As accounting business owners, when someone gives us a business plan to review, we do what almost every other recipient of such a document does: we flip to the numbers.
Yes, it’s important to understand a little history about the company. We want to know the bios of the founders and management team. We’re interested in the products and the vision. And assuming the owner wants financing, we want to know how much money is needed and why.
In the end, a business plan is just a request for financing, and no one is going to finance a company without looking at the numbers.
By numbers, we don’t mean the past. We mean the future. We mean a spreadsheet that shows us a sound, reasonable, and rational forecast of where the owners and managers expect the company to be in the next three years (anything after that is really just a guess and not worth the effort).
Business is about math. It’s about buying low and selling high. It’s about managing expenses, figuring out margins, and pricing correctly. Show us profits, and we can figure out whether or not an investment is worth it or not.
So, we look at the numbers, and we expect to see a reasonable, rational forecast on a spreadsheet. How can you do this? Follow these general steps.
1. Format Your Spreadsheet
Begin by formatting your spreadsheet in a manner familiar to financial experts. Down the side, list your revenue and expense accounts. Across the top, create columns for Year 1, Year 2, and Year 3. Ensure your forecast is based on cash inflow and outflow. Include a “notes” column that cross-references your assumptions behind each number. These assumptions should be detailed and research-based. While it’s fine not to include all the details on the spreadsheet, ensure you have supporting documentation and schedules that back up your assumptions. People reading your plan want a forecast grounded in the best available facts.
2. Forecast Your Revenue
Let’s imagine your accounting firm is setting up in a location with several other businesses, just like Alyssa’s Crafts and Art store. To project your revenue for the next three years, gather data by talking to other businesses in the area to determine foot traffic, consult with similar accounting firms to understand average client spending, and explore industry statistics. Assume a reasonable growth rate based on positive word of mouth and effective marketing efforts.
3. Determine Your Costs
Every service you offer as an accounting firm carries a cost, be it employee salaries, office space, or software licenses. List all your costs and expenses, providing documentation for each one. Importantly, don’t forget to include your own compensation in the forecast.
4. Sum It Up
Once you’ve covered all your bases, add up your projected revenues and expenses. Present the expected profits for the next three years clearly. A well-organized spreadsheet will not only impress potential investors but also make your plan more accessible and professional. This will set you up to start a successful accounting business.
5. Think Like an Investor
Put yourselves in the shoes of a potential investor or lender. Will this be a good investment? If you need a loan, demonstrate how you’ll comfortably manage the payments. For instance, if a lender provides $50,000 at a 10% interest rate, show how you can service the loan. On the other hand, if an equity investor offers $50,000 for a share of your firm, highlight the expected return on their investment. The bottom line is that your financial forecast, displayed on a well-structured spreadsheet, is the core of your business plan. The narrative you build around these numbers will only be effective if the figures add up.
To start an accounting business that will stand the test of time, you need to have a solid business forecast. This advice is also applicable for your clients, and this process of creating a business forecast will prove useful to your clients as well once you start an accounting business. For specific examples of how the forecast spreadsheet might look, read further here.
You can start a bookkeeping business, start a tax business or start a business advisory firm in a short amount of time with the mentorship and training programs offered by Universal Accounting School. Call 877-801-8080 to learn how, or click on this calendar to schedule a time to discuss your future that works best for you.