How to create a financial forecast for a video production company?
Creating a financial forecast for your video production company, 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 video production company 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 video production company?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your video production company and ensure that it can be financially viable in the years to come.
A financial plan for a video production company 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 video production company 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 video production company'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 needed to build a video production 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 video production 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 video production 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 video production 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 video production company's financial forecast.
The sales forecast for a video production company
From experience, it usually makes sense to start your video production company's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your video production company (which can be used as a starting point for existing businesses) and the data collected in your market research (which both new ventures and existing businesses need to project their sales forward).
Your video production company's sales forecast can be broken down into two key estimates:
- The average price
- The number of monthly transactions
To assess these variables accurately, you will need to consider the following factors:
- Changes in technology: Advancements in technology can affect the average price of your services, as new equipment may be more expensive to purchase or require a higher level of expertise to use.
- Demand for high-quality video content: As the demand for high-quality video content continues to increase, you may be able to charge a higher average price for your services.
- Competition: The presence of new competitors in the market or increased competition from existing companies may lead to a decrease in your average price as you may need to lower your prices to remain competitive.
- Industry trends: Changes in industry trends, such as the rise of video marketing, can impact the number of monthly transactions your company receives as more businesses may be looking to invest in video production services.
- Economic conditions: Economic conditions, such as a recession or economic boom, can affect the average price of your services and the number of monthly transactions as businesses may have more or less budget for marketing and advertising.
Once you have a sales forecast in place, the next step will be to work on your overhead budget. Let’s have a look at that now.
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 video production company
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your video production company 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 video production company will include some of the following items:
- Staff costs: including salaries, benefits, and taxes for all employees, including video producers, editors, and administrative staff.
- Accountancy fees: for professional accounting services to manage your company's finances and taxes.
- Insurance costs: for liability insurance to protect your company from any potential claims or lawsuits.
- Software licenses: for video editing software, project management tools, and other software necessary for your company's operations.
- Banking fees: for maintaining business accounts and processing transactions.
- Rent: for office space and studios where you can film and edit videos.
- Equipment rental: for cameras, lighting, and other equipment needed for video shoots.
- Marketing and advertising: for promoting your company and services to potential clients.
- Travel expenses: for attending client meetings, filming on location, and attending industry events.
- Office supplies: including paper, ink, and other materials necessary for day-to-day operations.
- Training and development: for keeping your staff up-to-date with the latest video production techniques and technology.
- Utilities: including electricity, water, and internet for your office and studio.
- Professional fees: for legal services, consulting, and other professional services needed for your business.
- Post-production costs: including sound mixing, color correction, and other editing services.
- Office maintenance: for cleaning services, repairs, and maintenance of office equipment.
This list will need to be tailored to the specificities of your video production company, but should offer a good starting point for your budget.
What investments are needed to start or grow a video production company?
Once you have an idea of how much sales you could achieve and what it will cost to run your video production company, it is time to look into the equipment required to launch or expand the activity.
For a video production company, capital expenditures and initial working capital items could include:
- Camera equipment: As a video production company, one of your main capital expenditures will be on camera equipment. This includes cameras, lenses, tripods, and other necessary accessories. Upgrading and maintaining your camera equipment is essential to producing high-quality videos.
- Editing software: Another important capital expenditure for a video production company is editing software. This can include programs like Adobe Premiere Pro or Final Cut Pro, which are essential for creating professional-looking videos. It's important to budget for software updates and upgrades as well.
- Studio space: Depending on the type of videos your company produces, you may need to rent or purchase a studio space. This could be a dedicated space for filming, a green screen room, or a soundproof recording studio. Renting a studio space can be a significant expense, so it's important to factor it into your expenditure forecast.
- Lighting equipment: Lighting is crucial for creating visually appealing videos. As a video production company, you'll need to invest in lighting equipment such as softboxes, light stands, and reflectors. This equipment can be expensive but is necessary for producing high-quality videos.
- Audio equipment: Good audio quality is just as important as good video quality. To ensure your videos have clear and crisp audio, you'll need to invest in audio equipment such as microphones, mixers, and recorders. This equipment can be costly, so it's important to plan for it in your expenditure forecast.
Again, this list will need to be adjusted according to the specificities of your video production 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 video production company
The next step in the creation of your financial forecast for your video production 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 video production company?
Now let's have a look at the main output tables of your video production company's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your video production company is likely to be in the years to come.
For your video production company 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 video production companies, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.
The projected balance sheet
Your video production company'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 video production 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 video production 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 video production 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 video production company's financial forecast?
Using the right tool or solution will make the creation of your video production company's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your video production company'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 video production 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 video production company's financial forecast?
Creating an accurate and error-free video production 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 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 video production company, 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
- A financial projection shows expected growth, profitability, and cash generation for your business over the next three to five years.
- Tracking actuals vs. forecast and keeping your financial forecast up-to-date is the only way to maintain visibility on future cash flows.
- Using financial forecasting software makes it easy to create and maintain up-to-date projections for your video production company.
You have reached the end of our guide. We hope you now have a better understanding of how to create a financial forecast for a video production company. Don't hesitate to contact our team if you have any questions or want to share your experience building forecasts!
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 projections
- How to project revenues for a business?
- Financial forecast template for a business idea
Know someone who runs or wants to start a video production company? Share our financial projection guide with them!