How to create a financial forecast for a search engine marketing agency?
Developing and maintaining an up-to-date financial forecast for your search engine marketing agency 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 search engine marketing agency 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 search engine marketing agency?
The financial projections for your search engine marketing agency 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 search engine marketing agency'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 search engine marketing agency financial forecast?
A search engine marketing agency'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 search engine marketing agency, 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 search engine marketing agency 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 search engine marketing agency 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 search engine marketing agency's financial forecast.
The sales forecast for a search engine marketing agency
The sales forecast, also called topline projection, is normally where you will start when building your search engine marketing agency 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 search engine marketing agencies), and consider the elements below:
- Economic conditions: Changes in the overall economy, such as a recession or economic boom, can impact the average price and number of monthly transactions for your search engine marketing agency. In a recession, businesses may cut their marketing budgets and opt for cheaper options, resulting in a decrease in your average price and number of monthly transactions. On the other hand, during an economic boom, businesses may be more willing to invest in their marketing, leading to an increase in your average price and number of monthly transactions.
- Competitor pricing: Your competitors' pricing strategies can also affect your average price and number of monthly transactions. If your competitors are offering similar services at a lower price, you may need to adjust your prices to stay competitive. This can result in a decrease in your average price, but it may also attract more customers and increase your number of monthly transactions.
- Technological advancements: As technology continues to evolve, it can impact your search engine marketing agency's average price and number of monthly transactions. For example, the introduction of new tools or software that make it easier and more efficient to run campaigns may result in a decrease in your average price, but it can also attract more clients and increase your number of monthly transactions.
- Changes in search engine algorithms: Search engine algorithms are constantly changing, and these changes can affect your clients' search engine rankings. If your clients' rankings drop, they may be less likely to continue using your services, resulting in a decrease in your number of monthly transactions. On the other hand, if your clients' rankings improve, you may be able to charge a higher average price for your services.
- Industry trends: Keep an eye on industry trends that may impact the demand for search engine marketing services. For example, if more businesses start incorporating social media marketing into their overall strategy, this may result in a decrease in the demand for search engine marketing services and a decrease in your average price and number of monthly transactions. However, if there is a shift towards more businesses investing in search engine marketing, this can lead to an increase in your average price and number of monthly transactions.
After the sales forecast comes the operating expenses budget, which we will now look into in more detail.
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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 operating expenses for a search engine marketing agency
The next step is to estimate the costs you’ll have to incur to operate your search engine marketing agency.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your search engine marketing agency's operating expenses should normally include the following items:
- Staff costs: This includes salaries, bonuses, benefits, and any other expenses related to your employees. As a search engine marketing agency, you will need a team of experts to manage campaigns, create content, and analyze data.
- Accountancy fees: It is important to have a professional accountant to handle your finances and ensure compliance with tax laws. You may also need their services for bookkeeping, payroll, and financial reporting.
- Insurance costs: As with any business, insurance is necessary to protect your agency from potential risks and liabilities. This can include general liability insurance, professional liability insurance, and worker's compensation insurance.
- Software licenses: In order to run successful search engine marketing campaigns, you will need access to various software tools and platforms. This can include keyword research tools, analytics software, and social media management tools.
- Banking fees: You will need a business bank account to manage your agency's finances. This may include fees for transactions, wire transfers, and overdraft fees.
- Office rent: If you have a physical office space, this will be a significant expense. You may also need to consider utilities, maintenance, and other associated costs.
- Marketing and advertising costs: As a search engine marketing agency, you will need to invest in your own marketing and advertising efforts to attract clients. This can include website development, social media advertising, and attending industry events.
- Travel expenses: Depending on the type of clients you have, you may need to travel for meetings, conferences, or to attend events. This can include airfare, hotel accommodations, and meals.
- Training and development: In order to stay competitive in the ever-changing world of search engine marketing, you will need to invest in ongoing training and development for your team.
- Professional memberships and subscriptions: To stay updated on industry trends and best practices, you may need to subscribe to industry publications or join professional organizations.
- Legal fees: As a business owner, you may need to seek legal advice on contracts, client agreements, and other legal matters.
- Office supplies and equipment: This includes basic office supplies such as pens, paper, and printer ink, as well as any necessary equipment like computers, printers, and office furniture.
- Internet and phone expenses: A reliable internet connection and phone service are essential for a search engine marketing agency. This can include expenses for internet service, phone plans, and conference call services.
- Rent or lease for equipment: In addition to office equipment, you may need to rent or lease specialized equipment for your campaigns, such as cameras for video production or software for graphic design.
- Office cleaning and maintenance: If you have a physical office space, you will need to budget for regular cleaning and maintenance services to keep it presentable for clients and employees.
This list is not exhaustive by any means, and will need to be tailored to your search engine marketing agency's specific circumstances.
What investments are needed to start or grow a search engine marketing agency?
Once you have an idea of how much sales you could achieve and what it will cost to run your search engine marketing agency, it is time to look into the equipment required to launch or expand the activity.
For a search engine marketing agency, capital expenditures and initial working capital items could include:
- Office space: As a search engine marketing agency, you will need a physical space to operate your business. This may include expenses such as rent, utilities, and furniture.
- Computer equipment: Your agency will require computers, servers, and other hardware to run your search engine marketing campaigns. These are considered fixed assets and will need to be included in your expenditure forecast.
- Software licenses: In addition to hardware, your agency will also need to purchase software licenses for tools and programs used in search engine marketing. These can include keyword research tools, analytics software, and project management systems.
- Website development: As a search engine marketing agency, having a professional and well-designed website is crucial for attracting clients and showcasing your services. This may require hiring a web developer or purchasing website templates and themes.
- Training and certification: While this is not an operating expense, it is important to include any necessary training and certification costs in your expenditure forecast. This may include courses on search engine optimization, pay-per-click advertising, and other relevant skills to stay competitive in the industry.
Again, this list will need to be adjusted according to the specificities of your search engine marketing agency.
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 search engine marketing agency
The next step in the creation of your financial forecast for your search engine marketing agency 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 search engine marketing agency?
Now let's have a look at the main output tables of your search engine marketing agency'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 search engine marketing agency'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 search engine marketing agency will look different than for a startup.
The projected balance sheet
The projected balance sheet gives an overview of your search engine marketing agency'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 search engine marketing agency. 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 projection
The cash flow forecast of your search engine marketing agency 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 search engine marketing agency'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 search engine marketing agency 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 search engine marketing agency'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 search engine marketing agency's financial forecast?
Using the right tool or solution will make the creation of your search engine marketing agency's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your search engine marketing agency'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.
Hiring a financial consultant or chartered accountant
Hiring a consultant or chartered accountant is also an efficient way to get a professional search engine marketing agency 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 search engine marketing agency's financial forecast?
Creating an accurate and error-free search engine marketing agency 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 projection templates for inspiration
The Business Plan Shop has dozens of financial forecast templates available.
Our examples contain a complete business plan with a financial forecast and a written presentation of the company, the team, the strategy, and the medium-term objectives.
Whether you are just starting out or already have your own search engine marketing agency, looking at our financial forecast template is a good way to:
- Understand what a complete business plan should look like
- Understand how you should model financial items for your search engine marketing agency
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 search engine marketing agency 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 search engine marketing agency, 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 project revenues for a business?
- Financial forecast template for a business idea
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Founder & CEO at The Business Plan Shop Ltd
