In reality, you need to set these projections as goals for your own use, to show you have a sustainable business. In the The business of design I show a Design business model canvas where the financial projections come as the last two sections; Cost structures and Revenue streams.
There are a few factors to consider when developing the Cost structures and Revenue streams:
We do financial forecasting for three years because we think it’s essential to our business success. This process is based on the actual results from the previous three years and it helps us to plan the growth of the business in a structured way. We set strategies and tactics as part of this planned growth.
The long term forecasting helps us avoid major financial problems by warning us if our performance is not up to scratch. Forecasts are also a good management tool when applying for a loan or overdraft. As a business expands, there may be a need for more money than can be generated from profits. By planning the growth and the money needs we can predict when we need to get extra funds and how much.
When we prepare forecasts we get together a bunch of facts about the business and its past performance. These include:
Data from prior financial statements:
previous sales figures and trends
past gross percentages
average past administrative, and sales expenses
trends in our need to borrow (trade credit eg printers, and bank credit or overdraft).
Unique company data
studio capacity – we look at how many hours each person can bill each month
competition – what our competitors are doing
financial constraints – how much debt we can carry
personnel availability – how easy is it to get designers, full time vs part time etc.
Industry-wide factors, including:
overall state of the economy
economic status of the design industry within the economy – find this in The business of design
population growth – general population plus the design population – more designers, more clients doing their own design and more freelancers.
Once we have all of these factors we can prepare our forecast, which estimates the level of sales, expenses, and profitability that seem possible for the next 3 years.
Our forecasts show that there is a downturn in the market for basic design work. We have seen this coming for some time and we’ve been using a design value approach for a number of years to overcome this downturn.
If you would like to know more about how we sell design value you can join me in the Selling design value workshop. See more here…