How to create a financial forecast for an assisted-living facility?
If you are serious about keeping visibility on your future cash flows, then you need to build and maintain a financial forecast for your assisted-living facility.
Putting together an assisted-living facility financial forecast may sound complex, but don’t worry, with the right tool, it’s easier than it looks, and The Business Plan Shop is here to guide you.
In this practical guide, we'll cover everything you need to know about building financial projections for your assisted-living facility.
We will start by looking at why they are key, what information is needed, what a forecast looks like once completed, and what solutions you can use to create yours.
Let's dive in!
Why create and maintain a financial forecast for an assisted-living facility?
The financial projections for your assisted-living facility act as a financial blueprint to guide its growth with confidence and ensure its long-term financial viability.
To create them, you will need to look at your business in detail - from sales to operating costs and investments - to assess how much profit it can generate in the years to come and what will be the associated cash flows.
During challenging market conditions, maintaining an up-to-date financial forecast enables early detection of potential financial shortfalls, allowing for timely adjustments or securing financing before facing a cash crisis.
Your assisted-living facility's financial forecast will also prove invaluable when seeking financing. Banks and investors will undoubtedly request a thorough examination of your financial figures, making precision and presentation essential.
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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 an assisted-living facility financial forecast?
A assisted-living facility'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 assisted-living facility.
If you are creating (or updating) the forecast of an existing assisted-living facility, 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 assisted-living facility 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 assisted-living facility 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 assisted-living facility's financial forecast.
The sales forecast for an assisted-living facility
The sales forecast, also called topline projection, is normally where you will start when building your assisted-living facility 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 assisted living facilites), and consider the elements below:
- Demographics: Changes in the local population's age and income levels can impact the demand for assisted-living facilities and the ability of potential residents to afford the facility's prices.
- Competition: The number and quality of other assisted-living facilities in the area can affect your facility's average price and monthly transactions. If there is high competition, you may need to lower prices or offer more amenities to attract residents.
- Government regulations: Changes in regulations related to assisted-living facilities, such as safety standards or staffing requirements, can impact your facility's costs and therefore affect your prices and number of transactions.
- Economic conditions: Economic downturns can lead to lower demand for assisted-living facilities, as potential residents may no longer be able to afford the prices. This can also lead to increased competition as other facilities may lower their prices to attract residents.
- Technology: Advancements in technology, such as remote monitoring systems or electronic health records, can increase your facility's costs but also improve the quality of care, potentially allowing you to charge higher prices and attract more residents.
After the sales forecast comes the operating expenses budget, which we will now look into in more detail.
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The operating expenses for an assisted-living facility
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your assisted-living facility 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 an assisted-living facility will include some of the following items:
- Staff costs: Salaries, wages, benefits, and training for all employees, including caregivers, nurses, administrators, and support staff.
- Accountancy fees: Costs for financial management, tax preparation, and auditing services.
- Insurance costs: Premiums for liability insurance, property insurance, and workers' compensation insurance.
- Software licenses: Fees for software programs used for managing resident records, scheduling, billing, and other administrative tasks.
- Banking fees: Charges for maintaining a business bank account, processing transactions, and using cash management services.
- Food and dining expenses: Costs for purchasing and preparing meals for residents, as well as dining room supplies and equipment.
- Utilities: Monthly bills for electricity, gas, water, and other essential services.
- Maintenance and repairs: Expenses for keeping the facility and its equipment in good working condition, including regular maintenance and emergency repairs.
- Marketing and advertising: Costs for promoting the facility, such as creating brochures, running ads, and attending events.
- Medical supplies: Expenses for purchasing medical equipment, supplies, and medications for residents.
- Housekeeping and laundry: Costs for cleaning and maintaining resident rooms and common areas, as well as laundry services.
- Transportation: Expenses for providing transportation services for residents, such as hiring drivers, maintaining vehicles, and covering fuel costs.
- Entertainment and activities: Costs for organizing and hosting activities, events, and outings for residents.
- Administrative expenses: Other general costs associated with running the facility, such as office supplies, postage, and printing.
- Legal fees: Expenses for hiring attorneys to handle legal matters related to the facility, such as contracts, regulations, and liability issues.
This list will need to be tailored to the specificities of your assisted-living facility, but should offer a good starting point for your budget.
What investments are needed to start or grow an assisted-living facility?
Your assisted-living facility 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 an assisted-living facility, these could include:
- Building Renovations: As an assisted-living facility, you may need to make renovations to the building to ensure it is safe and comfortable for your residents. This could include updates to the plumbing, electrical systems, or other structural improvements.
- Medical Equipment: As an essential part of operating an assisted-living facility, you will need to invest in medical equipment to provide quality care to your residents. This could include items such as wheelchairs, walkers, and medical beds.
- Furniture and Furnishings: In order to create a comfortable and homely environment for your residents, you will need to purchase furniture and furnishings for their living spaces. This could include items such as beds, dressers, and chairs.
- Security Systems: It is important to ensure the safety and security of your residents, so investing in a security system for the facility is crucial. This could include cameras, alarms, and access control systems.
- Transportation: As an assisted-living facility, you may offer transportation services for your residents to attend appointments or social outings. This may require purchasing a vehicle or paying for a transportation service.
Again, this list will need to be adjusted according to the size and ambitions of your assisted-living facility.
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 assisted-living facility
The next step in the creation of your financial forecast for your assisted-living facility 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 an assisted-living facility?
Now let's have a look at the main output tables of your assisted-living facility's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your assisted-living facility's expected growth and profitability over the next three to five years.
A financially viable P&L statement for an assisted-living facility 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 assisted-living facility'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 an assisted-living facility 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 assisted-living facility'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 assisted-living facility 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 assisted-living facility's financial forecast?
Using the right tool or solution will make the creation of your assisted-living facility's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial projection software to build your assisted-living facility'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.
Calling in a financial consultant or chartered accountant
Outsourcing the creation of your assisted-living facility 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 assisted-living facility'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 assisted-living facility 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 assisted-living facility'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 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 assisted-living facility, 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 assisted-living facility.
You have reached the end of our guide. We hope you now have a better understanding of how to create a financial forecast for an assisted-living facility. 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 turnover forecast for a business?
- Financial forecast template for a business idea
Know someone who runs or wants to start an assisted-living facility? Share our financial projection guide with them!
Founder & CEO at The Business Plan Shop Ltd
