How to create a financial forecast for a tutoring firm?
Developing and maintaining an up-to-date financial forecast for your tutoring firm 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 tutoring firm 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 tutoring firm?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your tutoring firm and ensure that it can be financially viable in the years to come.
A financial plan for a tutoring firm 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 tutoring firm 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 tutoring firm'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 tutoring firm financial forecast?
A tutoring firm'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 tutoring firm.
If you are creating (or updating) the forecast of an existing tutoring firm, 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 tutoring firm 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 tutoring firm 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 tutoring firm's financial forecast.
The sales forecast for a tutoring firm
The sales forecast, also called topline projection, is normally where you will start when building your tutoring 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 tutoring fimrs), and consider the elements below:
- The average price of your tutoring services may be affected by the cost of materials and resources needed for each session.
- Your average price may also be impacted by the level of expertise and qualifications of your tutors, as more experienced tutors may charge higher rates.
- The number of monthly transactions may be influenced by the demand for your tutoring services in the local community, which can fluctuate based on the academic calendar and exam schedules.
- The average price may be affected by the range of subjects and levels offered by your tutoring firm, as more specialized subjects may command higher prices.
- The number of monthly transactions may be impacted by the availability of your tutors, as peak periods such as exam season may require additional tutors to meet demand.
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 tutoring firm
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your tutoring 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 tutoring firm will include some of the following items:
- Staff costs: This includes the salaries, wages, and benefits for all tutors, administrative staff, and support staff.
- Accountancy fees: You will need to hire an accountant to handle your firm's financial records, tax returns, and other financial matters.
- Insurance costs: You will need to purchase insurance to protect your firm from any potential liabilities, such as accidents or lawsuits.
- Software licenses: You will need to purchase licenses for any software programs that you use for scheduling, billing, and other administrative tasks.
- Banking fees: You will need to pay fees for maintaining a business bank account and for any transactions, such as wire transfers or check processing.
- Rent: If you have a physical location for your tutoring firm, you will need to pay rent for the space.
- Utilities: You will need to cover the costs of electricity, water, and other utilities for your physical location.
- Marketing and advertising: You will need to allocate funds for promoting your tutoring services, such as creating flyers, running ads, or sponsoring events.
- Supplies: This includes any materials or equipment that you need for tutoring sessions, such as textbooks, workbooks, or laptops.
- Professional development: It's important to invest in the ongoing training and development of your tutors to ensure the quality of your services.
- Travel expenses: If you offer in-home or online tutoring services, you may need to cover travel expenses for your tutors to reach their clients.
- Background checks: It's crucial to conduct background checks on all potential tutors to ensure the safety of your clients.
- Office supplies: This includes any supplies needed for the day-to-day operations of your firm, such as paper, pens, and printer ink.
- Telephone and internet: You will need to cover the costs of a phone line and internet connection for your business.
- Professional memberships: Consider joining professional organizations or associations related to tutoring to stay updated on industry trends and network with other professionals.
This list will need to be tailored to the specificities of your tutoring firm, but should offer a good starting point for your budget.
What investments are needed to start or grow a tutoring firm?
Once you have an idea of how much sales you could achieve and what it will cost to run your tutoring firm, it is time to look into the equipment required to launch or expand the activity.
For a tutoring firm, capital expenditures and initial working capital items could include:
- Classroom Equipment: This includes items such as desks, chairs, whiteboards, projectors, and other necessary equipment for your tutoring sessions. You may also need to purchase educational materials and resources for your students.
- Technology: As a tutoring firm, you will need to invest in technology to stay competitive and provide a modern learning experience for your students. This may include computers, tablets, software, and a reliable internet connection.
- Furniture: In addition to classroom equipment, you will also need furniture for your office space. This includes items such as desks, chairs, filing cabinets, and storage units.
- Office Supplies: It is important to have a well-stocked office with supplies such as paper, pens, printer ink, and other necessary items. These may seem like small expenses, but they can add up over time.
- Renovations and Repairs: Depending on the condition of your office space, you may need to make renovations or repairs to ensure a safe and comfortable learning environment for your students. This could include things like painting, flooring, or electrical work.
Again, this list will need to be adjusted according to the specificities of your tutoring 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 tutoring firm
The next step in the creation of your financial forecast for your tutoring 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 tutoring firm?
Now let's have a look at the main output tables of your tutoring firm's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your tutoring firm's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a tutoring firm 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
The projected balance sheet gives an overview of your tutoring 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 tutoring 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 projected cash flow statement
A projected cash flow statement for a tutoring 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 tutoring 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 tutoring 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 tutoring firm's financial forecast?
Creating your tutoring 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 projection software to build your tutoring firm's forecast
The modern and easiest way to build a forecast is to use professional financial projection 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 tutoring 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 tutoring firm's financial forecast?
Creating an accurate and error-free tutoring firm 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 tutoring 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 tutoring 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 tutoring 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
