How to create a financial forecast for a web design agency?
Developing and maintaining an up-to-date financial forecast for your web design agency 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 web design agency 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 web design agency?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your web design agency and ensure that it can be financially viable in the years to come.
A financial plan for a web design agency 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 web design agency 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 web design agency'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 web design agency financial forecast?
A web design agency's financial forecast is only as good as the inputs used to build it.
If you are creating (or updating) the forecast of an existing web design agency, then you mostly need your accounting information, key historical operating non-financial data, and your team’s input on what to expect for the coming years.
If you are building financial projections for a web design agency startup, you will need to have done your research and have a clear picture of your competitive environment and go-to-market strategy so that you can forecast sales accurately.
For a new venture, you will also need a precise list of the resources needed to keep the web design agency running on a day-to-day basis and a list of the equipment and expenditures required to start the business (more on that later).
Let's now take a closer look at the elements that make up your web design agency's financial forecast.
The sales forecast for a web design agency
From experience, it usually makes sense to start your web design agency's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your web design agency (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 web design agency'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:
- Your reputation and portfolio: Your past work and the word-of-mouth recommendations from satisfied clients can significantly impact the average price you can charge for your services. A strong reputation and an impressive portfolio can attract high-paying clients and justify higher prices.
- Your expertise and skills: As a web design agency, your expertise and skills are your main selling points. The more advanced and specialized your skills are, the more you can charge for your services. Consider investing in training and staying up-to-date with the latest design trends and technologies to increase your average price.
- Competition: The level of competition in the web design industry can also affect your average price. If there are many other agencies offering similar services in your area, you may need to adjust your prices to remain competitive. On the other hand, if you have a unique selling proposition or offer a specialized service, you may be able to charge higher prices.
- Market demand: The demand for web design services can vary depending on the economic climate and industry trends. When the demand is high, you may be able to charge higher prices and attract more clients. Stay updated on the latest market trends and adjust your pricing accordingly.
- Technology and tools: The technology and tools you use to create websites can also impact your average price. If you invest in advanced software and tools that allow you to create high-quality and innovative websites, you may be able to charge higher prices for your services.
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 web design agency
The next step is to estimate the costs you’ll have to incur to operate your web design agency.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your web design agency's operating expenses should normally include the following items:
- Staff costs: This includes salaries, benefits, and any other expenses related to your employees, such as training and development.
- Accountancy fees: You may need to hire an accountant to help you with financial management, tax preparation, and other financial tasks.
- Insurance costs: As a web design agency, you will need insurance to protect your business from potential risks, such as liability claims.
- Software licenses: You will need to purchase licenses for design software, project management tools, and other software necessary for your operations.
- Banking fees: This includes charges for maintaining a business bank account, wire transfers, and other banking services.
- Marketing and advertising: To attract clients, you may need to invest in marketing and advertising strategies, such as social media ads, Google AdWords, and print materials.
- Rent or office space: If you have a physical office, you will need to pay rent or mortgage payments, as well as utilities and other office expenses.
- Website hosting and domain fees: You will need to pay for website hosting and domain registration to keep your agency's website up and running.
- Professional development: It's important to continue learning and improving your skills as a web design agency. This may include attending conferences, workshops, and online courses.
- Office supplies and equipment: You will need to purchase office supplies, such as paper, ink, and toner, as well as equipment, such as computers, printers, and furniture.
- Client communication expenses: This includes costs for phone, internet, and other communication tools necessary for communicating with clients.
- Travel expenses: If you need to meet with clients or attend conferences, you may have travel expenses, such as airfare, hotel, and meals.
- Legal fees: As a business, you will need to consult with a lawyer for legal advice and to draft contracts and agreements.
- Office maintenance and cleaning: You will need to maintain a clean and professional office space, which may include hiring a cleaning service.
- Professional memberships and subscriptions: You may need to pay for memberships to professional organizations or subscriptions to design software and tools.
This list is not exhaustive by any means, and will need to be tailored to your web design agency's specific circumstances.
What investments are needed to start or grow a web design agency?
Your web design agency 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 web design agency, these could include:
- Computer equipment: This includes desktop computers, laptops, monitors, and other hardware necessary for web design work.
- Software licenses: Web design agencies often need to purchase licenses for design software such as Adobe Creative Suite or Sketch.
- Office furniture: This can include desks, chairs, and other furniture needed for employees to work comfortably.
- Design tools and equipment: This could include items such as graphic tablets, printers, and other design tools needed to create high-quality designs.
- Web hosting and domain registration: These are essential expenses for a web design agency as they need to host their own website and register domains for clients.
Again, this list will need to be adjusted according to the size and ambitions of your web design agency.
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 web design agency
The next step in the creation of your financial forecast for your web design agency 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 web design agency?
Now let's have a look at the main output tables of your web design agency'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 web design agency'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 web design agency will look different than for a startup.
The projected balance sheet
The projected balance sheet gives an overview of your web design agency'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 web design agency. 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 web design agency 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 web design agency'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 web design agency 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 web design agency's financial projections?
Building a web design agency 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 projection software to build your web design agency'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.
Hiring a financial consultant or chartered accountant
Hiring a consultant or chartered accountant is also an efficient way to get a professional web design agency financial projection.
As you can imagine, this solution is much more expensive than using software. From experience, the creation of a simple financial forecast over three years (including a balance sheet, income statement, and cash flow statement) is likely to start around £700 or $1,000 excluding taxes.
The indicative estimate above, is for a small business, and a forecast done as a one-off. Using a financial consultant or accountant to track your actuals vs. forecast and to keep your financial forecast up to date on a monthly or quarterly basis will naturally cost a lot more.
If you choose this solution, make sure your service provider has first-hand experience in your industry, so that they may challenge your assumptions and offer insights (as opposed to just taking your figures at face value to create the forecast’s financial statements).
Why not use a spreadsheet such as Excel or Google Sheets to build your web design agency's financial forecast?
Creating an accurate and error-free web design agency 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 forecast templates for inspiration
The Business Plan Shop has dozens of financial forecast examples available.
Our templates contain both a financial forecast and a written business plan which presents, in detail, the company, the team, the strategy, and the medium-term objectives.
Our templates are a great source of inspiration, whether you just want to see what a complete business plan looks like, or are looking for concrete examples of how you should model financial elements in your own forecast.
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 web design agency 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 web design agency, 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 create a turnover forecast for a business?
- Financial forecast template for a business idea
Know someone who owns or is thinking of starting a web design agency? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
