses to operate in certain areas.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small public works company might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow a public works company?
Your public works 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 public works company, these could include:
- Heavy equipment: This includes large machinery such as excavators, bulldozers, and cranes that are necessary for public works projects such as road construction, land clearing, and building maintenance.
- Fleet vehicles: Public works companies often require a fleet of vehicles for transportation and maintenance purposes. These can include trucks, vans, and specialized vehicles such as street sweepers and snowplows.
- Infrastructure upgrades: This category includes any major upgrades or improvements to existing public works infrastructure such as bridges, roads, and water treatment plants. These projects can be costly but are necessary for ensuring the safety and functionality of public infrastructure.
- Facility renovations: Public works companies may need to renovate or expand their facilities to accommodate new equipment, vehicles, or staff. This can include building upgrades, repairs, and additions to existing structures.
- Technology investments: In today's digital age, public works companies may need to invest in technology to improve efficiency and effectiveness. This can include purchasing new software, hardware, or other technological tools to streamline processes and improve communication.
Again, this list will need to be adjusted according to the size and ambitions of your public works 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 public works company
The next step in the creation of your financial forecast for your public works 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 public works company?
Now let's have a look at the main output tables of your public works company's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your public works company is likely to be in the years to come.
For your public works company 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 public works companies, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.
The projected balance sheet
Your public works company'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 cash flow projection
The cash flow forecast of your public works company 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 public works company'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 public works company 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 public works company'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 public works company's financial forecast?
Creating your public works company's financial forecast may sound fairly daunting, but the good news is that there are several ways to go about it.
Using online financial forecasting software to build your public works 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.
Calling in a financial consultant or chartered accountant
Outsourcing the creation of your public works company 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 public works company's financial forecast?
You and your financial partners need numbers you can trust. Unless you have studied finance or accounting, creating a trustworthy and error-free public works company financial forecast on a spreadsheet is likely to prove challenging.
Financial modelling is very technical by nature and requires a solid grasp of accounting principles to be done without errors. This means that using spreadsheet software like Excel or Google Sheets to create accurate financial forecasts is out of reach for most business owners.
Creating forecasts in Excel is also inefficient nowadays:
- Software has advanced to the point where forecasting can be done much faster and more accurately than manually on a spreadsheet.
- With artificial intelligence, the software is capable of detecting mistakes and helping decision-making.
Spreadsheets are versatile tools but they are not tailor-made for reporting. Importing your public works company's accounting data in Excel to track actual vs. forecast is incredibly manual and tedious (and so is keeping forecasts up to date). It is much faster to use dedicated financial planning tools like The Business Plan Shop which are built specially 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 public works 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 public works 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?
- Sample financial forecast for business idea
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Founder & CEO at The Business Plan Shop Ltd
