What does the future look like for your agency’s finances?

I know every agency founder would love to have a crystal ball to get the answer to this one. But while it’s impossible to be certain about what the future will bring, you can still create a solid financial forecast that will help you guide your decision-making.

In fact, being able to explore what the future may look like is one of the best ways to increase your confidence and feel in control of your agency’s finances.

Here’s how to build your financial forecast:

1) Start with your tracker

I’ve written previously about creating a financial dashboard to track your agency’s performance. You want to create your forecast in this dashboard, effectively extending it to run for a full financial year with actual numbers for past months and forecast numbers for future months.

The aim is to end up with the dashboard showing how your financial year could play out – i.e. total potential income, profit and the all-important key metrics.

2) Use your best estimates

The most important point to keep in mind when creating your forecast is to base everything on your best estimates. The question to ask for each piece of data is: what’s the most likely outcome? This is what your main forecast should show, and it’s all about using your judgement – and, ideally, the collective judgement of everyone on your team.

You can base your best estimates on past experience, your understanding of your clients and your knowledge about the industry and the wider economy. Critically, you should take into account your “spidey senses”, or what your gut tells you.

3) Add estimates to your tracker

Now you need to add your best estimates into your tracker. As ever, there are lots of ways of doing this. The simplest approach is to add some extra rows – eg in the income section you could include rows to cover things like pipeline income or additional income from existing clients. Ultimately, you should do whatever will be most helpful for your particular situation.

If you use a CRM to track your pipeline, some systems can export a month-by-month forecast breakdown which you could enter into your tracker. If you use a spreadsheet, figure out the best way of taking what you have to create the monthly figures for the forecast section of your tracker. Remember that you want your pipeline to be weighted, which means the potential income for each job should be multiplied by the percentage likelihood of the work being signed off.

Don’t forget to include any potential extra outgoings in your forecast, too. For example, if you’re planning to recruit new team members or award pay rises. 

4) Take a step back

Now your tracker should be complete, showing your best overall estimate of what your full financial year will look like. Now you can take a step back and see what the forecast is showing you. What does your full-year income look like and, most importantly, what’s your profit margin? What are your other key metrics showing – eg staff costs to income ratio?

By exploring both the overall figures and the monthly breakdowns, you’ll be able to uncover some really key business information. For example, you’ll see when you can expect to be busy and may require some additional support. Or you might see that you actually need to start looking at reducing costs in some areas to maintain your profit margin.

As you get used to updating and reviewing your forecast regularly, it will become your most useful tool for managing your business.

Paul Muggeridge-Breene is an exited agency founder, qualified accountant, former international journalist and a member of the British Psychological Society. Please get in touch if you’d like to discuss how Thrive can help you.