How to create a financial forecast for an illustration studio?
Creating a financial forecast for your illustration studio, 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 illustration studio 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 an illustration studio?
The financial projections for your illustration studio 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 illustration studio'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.
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 an illustration studio financial forecast?
A illustration studio'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 illustration studio, 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 an illustration studio 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 illustration studio 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 illustration studio's financial forecast.
The sales forecast for an illustration studio
From experience, it is usually best to start creating your illustration studio financial forecast by your sales forecast.
To create an accurate sales forecast for your illustration studio, you will have to rely on the data collected in your market research, or if you're running an existing illustration studio, 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:
- The quality and style of your illustrations can greatly impact the average price of your services. If you are known for producing high-quality, unique illustrations, you may be able to charge higher prices for your work.
- The popularity of certain art styles and trends can also affect the average price of your illustrations. For example, if there is a sudden surge in demand for a specific type of illustration, you may be able to charge higher prices for that style.
- The size and complexity of projects can also play a role in the average price of your illustrations. Larger and more complex projects may require more time and resources, leading to higher prices for your services.
- The level of competition in your market can also impact the average price of your illustrations. If there are many other illustration studios offering similar services, you may need to keep your prices competitive in order to attract clients.
- The overall economic climate can also influence the number of monthly transactions for your studio. During times of economic downturn, clients may have less disposable income to spend on non-essential services like illustrations.
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.
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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.
The operating expenses for an illustration studio
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your illustration studio 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 illustration studio will include some of the following items:
- Staff costs: This includes salaries, wages, and benefits for all employees working in the illustration studio, such as illustrators, designers, and administrative staff.
- Accountancy fees: As a business owner, you will need to hire an accountant to help you with financial record-keeping, tax preparation, and other financial matters.
- Insurance costs: It's important to protect your illustration studio from potential risks and liabilities, so you will need to pay for various types of insurance, such as general liability, professional liability, and property insurance.
- Software licenses: In order to create high-quality illustrations, you will need to invest in software licenses for digital illustration programs, such as Adobe Photoshop or Procreate.
- Banking fees: This includes fees associated with maintaining a business bank account, such as monthly maintenance fees, transaction fees, and wire transfer fees.
- Rent: If you do not own the building in which your illustration studio is located, you will need to pay rent to the landlord.
- Utilities: This includes the costs of electricity, water, and other utilities necessary for running your illustration studio.
- Office supplies: You will need to purchase various office supplies, such as paper, ink, pens, and other materials, to keep your illustration studio running smoothly.
- Marketing and advertising: In order to attract new clients and promote your illustration services, you will need to invest in marketing and advertising efforts, such as creating a website, attending industry events, and running social media ads.
- Professional development: As an illustrator, it's important to continuously improve your skills and stay updated on industry trends, so you may need to budget for attending workshops, conferences, or online courses.
- Travel expenses: Depending on the type of illustration work you do, you may need to travel for client meetings or to attend events, so you will need to budget for transportation, lodging, and other travel-related expenses.
- Equipment maintenance: To keep your equipment, such as computers, printers, and drawing tablets, in good working condition, you will need to budget for regular maintenance and repairs.
- Taxes: As a business owner, you will be responsible for paying various taxes, such as income tax, sales tax, and self-employment tax.
- Legal fees: You may need to seek legal advice or assistance from a lawyer for various business matters, such as drafting contracts or handling copyright issues, so you will need to budget for legal fees.
- Office equipment: This includes the costs of purchasing and maintaining office equipment, such as desks, chairs, computers, and printers, necessary for running your illustration studio.
This list will need to be tailored to the specificities of your illustration studio, but should offer a good starting point for your budget.
What investments are needed to start or grow an illustration studio?
Your illustration studio 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 illustration studio, these could include:
- Computer and software: As an illustration studio, you will need a reliable computer and software to create your artwork. This includes a high-performance desktop or laptop, along with industry-standard software such as Adobe Photoshop and Illustrator.
- Drawing tools and equipment: In order to create your illustrations, you will need various drawing tools and equipment such as pens, pencils, markers, and paper. These may seem like small expenses, but they can add up over time.
- Lighting and studio setup: Proper lighting is crucial for creating high-quality illustrations, and it's important to invest in good lighting equipment for your studio. This may include LED lights, lightboxes, and other equipment to create the perfect lighting setup for your work.
- Furniture and storage: A comfortable and organized workspace is essential for any artist. You may need to invest in a desk, chair, and storage solutions to keep your studio organized and functional.
- Printing and scanning equipment: As an illustrator, you may need to print and scan your artwork for various purposes such as creating physical portfolios or selling prints. Investing in a high-quality printer and scanner can save you time and money in the long run.
Again, this list will need to be adjusted according to the size and ambitions of your illustration studio.
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 illustration studio
The next step in the creation of your financial forecast for your illustration studio 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 illustration studio?
Now let's have a look at the main output tables of your illustration studio's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your illustration studio's expected growth and profitability over the next three to five years.
A financially viable P&L statement for an illustration studio 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
The projected balance sheet gives an overview of your illustration studio'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 illustration studio. 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 cash flow projection
The cash flow forecast of your illustration studio will show how much cash the business is expected to generate or consume over the next three to five years.
There are multiple ways of presenting a cash flow forecast but from experience, it is better to organise it by nature in order to clearly show these elements:
- Operating cash flow: how much cash is generated by the illustration studio's operations
- Investing cash flow: what is the business investing to expand or maintain its equipment
- Financing cash flow: is the business raising additional funds or repaying financiers (debt repayment, dividends)
Your cash flow forecast is the most important element of your overall financial projection and that’s where you should focus your attention to ensure that your illustration studio is adequately funded.
Note: if you are preparing a financial forecast in order to try to secure funding, you will need to include both a yearly and monthly cash flow forecast in your illustration studio's financial plan.
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 illustration studio's financial projections?
Building an illustration studio 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 illustration studio'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 illustration studio 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 illustration studio'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 illustration studio 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 illustration studio'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 illustration studio, 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 forecast shows expected growth, profitability, and cash generation metrics for your illustration studio.
- 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 an illustration studio. 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 create a turnover forecast for a business?
- Example of financial forecast for business idea
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Founder & CEO at The Business Plan Shop Ltd
