How to create a financial forecast for a water management consulting firm?
Developing and maintaining an up-to-date financial forecast for your water management consulting 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 water management consulting 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 water management consulting firm?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your water management consulting firm and ensure that it can be financially viable in the years to come.
A financial plan for a water management consulting 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 water management consulting 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 water management consulting 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 water management consulting firm financial forecast?
A water management consulting 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 water management consulting firm.
If you are creating (or updating) the forecast of an existing water management consulting 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 water management consulting 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 water management consulting 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 water management consulting firm's financial forecast.
The sales forecast for a water management consulting firm
The sales forecast, also called topline projection, is normally where you will start when building your water management 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 water management consulting firms), and consider the elements below:
- Government regulations: Changes in government regulations regarding water management can affect the demand for consulting services. For example, if new regulations are introduced that require businesses to implement more sustainable water management practices, this could lead to an increase in your average price as clients seek your expertise to help them comply with these regulations.
- Weather patterns: Extreme weather events such as droughts or floods can impact the availability and quality of water, leading to a higher demand for consulting services. For instance, if a region experiences a severe drought, businesses may turn to your firm for assistance in finding alternative water sources or implementing conservation measures.
- Advancements in technology: As technology continues to advance, there may be new tools and solutions available that can help businesses better manage their water usage. This could result in a decrease in your average price as clients may opt for more efficient and cost-effective methods, or it could lead to an increase in your number of monthly transactions as more businesses seek your expertise to implement these new technologies.
- Economic conditions: Economic downturns or fluctuations can impact the demand for consulting services. During a recession, businesses may cut back on non-essential expenses such as consulting services, leading to a decrease in your number of monthly transactions. On the other hand, during a period of economic growth, businesses may be more willing to invest in water management consulting services, resulting in an increase in your average price and number of monthly transactions.
- Emerging industries: As new industries such as renewable energy and sustainable agriculture continue to grow, there may be a higher demand for consulting services in these areas, as they often have unique water management needs. This could lead to an increase in your average price as you specialize in these emerging industries, and could also result in an increase in your number of monthly transactions as these industries continue to expand.
After the sales forecast comes the operating expenses budget, which we will now look into in more detail.
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 water management consulting firm
The next step is to estimate the costs you’ll have to incur to operate your water management consulting firm.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your water management consulting firm's operating expenses should normally include the following items:
- Staff costs: This includes salaries, benefits, and any other expenses related to hiring and retaining employees for your water management consulting firm.
- Accountancy fees: As a consulting firm, you will need to hire an accountant to manage your financial records, taxes, and other financial aspects of your business.
- Insurance costs: It is important for your water management consulting firm to have insurance coverage to protect your business from potential risks and liabilities.
- Software licenses: Your firm will likely need to invest in various software programs to perform tasks such as data analysis, project management, and client communication.
- Banking fees: This includes fees for maintaining business bank accounts, wire transfers, and any other banking services your firm may utilize.
- Rent and utilities: If you have a physical office space, you will need to pay for rent and utilities such as electricity, water, and internet.
- Marketing and advertising: To attract clients, you may need to invest in marketing and advertising efforts such as creating a website, printing business cards, or attending industry events.
- Travel expenses: As a consulting firm, you may need to travel to meet with clients or attend conferences, which will incur expenses such as airfare, lodging, and meals.
- Training and development: It is important to invest in ongoing training and development for your staff to keep up with industry trends and advancements.
- Office supplies: This includes expenses for everyday office supplies such as paper, ink, pens, and other necessary materials.
- Professional memberships and certifications: Your firm may need to pay for memberships and certifications to stay up-to-date with industry standards and regulations.
- Legal fees: As a consulting firm, you may need to seek legal advice for contracts, partnerships, and other legal matters.
- Consulting fees: If your firm needs to outsource any specialized services, you may need to pay consulting fees.
- Office equipment: This includes expenses for purchasing or leasing office equipment such as computers, printers, and furniture.
- Business insurance: In addition to general insurance, your firm may need to invest in specific business insurance to protect against potential risks and liabilities.
This list is not exhaustive by any means, and will need to be tailored to your water management consulting firm's specific circumstances.
What investments are needed to start or grow a water management consulting firm?
Once you have an idea of how much sales you could achieve and what it will cost to run your water management consulting firm, it is time to look into the equipment required to launch or expand the activity.
For a water management consulting firm, capital expenditures and initial working capital items could include:
- Office equipment and furniture: As a water management consulting firm, you will need to invest in office equipment such as computers, printers, and scanners, as well as furniture such as desks, chairs, and filing cabinets. These are essential for your daily operations and will be considered fixed assets in your expenditure forecast.
- Software and technology: In addition to physical equipment, you will also need to invest in software and technology to support your consulting services. This may include project management software, data analysis tools, and specialized software for water management planning. These expenses should be included in your capital expenditure forecast.
- Field equipment: As a water management consulting firm, you may need to conduct field work and site visits for your projects. This will require you to invest in equipment such as water testing kits, data loggers, and surveying tools. These items should be considered fixed assets in your expenditure forecast.
- Office renovations: Depending on the size and location of your firm, you may need to renovate your office space to accommodate your growing business. This could include expanding your office space, adding conference rooms, or upgrading your office layout. These renovation costs should be included in your capital expenditure forecast.
- Training and development: While training and development expenses are considered operating expenses, investing in the development of your employees can also be considered a capital expenditure. This may include sending your employees to conferences, workshops, or certification programs to enhance their skills and knowledge in the field of water management consulting.
Again, this list will need to be adjusted according to the specificities of your water management consulting 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 water management consulting firm
The next step in the creation of your financial forecast for your water management 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 water management consulting firm?
Now let's have a look at the main output tables of your water management consulting firm's financial forecast.
The forecasted profit & loss statement
The profit & loss forecast gives you a clear picture of your business’ expected growth over the first three to five years, and whether it’s likely to be profitable or not.
A healthy water management consulting firm's P&L statement should show:
- Sales growing at (minimum) or above (better) inflation
- Stable (minimum) or expanding (better) profit margins
- A healthy level of net profitability
This will of course depend on the stage of your business: numbers for an established water management consulting firm will look different than for a startup.
The projected balance sheet
Your water management consulting firm'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 water management consulting 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 water management consulting 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 water management consulting 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 water management consulting firm's financial projections?
Building a water management 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 water management 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
Outsourcing the creation of your water management consulting firm 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 water management consulting firm's financial forecast?
Creating an accurate and error-free water management consulting 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 water management 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
- 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 water management consulting firm.
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 water management consulting firm. 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 create a sales forecast for a business?
- Example of financial forecast for business idea
Know someone who runs or wants to start a water management consulting firm? Share our financial projection guide with them!
Founder & CEO at The Business Plan Shop Ltd
