How to create a financial forecast for a staffing agency?
Developing and maintaining an up-to-date financial forecast for your staffing 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 staffing 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 staffing agency?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your staffing agency and ensure that it can be financially viable in the years to come.
A financial plan for a staffing agency enables you to look at your business in detail - from income to operating costs and investments - to evaluate its expected profitability and future cash flows.
This gives you the visibility needed to plan future investments and expansion with confidence.
And, when your trading environment gets tougher, having an up to date staffing agency forecast enables you to detect potential upcoming financing shortfalls in advance, enabling you to make adjustments or secure financing before you run out of cash.
It’s also important to remember that your staffing agency's financial forecast will be essential when looking for financing. You can be 100% certain that banks and investors will ask to see your numbers, so make sure they’re set out accurately and attractively.
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 staffing agency financial forecast?
A staffing agency'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 staffing agency.
If you are creating (or updating) the forecast of an existing staffing agency, 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 staffing agency 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 staffing agency 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 staffing agency's financial forecast.
The sales forecast for a staffing agency
The sales forecast, also called topline projection, is normally where you will start when building your staffing 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 staffing agencies), and consider the elements below:
- Economic Conditions: Changes in the overall economy, such as a recession or a booming job market, can affect the average price of staffing services. During a recession, companies may be more price-sensitive and require lower-priced staffing solutions. Conversely, during a period of economic growth, companies may be willing to pay a premium for high-quality staffing services.
- Industry Trends: Changes in industry trends can also impact the average price of staffing services. For example, if there is a high demand for workers in a specific industry, such as healthcare or technology, the average price for staffing services in those industries may increase due to the limited pool of qualified candidates.
- Competition: The level of competition in the staffing industry can also affect the average price of services. If there are many other staffing agencies in the same area offering similar services, you may need to adjust your prices to remain competitive. On the other hand, if you are the only agency in a niche market, you may be able to charge higher prices.
- Labor Laws and Regulations: Changes in labor laws and regulations, such as minimum wage increases or new overtime rules, can impact the average price of staffing services. These changes can affect the cost of labor for the agency, which may need to be passed on to clients in the form of higher prices.
- Client Relationships: The strength and longevity of your relationships with clients can also impact the average price of staffing services. If you have long-standing relationships with clients, they may be more willing to pay higher prices for your services due to the trust and reliability you have established. However, if you are just starting out and do not have strong relationships, you may need to offer lower prices to attract and retain clients.
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 staffing agency
The next step is to estimate the costs you’ll have to incur to operate your staffing agency.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your staffing agency's operating expenses should normally include the following items:
- Staff costs: This includes salaries, benefits, and any other expenses related to your employees such as training and development costs.
- Accountancy fees: As a staffing agency, you will need to hire an accountant to help manage your finances and ensure compliance with tax laws and regulations.
- Insurance costs: You will need to have insurance to protect your business from any potential liabilities, such as workers' compensation insurance and general liability insurance.
- Software licenses: To efficiently run your agency, you will need to invest in software licenses for applicant tracking systems, payroll software, and other tools to manage your operations.
- Banking fees: As you will be handling a significant amount of financial transactions, you will incur banking fees for services such as wire transfers and check processing.
- Marketing and advertising expenses: To attract clients and candidates, you will need to invest in marketing and advertising efforts, such as job postings, social media ads, and networking events.
- Office rent and utilities: Your office space and utilities will be a significant expense for your agency, so it's essential to budget for rent, electricity, water, internet, and other necessary utilities.
- Professional fees: You may need to hire lawyers or consultants for legal and professional advice, which will incur fees.
- Travel expenses: As a staffing agency, you may need to travel to meet with clients and attend job fairs, which will incur expenses for transportation, lodging, and meals.
- Office supplies and equipment: You will need to purchase office supplies and equipment such as computers, printers, and furniture to run your operations effectively.
- Telephone and internet expenses: As a staffing agency, communication is crucial, so you will need to budget for telephone and internet expenses.
- Training and development costs: To stay competitive in the industry, you will need to invest in training and development for your employees to enhance their skills and knowledge.
- Taxes and licenses: Depending on your location, you may need to pay taxes and obtain licenses to operate your staffing agency.
- Employee benefits: In addition to salaries, you may offer benefits such as health insurance, retirement plans, and paid time off, which will incur expenses for your agency.
- Professional association fees: You may choose to join professional associations related to the staffing industry, which will incur membership fees.
This list is not exhaustive by any means, and will need to be tailored to your staffing agency's specific circumstances.
What investments are needed to start or grow a staffing agency?
Creating and expanding a staffing agency also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a staffing agency could include elements such as:
- Office Equipment: This includes items such as computers, printers, scanners, and copiers that are necessary for day-to-day operations in a staffing agency.
- Furniture: In order to create a professional and welcoming environment for clients and employees, a staffing agency may need to invest in office furniture such as desks, chairs, and conference tables.
- Software: With the ever-changing technology landscape, a staffing agency may need to invest in software to manage and track client and candidate information, as well as to streamline processes and improve efficiency.
- Telephone and Communication Systems: In order to effectively communicate with clients and candidates, a staffing agency may need to invest in a reliable telephone and communication system, including hardware and software.
- Security Systems: A staffing agency may need to invest in security systems, such as cameras and alarm systems, to protect sensitive client and candidate information and ensure the safety of the office space.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your staffing 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 staffing agency
The next step in the creation of your financial forecast for your staffing 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 staffing agency?
Now let's have a look at the main output tables of your staffing agency's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your staffing agency's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a staffing agency 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
Your staffing agency'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 staffing 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 staffing 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 staffing 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 staffing 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 staffing agency's financial forecast?
Using the right tool or solution will make the creation of your staffing agency's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your staffing 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.
Calling in a financial consultant or chartered accountant
Outsourcing the creation of your staffing agency 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 staffing agency's financial forecast?
Creating an accurate and error-free staffing 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 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 staffing agency, 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
- 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 staffing 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 staffing 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 sales for a business?
- Financial forecast template for a business idea
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Founder & CEO at The Business Plan Shop Ltd
