How to create a financial forecast for a security consulting firm?
Creating a financial forecast for your security 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 security 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 security consulting firm?
The financial projections for your security consulting firm 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 security consulting firm'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 security consulting firm financial forecast?
A security consulting firm'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 security consulting firm, 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 security consulting firm 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 security consulting firm 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 security consulting firm's financial forecast.
The sales forecast for a security consulting firm
From experience, it is usually best to start creating your security consulting firm financial forecast by your sales forecast.
To create an accurate sales forecast for your security consulting firm, you will have to rely on the data collected in your market research, or if you're running an existing security 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:
- The growing demand for cybersecurity services in various industries, such as healthcare and finance, will likely drive up the average price of your consulting services. As companies become more aware of the importance of protecting their data and systems, they will be willing to pay a premium for your expertise and services.
- The increasing frequency and severity of cyber attacks will also impact your business's average price. As the threat landscape evolves and becomes more sophisticated, your clients may require more advanced and specialized services, resulting in higher prices for your consulting services.
- Changes in government regulations and compliance standards can also affect the average price of your services. As new regulations are implemented, companies may need to update their security measures, creating a demand for your consulting services at a higher price point.
- Your reputation and track record in the industry can also play a significant role in determining the average price of your services. If you have a proven track record of successfully protecting your clients' data and systems, you can command higher prices for your services.
- The adoption of new technologies, such as artificial intelligence and machine learning, may also impact the average price of your consulting services. As these technologies become more prevalent in the cybersecurity space, your clients may require additional consulting and implementation services, resulting in higher prices.
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 security consulting firm
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your security consulting firm 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 security consulting firm will include some of the following items:
- Staff costs: This includes salaries and benefits for your employees, as well as any training and development costs.
- Accountancy fees: You may need to hire an accountant to help with bookkeeping, tax preparation, and financial reporting.
- Insurance costs: It's important to have liability insurance to protect your business in case of any legal claims.
- Software licenses: You may need to purchase software licenses for security tools, accounting software, and other business applications.
- Banking fees: This includes fees for maintaining business bank accounts, wire transfers, and credit card processing fees.
- Marketing and advertising: You may need to allocate funds for promoting your business through online and offline marketing channels.
- Office rent: If you have a physical office space, you will need to pay rent or lease fees.
- Utilities: This includes electricity, water, and internet services for your office.
- Office supplies: You will need to purchase office supplies such as paper, ink, and stationery.
- Travel expenses: If you need to travel for client meetings or conferences, you will need to allocate funds for transportation, accommodation, and meals.
- Professional fees: This includes fees for legal services, consulting services, and any other professional services you may require.
- Rent or lease for equipment: You may need to rent or lease equipment such as laptops, projectors, and security tools for client projects.
- Telephone and internet expenses: You will need to pay for telephone and internet services for your business.
- Business licenses and permits: You may need to obtain business licenses and permits to operate legally.
- Employee benefits: This includes benefits such as health insurance, retirement plans, and paid time off for your employees.
This list will need to be tailored to the specificities of your security consulting firm, but should offer a good starting point for your budget.
What investments are needed to start or grow a security consulting firm?
Your security 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 security consulting firm, these could include:
- Office Space: This includes purchasing or leasing office space for your security consulting firm. This can also include any renovations or improvements needed to make the space suitable for your business needs.
- Equipment: This includes purchasing necessary equipment such as computers, servers, printers, and other technology needed to run your security consulting firm. This can also include any maintenance or upgrades needed for existing equipment.
- Security Tools and Software: This includes purchasing or subscribing to security tools and software that are essential for providing services to clients. This can include antivirus software, firewalls, intrusion detection systems, and other tools to ensure the security of your clients' information.
- Training and Certifications: This includes investing in the training and certifications of your employees to ensure they have the necessary knowledge and skills to provide high-quality security consulting services. This can also include the cost of sending employees to conferences or workshops to stay updated on the latest industry trends and technologies.
- Furniture and Fixtures: This includes purchasing desks, chairs, and other furniture and fixtures necessary for your office space. This can also include any renovations or improvements needed to make the space comfortable and conducive for work.
Again, this list will need to be adjusted according to the size and ambitions of your security 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 security consulting firm
The next step in the creation of your financial forecast for your security 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 security consulting firm?
Now let's have a look at the main output tables of your security consulting firm's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your security consulting firm is likely to be in the years to come.
For your security 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 security 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
The projected balance sheet gives an overview of your security consulting firm'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 security consulting firm. 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 projected cash flow statement
A projected cash flow statement for a security 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 security 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 security 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 security consulting firm's financial forecast?
Using the right tool or solution will make the creation of your security consulting firm's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your security 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 security 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 security consulting firm's financial forecast?
Creating an accurate and error-free security consulting firm 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
- 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 security consulting firm 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 security consulting firm, 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?
- Example of financial forecast for business idea
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Founder & CEO at The Business Plan Shop Ltd
