How to create a financial forecast for a strategy consulting firm?
Creating a financial forecast for your strategy 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 strategy 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 strategy consulting firm?
The financial projections for your strategy 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 strategy 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 needed to build a strategy consulting firm 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 strategy consulting firm, 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 strategy consulting firm 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 strategy consulting firm, 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 strategy consulting firm's financial forecast.
The sales forecast for a strategy consulting firm
The sales forecast, also called topline projection, is normally where you will start when building your strategy consulting firm 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 strategy consulting firms), and consider the elements below:
- Client Retention: As a strategy consulting firm, maintaining strong relationships with existing clients is crucial for your business. A high retention rate can result in a consistent stream of work and potentially higher average prices for your services.
- Industry Trends: The strategy consulting industry is constantly evolving, and staying up-to-date on emerging trends and technologies can give you a competitive edge. By offering innovative solutions to clients, you may be able to increase your average price per project and attract more monthly transactions.
- Staff Expertise: The expertise and experience of your consultants can directly impact the quality of your services and the prices you are able to charge. Continuously investing in the training and development of your staff can lead to higher average prices and more monthly transactions.
- Economic Conditions: The state of the economy can greatly affect the demand for consulting services. A strong economy may result in more businesses seeking out your services, while a weak economy may lead to a decrease in demand and potentially lower average prices.
- Client Referrals: Satisfied clients can be a valuable source of new business for a strategy consulting firm. By consistently delivering high-quality services, you can increase the likelihood of receiving referrals and potentially increase your average price and 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 operating expenses for a strategy consulting firm
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your strategy 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 strategy consulting firm will include some of the following items:
- Staff costs: This includes salaries, benefits, and payroll taxes for your team of consultants, project managers, and support staff.
- Accountancy fees: As a strategy consulting firm, you will need to hire an accountant to manage your finances, prepare tax returns, and provide financial advice.
- Insurance costs: Protect your business from potential risks and liabilities by purchasing professional liability insurance, general liability insurance, and workers' compensation insurance.
- Software licenses: To effectively analyze data and create presentations for your clients, you will need to invest in software licenses for programs such as Microsoft Office, Adobe Creative Suite, and specific consulting tools.
- Banking fees: As a business, you will have to pay for services such as bank account maintenance, wire transfers, and credit card processing fees.
- Marketing and advertising: In order to attract clients, you will need to invest in marketing and advertising efforts such as creating a website, attending industry events, and running targeted ads.
- Office rent: Your strategy consulting firm will need a physical space to operate from, whether it's a small office or a co-working space.
- Utilities: You will need to cover expenses for electricity, water, and internet services for your office.
- Travel expenses: As a consulting firm, you may need to travel to meet with clients, attend conferences, or conduct market research.
- Professional development: In order to stay up-to-date with industry trends and best practices, you may need to invest in professional development opportunities for yourself and your team.
- Office supplies: This includes items such as printer paper, ink, pens, and other necessary supplies for running your office.
- Telecommunication expenses: You will need to pay for phone and internet services for your office, as well as any necessary hardware such as phones and routers.
- Legal fees: As a business, you may need to seek legal advice for contracts, intellectual property, or other legal matters.
- Consulting tools and resources: In addition to software licenses, you may need to invest in other tools and resources to assist in your consulting work, such as market research databases or project management software.
- Professional memberships: Being a member of industry associations and organizations can provide networking opportunities and access to resources, but may come with a membership fee.
This list will need to be tailored to the specificities of your strategy consulting firm, but should offer a good starting point for your budget.
What investments are needed to start or grow a strategy consulting firm?
Creating and expanding a strategy consulting firm also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a strategy consulting firm could include elements such as:
- Office Space: As a strategy consulting firm, one of your biggest capital expenditures will be securing a suitable office space. This may include rent, utilities, and other associated costs.
- Technology and Equipment: In order to effectively carry out your consulting services, you will need to invest in technology and equipment such as computers, software, and office equipment. These items will not only help you improve your efficiency and productivity, but also project a professional image to clients.
- Furniture: Furnishing your office space with desks, chairs, and other necessary furniture is another important capital expenditure for a strategy consulting firm. Comfortable and functional furniture can contribute to a positive work environment for your employees and create a good impression for clients.
- Training and Development: While this may not fall under operating expenses, investing in the training and development of your employees is crucial for the success of your consulting firm. This may include workshops, conferences, and other professional development opportunities to enhance their skills and knowledge.
- Client Relationship Management (CRM) System: A CRM system is essential for managing client relationships and tracking project progress. Investing in a reliable and efficient system can greatly benefit your firm in the long run.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your strategy 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 strategy consulting firm
The next step in the creation of your financial forecast for your strategy 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 strategy consulting firm?
Now let's have a look at the main output tables of your strategy consulting firm's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your strategy consulting firm is likely to be in the years to come.
For your strategy 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 strategy 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
Your strategy consulting firm's projected balance sheet provides a snapshot of your business’s financial position at year-end.
It is composed of three types of elements: assets, liabilities and equity:
- Assets: represent what the business possesses including cash, equipment, and accounts receivable (money owed by clients).
- Liabilities: represent funds advanced to the business by lenders and other creditors. They include accounts payable (money owed to suppliers), taxes payable and loans from banks and financial institutions.
- 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 projected cash flow statement
A projected cash flow statement for a strategy 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 strategy 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 strategy 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 strategy consulting firm's financial forecast?
Creating your strategy consulting firm'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 strategy consulting firm's projections
The modern and easiest way is to use an online financial forecasting tool 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 projection software for free by signing up here.
Calling in a financial consultant or chartered accountant
Outsourcing the creation of your strategy consulting firm 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 strategy consulting firm'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 strategy consulting firm 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 strategy consulting firm'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 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 strategy consulting firm, 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 strategy 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 strategy 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 project sales for a business?
- Sample financial forecast for business idea
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Founder & CEO at The Business Plan Shop Ltd
