How to create a financial forecast for a traffic engineering consulting firm?

Creating a financial forecast for your traffic engineering 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 traffic engineering 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 traffic engineering consulting firm?

The financial projections for your traffic engineering 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 traffic engineering 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.

What information is needed to build a traffic engineering 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 traffic engineering 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 traffic engineering 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 traffic engineering 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 traffic engineering consulting firm's financial forecast.

The sales forecast for a traffic engineering consulting firm

The sales forecast, also called topline projection, is normally where you will start when building your traffic engineering 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 traffic engineering consulting firms), and consider the elements below:

• Urban Development Projects: Evaluate the demand for your traffic engineering services in areas undergoing urban development. An increase in such projects can positively impact your average pricing and transaction volumes.
• Government Infrastructure Initiatives: Stay informed about government initiatives related to transportation and infrastructure development. Government contracts and projects can influence your firm's pricing and transaction frequency.
• Traffic Congestion Issues: Monitor traffic congestion challenges in various regions. Clients may seek your expertise to address traffic flow issues, affecting both the value of your services and the number of transactions.
• Environmental Regulations: Keep abreast of environmental regulations affecting transportation planning. The need for sustainable and environmentally friendly solutions can impact the perceived value of your services and pricing.
• Emerging Technologies: Embrace and integrate emerging technologies in traffic management. The adoption of advanced systems can set your firm apart, potentially allowing for adjustments in pricing and attracting more clients.

After the sales forecast comes the operating expenses budget, which we will now look into in more detail.

The operating expenses for a traffic engineering consulting firm

The next step is to estimate the costs you’ll have to incur to operate your traffic engineering consulting firm.

These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.). 

But your traffic engineering consulting firm's operating expenses should normally include the following items:

• Staff Costs: Cover salaries, wages, and benefits for your traffic engineers, planners, and administrative staff.
• Professional Memberships: Allocate funds for memberships in industry associations and organizations related to traffic engineering to stay updated on industry trends and best practices.
• Office Rent: Include the leasing costs for your office space, providing a centralized location for your traffic engineering consulting firm.
• Utilities: Account for monthly expenses related to electricity, water, heating, and internet services essential for your office operations.
• Insurance Costs: Include premiums for liability insurance, errors and omissions insurance, and other coverage specific to your traffic engineering services.
• Accountancy Fees: Budget for the services of accountants to handle financial management, tax preparation, and compliance tailored to your consulting firm.
• Software Licences: Account for the costs associated with licensing and maintaining specialized traffic engineering software essential for your analysis and planning tasks.
• Training Programs: Allocate funds for ongoing training programs to keep your team updated on the latest advancements in traffic engineering practices.
• Travel Expenses: Include costs related to travel for site visits, client meetings, and attendance at industry conferences.
• Communication Services: Cover expenses for business phones, internet, and other communication tools essential for maintaining smooth operations.
• Legal Fees: Budget for legal services, including contracts review and compliance advice specific to your traffic engineering consulting business.
• Office Supplies: Account for costs related to everyday office supplies such as stationery, maps, and other necessities.
• Employee Benefits: Include expenses for employee benefits such as health insurance, retirement plans, and other perks you offer to attract and retain top talent.
• Marketing Materials: Budget for the creation and distribution of marketing materials, including project documentation and digital content highlighting your firm's expertise.
• Banking Fees: Cover charges for various banking services, including transaction fees and account maintenance specific to your business transactions.

This list is not exhaustive by any means, and will need to be tailored to your traffic engineering consulting firm's specific circumstances.

What investments are needed to start or grow a traffic engineering consulting firm?

Once you have an idea of how much sales you could achieve and what it will cost to run your traffic engineering consulting firm, it is time to look into the equipment required to launch or expand the activity.

For a traffic engineering consulting firm, capital expenditures and initial working capital items could include:

• Traffic Data Collection Equipment: Invest in advanced data collection tools such as traffic counters, cameras, and sensors to gather accurate and comprehensive traffic data for analysis and planning.
• Traffic Signal Control Systems: Acquire and upgrade traffic signal control systems to optimize signal timing, enhance traffic flow, and improve overall transportation efficiency.
• GIS Mapping Software: Invest in Geographic Information System (GIS) mapping software to create detailed maps and analyze spatial data for better traffic planning and infrastructure design.
• Advanced Simulation Models: Purchase sophisticated simulation models and software to simulate traffic scenarios, aiding in the design and evaluation of transportation systems.
• Smart Transportation Technologies: Invest in smart technologies such as Intelligent Transportation Systems (ITS) to enhance traffic management, improve safety, and optimize transportation infrastructure.

Again, this list will need to be adjusted according to the specificities of your traffic engineering consulting firm.

The financing plan of your traffic engineering consulting firm

The next step in the creation of your financial forecast for your traffic engineering 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 traffic engineering consulting firm?

Now let's have a look at the main output tables of your traffic engineering consulting firm's financial forecast.

The projected profit & loss statement

The projected profit & loss shows how profitable your traffic engineering consulting firm is likely to be in the years to come.

For your traffic engineering 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 traffic engineering 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 traffic engineering 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 traffic engineering 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 cash flow forecast

Your traffic engineering consulting firm's cash flow forecast shows how much cash your business is expected to consume or generate in the years to come.

It is best practice to organise the cash flow forecast by nature to better explain where cash is used or generated by the traffic engineering consulting firm:

• Operating cash flow: shows how much cash is generated by the operating activities
• Investing cash flow: shows how much will be invested in capital expenditure to maintain or expand the business 
• Financing cash flow: shows if the business is raising new capital or repaying financiers (debt repayment, dividends)

Keeping an eye on (and regularly updating) your traffic engineering consulting firm's cash flow forecast is key to ensuring that your business has sufficient liquidity to operate normally and to detect financing requirements as early as possible.

If you are trying to raise capital, you will normally be asked to provide a monthly cash flow forecast in your traffic engineering consulting firm's financial plan - so that banks or investors can assess seasonal variation and ensure your business is appropriately capitalised.

Which tool should you use to create your traffic engineering consulting firm's financial projections?

Building a traffic engineering consulting firm financial forecast is not difficult provided that you use the right tool for the job. Let’s see what options are available below.

Using online financial forecasting software to build your traffic engineering 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 traffic engineering 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 traffic engineering consulting firm's financial forecast?

Creating an accurate and error-free traffic engineering 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.

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 traffic engineering 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

1. A financial forecast shows expected growth, profitability, and cash generation metrics for your traffic engineering consulting firm.
2. Tracking actuals vs. forecast and having an up-to-date financial forecast is key to maintaining visibility on your future cash flows.
3. 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 traffic engineering consulting firm. Don't hesitate to contact us if you have any questions!

Also on The Business Plan Shop

• Financial forecast example
• How to create a sales forecast for a business?
• Sample financial forecast for business idea

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