How to create a financial forecast for a virtual office?
Creating a financial forecast for your virtual office, 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 virtual office 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 virtual office?
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 virtual office becomes handy.
Creating a virtual office 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 virtual office.
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 virtual office 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 virtual office'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 virtual office 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 office, 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 office 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 office, 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 office's financial forecast.
The sales forecast for a virtual office
From experience, it is usually best to start creating your virtual office financial forecast by your sales forecast.
To create an accurate sales forecast for your virtual office, you will have to rely on the data collected in your market research, or if you're running an existing virtual office, 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:
- Your location and the demand for virtual offices in that area can greatly impact your average price. For example, if you are located in a busy city with high demand for virtual offices, you may be able to charge a higher price compared to a rural area with less demand.
- The quality and variety of amenities and services offered at your virtual office can also affect your average price. For instance, if you offer state-of-the-art technology and a wide range of services such as mail forwarding and call answering, you may be able to charge a premium price.
- The current economic climate can also play a role in the number of monthly transactions at your virtual office. In times of economic downturn, businesses may be looking to cut costs and may opt for a virtual office instead of a traditional office space, leading to an increase in transactions.
- The reputation and customer satisfaction of your virtual office can impact your average price and number of monthly transactions. If you have a strong reputation for providing excellent service and meeting the needs of your clients, you may be able to charge a higher price and attract more monthly transactions.
- The competition in your market can also affect your average price and number of monthly transactions. If there are many other virtual office providers in your area, you may need to adjust your prices and offer competitive deals in order to attract and retain clients.
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 office
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your virtual office 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 virtual office will include some of the following items:
- Staff Costs: This includes salaries, benefits, and any other expenses related to your virtual office staff. This can also include costs for remote training and development.
- Accountancy Fees: As a virtual office, you may still need to hire an accountant to help you with your financials. You will need to budget for their fees, as well as any software or tools they may use to manage your finances remotely.
- Insurance Costs: Protecting your virtual office is just as important as protecting a physical one. You will need to budget for insurance to cover any potential risks, such as cyber attacks or data breaches.
- Software Licenses: Running a virtual office requires various software programs and tools. These may include project management software, communication platforms, and other tools to help your team work efficiently.
- Banking Fees: With online banking, there may be fees associated with transferring funds or making international transactions. Make sure to budget for these fees in your operating expenses.
- Internet and Phone Expenses: Your virtual office relies heavily on internet and phone services. Make sure to budget for monthly fees, as well as any necessary upgrades or maintenance.
- Virtual Office Address: If you are using a virtual office address for your business, you will need to budget for the associated fees. This may include mail forwarding, receiving and forwarding packages, and other administrative services.
- Marketing Expenses: Just like a physical office, your virtual office will also need to invest in marketing to attract clients or customers. This can include online advertising, social media marketing, and other promotional expenses.
- Virtual Assistants: As a virtual office, you may need to hire virtual assistants to help with administrative tasks. Make sure to budget for their fees and any necessary training.
- Utilities: While you may not have traditional utility costs, you will still need to budget for any necessary services, such as cloud storage, web hosting, or virtual private networks (VPN).
- Office Supplies: Your virtual office may still need some basic office supplies, such as printers, ink cartridges, and paper. Make sure to budget for these expenses.
- Professional Memberships: As a virtual office, you may need to join professional organizations or networks to stay connected and up-to-date in your industry. These memberships may come with annual fees.
- Training and Development: In addition to staff training, you may also need to budget for your own professional development. This can include attending virtual conferences or workshops to improve your skills and knowledge.
- Virtual Meeting Expenses: If you frequently hold virtual meetings, you may need to budget for any necessary software or tools to host these meetings, such as video conferencing platforms.
- Travel Expenses: While your virtual office may not require extensive travel, there may still be occasional trips for meetings or conferences. Make sure to budget for transportation, lodging, and other related expenses.
This list will need to be tailored to the specificities of your virtual office, but should offer a good starting point for your budget.
What investments are needed to start or grow a virtual office?
Once you have an idea of how much sales you could achieve and what it will cost to run your virtual office, it is time to look into the equipment required to launch or expand the activity.
For a virtual office, capital expenditures and initial working capital items could include:
- Virtual Office Software: This includes any software needed to run your virtual office, such as project management tools, virtual meeting software, or a virtual phone system.
- Computer Equipment: This can include laptops, desktops, monitors, and other necessary equipment for your virtual office team to work efficiently.
- Furniture and Office Setup: In addition to computer equipment, you may need to purchase desks, chairs, and other office furniture to create a comfortable and functional workspace for your virtual team.
- Security Systems: As with any office, security is important for a virtual office as well. This can include firewalls, antivirus software, and other security measures to protect your virtual office from cyber threats.
- Communication Tools: In order to effectively communicate with your team and clients, you may need to invest in tools such as video conferencing equipment, headsets, and webcams.
Again, this list will need to be adjusted according to the specificities of your virtual office.
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 office
The next step in the creation of your financial forecast for your virtual office 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 office?
Now let's have a look at the main output tables of your virtual office's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your virtual office's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a virtual office 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 office'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 office 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 office'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 office 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 office's financial projections?
Building a virtual office 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 virtual office'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 office 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 office'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 office 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 office'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 office, 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 office
Takeaways
- A financial forecast shows expected growth, profitability, and cash generation metrics for your virtual office.
- 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 virtual office. 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
- Financial forecast example
- How to project revenues for a business?
- Example of financial forecast for business idea
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Founder & CEO at The Business Plan Shop Ltd
