How to create a financial forecast for a technology consulting company?
Developing and maintaining an up-to-date financial forecast for your technology consulting 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 technology consulting 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 technology consulting company?
In order to prosper, your business needs to have visibility on what lies ahead and the right financial resources to grow. This is where having a financial forecast for your technology consulting company becomes handy.
Creating a technology consulting company financial forecast forces you to take stock of where your business stands and where you want it to go.
Once you have clarity on the destination, you will need to draw up a plan to get there and assess what it means in terms of future profitability and cash flows for your technology consulting company.
Having this clear plan in place will give you the confidence needed to move forward with your business’s development.
Having an up-to-date financial forecast for a technology consulting company is also useful if your trading environment worsens, as the forecast enables you to adjust to your new market conditions and anticipate any potential cash shortfall.
Finally, your technology consulting company's financial projections will also help you secure financing, as banks and investors alike will want to see accurate projections before agreeing to finance your business.
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 needed to build a technology consulting company 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 technology consulting company, 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 technology consulting company 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 technology consulting company, 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 technology consulting company's financial forecast.
The sales forecast for a technology consulting company
The sales forecast, also called topline projection, is normally where you will start when building your technology consulting 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 technology consulting companies), and consider the elements below:
- Economic conditions: Economic conditions can greatly impact the average price and number of monthly transactions for your technology consulting company. In a strong economy, businesses may have more financial resources to invest in technology consulting services, leading to higher prices and more transactions. Conversely, in a weak economy, businesses may cut back on technology consulting expenses, resulting in lower prices and fewer transactions.
- Technological advancements: With the rapid pace of technological advancements, the average price and number of monthly transactions for your technology consulting company may be affected. As new technologies emerge and become more widely adopted, the demand for consulting services in those areas may increase, leading to higher prices and more transactions. On the other hand, if your company specializes in outdated technologies, you may face lower prices and fewer transactions.
- Competition: The level of competition in the technology consulting industry can also impact your average price and number of monthly transactions. If there are many competitors offering similar services, it may drive down prices and make it more challenging to secure transactions. However, if your company has a unique value proposition or specializes in a niche market, you may be able to command higher prices and attract more transactions.
- Client needs and preferences: The specific needs and preferences of your clients can also affect the average price and number of monthly transactions for your technology consulting company. Some clients may have a limited budget and require more affordable services, while others may be willing to pay a premium for tailored, high-quality consulting. Understanding your clients' needs and preferences can help you adjust your pricing and attract more transactions.
- Industry trends: Keeping up with industry trends is crucial for your technology consulting company's success and can also impact your average price and number of monthly transactions. For example, if there is a growing demand for cloud computing services, you may need to adjust your pricing and service offerings to stay competitive. Similarly, if there is a shift towards more remote work, you may need to consider offering virtual consulting services and pricing accordingly.
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 technology consulting company
The next step is to estimate the costs you’ll have to incur to operate your technology consulting company.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your technology consulting company's operating expenses should normally include the following items:
- Staff costs: This includes the salaries, benefits, and bonuses for your team of technology consultants. It also includes any contract or freelance workers that you may hire.
- Accountancy fees: As a technology consulting company, you will need to hire an accountant to manage your finances and ensure compliance with tax laws and regulations.
- Insurance costs: This includes general liability insurance, professional liability insurance, and cyber liability insurance to protect your company from any potential risks and legal issues.
- Software licenses: As a technology consulting company, you will need various software tools and licenses to provide your services to clients. This can include project management software, collaboration tools, and specialized software for different industries.
- Banking fees: This includes charges for maintaining business bank accounts, wire transfers, and credit card processing fees for client payments.
- Marketing and advertising: To attract new clients and promote your services, you will need to allocate a budget for marketing and advertising expenses such as website development, social media ads, and attending industry events.
- Office rent: If you have a physical office space, you will need to budget for monthly rent, utilities, and maintenance costs.
- Travel expenses: As a technology consulting company, you may need to travel to client sites or attend conferences. This includes airfare, hotel accommodations, and transportation costs.
- Training and development: To stay up-to-date with the latest technologies and industry trends, you may need to invest in training and development programs for your team.
- Professional memberships and certifications: As a technology consulting company, you may need to join professional organizations or obtain certifications to enhance your credibility and expertise in the field.
- Telecommunications expenses: This includes phone and internet services for your office and any mobile devices used by your team.
- Legal fees: You may need to hire a lawyer for legal advice and assistance with contracts, non-disclosure agreements, and other legal matters.
- Office supplies: This includes expenses for office equipment, stationery, and any other supplies needed to run your daily operations.
- IT support: As a technology consulting company, you may need to outsource IT support services for your own systems and equipment.
- Rent or lease for equipment: If you need specialized equipment for your consulting services, you may choose to rent or lease rather than purchase it outright.
This list is not exhaustive by any means, and will need to be tailored to your technology consulting company's specific circumstances.
What investments are needed to start or grow a technology consulting company?
Creating and expanding a technology consulting company also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a technology consulting company could include elements such as:
- Computer equipment: As a technology consulting company, you will need to invest in various computer equipment such as laptops, desktops, servers, and networking devices. These are essential tools for your consultants to effectively work with clients and deliver solutions.
- Software licenses: In order to provide high-quality services, your company will need to purchase software licenses for various programs and applications. This may include project management software, design tools, and communication platforms.
- Office space: Your company will need a physical location to conduct business and meet with clients. This may include leasing office space or purchasing a building. In addition, you will need to invest in furniture and equipment for your office space.
- Training and development: While this may not be considered a fixed asset, investing in training and development for your employees is crucial for the success of your technology consulting company. This may include workshops, conferences, and online courses to enhance their skills and knowledge.
- Data storage and security: As a technology consulting company, you will work with sensitive client data and information. Therefore, investing in data storage and security measures, such as cloud storage and cybersecurity software, is essential to protect your clients and your business.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your technology consulting 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 technology consulting company
The next step in the creation of your financial forecast for your technology consulting 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 technology consulting company?
Now let's have a look at the main output tables of your technology consulting company'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 technology consulting company'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 technology consulting company will look different than for a startup.
The projected balance sheet
Your technology consulting 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 projected cash flow statement
A projected cash flow statement for a technology consulting company 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 technology consulting company'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 technology consulting company 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 technology consulting company's financial forecast?
Using the right tool or solution will make the creation of your technology consulting company's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your technology consulting company'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 technology consulting 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 technology consulting company's financial forecast?
Creating an accurate and error-free technology consulting company 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
- A financial forecast shows expected growth, profitability, and cash generation metrics for your technology consulting company.
- Tracking actuals vs. forecast and having an up-to-date financial forecast is key to maintaining visibility on your future cash flows.
- Using financial forecasting software is the modern way of creating and maintaining financial projections.
We hope that this guide helped you gain a clearer perspective on the steps needed to create the financial forecast for a technology consulting company. Don't hesitate to contact us if you 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
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- Sample financial forecast for business idea
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Founder & CEO at The Business Plan Shop Ltd
