How to create a financial forecast for a virtual address company?
Developing and maintaining an up-to-date financial forecast for your virtual address 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 virtual address 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 virtual address company?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your virtual address company and ensure that it can be financially viable in the years to come.
A financial plan for a virtual address 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 virtual address 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 virtual address 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 virtual address 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 virtual address 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 virtual address 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 virtual address 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 virtual address company's financial forecast.
The sales forecast for a virtual address company
From experience, it is usually best to start creating your virtual address company financial forecast by your sales forecast.
To create an accurate sales forecast for your virtual address company, you will have to rely on the data collected in your market research, or if you're running an existing virtual address company, the historical data of the business, to estimate two key variables:
- The average price
- The number of monthly transactions
To get there, you will need to consider the following factors:
- Inflation: As the cost of living increases, so does the cost of virtual addresses. This may result in higher average prices for your services, potentially affecting the number of monthly transactions as customers may look for cheaper alternatives.
- Technological advancements: As technology advances, it may become easier and more affordable for businesses to maintain a physical address, reducing the demand for virtual addresses. This could lead to a decrease in both average price and number of monthly transactions.
- Economic conditions: Economic downturns can impact businesses of all kinds, including virtual address companies. In times of financial uncertainty, businesses may cut costs by eliminating non-essential services such as virtual addresses, leading to a decrease in both average price and number of monthly transactions.
- Competition: As the virtual address market becomes more saturated, competition may drive down average prices in order to attract customers. This could result in a decrease in average price, but potentially an increase in the number of monthly transactions as customers seek out more affordable options.
- Legal regulations: Changes in laws or regulations related to virtual addresses, such as requirements for physical mailing addresses, may impact the demand for your services. This could potentially affect both average price and number of monthly transactions, depending on the nature of the regulations.
Once you have an idea of what your future sales will look like, it will be time to work on your overhead budget. Let’s see what this entails.
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 virtual address company
The next step is to estimate the expenses needed to run your virtual address company on a day-to-day basis.
These will vary based on the level of sales expected, and the location and size of your business.
But your virtual address company's operating expenses should include the following items at a minimum:
- Staff Costs: As a virtual address company, your biggest operating expense will likely be staff costs. This includes salaries, wages, benefits, and any other costs related to your employees.
- Accountancy Fees: It's important to keep your financial records in order, so you'll need to budget for accountancy fees. This can include tax preparation, bookkeeping, and other financial services.
- Insurance Costs: Protecting your business is crucial, so you'll need to factor in insurance costs. This can include general liability insurance, professional liability insurance, and cyber insurance.
- Software Licences: As a virtual address company, you'll likely rely on various software programs to run your business. This can include virtual address software, communication tools, and project management software.
- Banking Fees: You'll need a business bank account to manage your finances, and this may come with various fees. This can include monthly maintenance fees, transaction fees, and ATM fees.
- Marketing and Advertising: In order to attract clients, you'll need to invest in marketing and advertising. This can include website development, social media marketing, and paid advertising.
- Rent or Mortgage: If you have a physical office space for your virtual address company, you'll need to budget for rent or mortgage payments.
- Utilities: Even if you have a virtual office, you'll still need to pay for utilities such as internet, electricity, and water.
- Professional Development: In order to stay competitive in the market, you'll need to invest in professional development for yourself and your employees. This can include workshops, conferences, and online courses.
- Office Supplies: While you may not need traditional office supplies, you'll still have expenses for virtual supplies such as printer ink, paper, and postage.
- Website Maintenance: Your virtual address company will likely have a website, and you'll need to budget for ongoing maintenance and updates.
- Telecommunications: As a virtual address company, you'll need to have reliable telecommunications services such as phone and internet. These costs should be factored into your operating expenses.
- Legal Fees: It's always a good idea to consult with a lawyer when starting a business. You may also need legal services for contracts, intellectual property protection, and other legal matters.
- Taxes: As a business owner, you'll have to pay various taxes such as income tax, sales tax, and payroll taxes. It's important to budget for these expenses throughout the year.
- Customer Service: Providing excellent customer service is crucial for retaining clients. You may need to budget for customer service software, training, and other related expenses.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small virtual address company might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow a virtual address company?
Your virtual address company financial forecast will also need to include the capital expenditures (aka investments in plain English) and initial working capital items required for the creation or development of your business.
For a virtual address company, these could include:
- Virtual Office Space: This refers to the physical space that is used to operate your virtual address company. It may include costs for rent, utilities, and office furniture.
- Technology Equipment: As a virtual address company, you will heavily rely on technology to manage your operations. This may include expenses for computers, software, servers, and other necessary equipment.
- Communication Tools: In order to effectively communicate with clients and employees, you may need to invest in tools such as video conferencing software, virtual phone systems, and other communication platforms.
- Security Systems: Since your company will be handling sensitive information, it is important to invest in security measures such as firewalls, antivirus software, and data encryption.
- Website Development: Your virtual address company's website is the first point of contact for potential clients. It is crucial to invest in a professional and user-friendly website to attract and retain customers.
Again, this list will need to be adjusted according to the size and ambitions of your virtual address 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 virtual address company
The next step in the creation of your financial forecast for your virtual address 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 virtual address company?
Now let's have a look at the main output tables of your virtual address company's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your virtual address company's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a virtual address company 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
Your virtual address 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 virtual address 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 virtual address 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 virtual address 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 virtual address company's financial forecast?
Creating your virtual address company'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 virtual address 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 virtual address 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 virtual address company'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 virtual address company 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 virtual address company'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 forecast templates available.
Our examples contain a complete business plan with a financial forecast and a written presentation of the company, the team, the strategy, and the medium-term objectives.
Whether you are just starting out or already have your own virtual address company, looking at our financial forecast template is a good way to:
- Understand what a complete business plan should look like
- Understand how you should model financial items for your virtual address company
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 virtual address company 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 virtual address company, 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 revenues for a business?
- Financial forecast for a business idea
Know someone who owns or is thinking of starting a virtual address company? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
