Building your financial forecast

Three tables, three different questions

Mistake number one, and the most common among the project leads we meet: believing the forecast is a single document. It is not. It answers three quite distinct questions, and mixing up the three tables is the number one source of errors.

Keep these three questions in mind, as we will go through them one by one: a project can be profitable on paper and still end up overdrawn in March if money coming in and going out is not in step.

The forecast income statement

Year by year, you list expected income (sales, services, operating grants) and expected costs (materials, rent, insurance, pay, social security contributions). The difference gives you the result: if it is positive, the project generates a surplus; if it is negative, it eats into one.

Build this table over three financial years, not just one. The first year is often fragile: a result close to zero, or negative, while the activity finds its rhythm is normal and to be expected. The comparison over three years shows whether the trajectory is genuinely improving.

The funding plan

The starting question, before the activity even begins: how much does the launch cost, and what covers that amount?

On one side, list your long-term needs: equipment, fitting out premises, starting stock, the cost of setting up a legal structure. On the other, list the long-term resources that fund them: your personal contribution, an interest-free personal loan (prêt d’honneur), an investment grant, a bank loan, a guarantee that makes it possible to obtain that loan.

The cash flow plan

This is the most concrete table of all, and often the one most neglected. Month by month, you list everything that goes into and comes out of the bank account. Not what is invoiced: what is actually received, and actually paid out.

This is where the time lags that an annual income statement will never show come to light. A grant approved in June may be paid in December. A service invoiced in January may be paid at sixty days, in other words in March. Social security contributions and rent, on the other hand, fall due every month without waiting for anyone.

A project that is perfectly profitable over the year can find itself in the red for two or three months, simply because the large payments arrive at the end of the year. The cash flow plan lets you see that gap coming well in advance and deal with it: with a reserve, an overdraft arranged in advance, or by postponing certain expenses. Plan ahead rather than being caught out.

What makes a CCI forecast different from a standard one

• Activity is often seasonal or event-basedA festival, an exhibition or a book launch concentrates a large share of turnover into a few weeks. Your cash flow plan must reflect that concentration rather than artificially smoothing income over twelve equal months, which would mean lying to the spreadsheet.
• Grants are never guaranteed from one year to the nextA forecast that copies a grant line unchanged over three years without checking the actual timeline rests on a fragile assumption. accro’s directory of grants and funding sets out the known timelines and amounts, scheme by scheme.
• Creative time is a cost, even if no salary is paidAn artist-author or a freelancer who does not pay themselves at the start should still put a value on their time, if only to know at what level of activity proper pay becomes possible.
• Consignment sales, rights assignments and co-productions have their own payment rhythmsA consignment sale can take several months to be paid. Build that delay into your cash flow plan, and do not count the sale on the day the object leaves the studio.

The mistakes that come up most often

• Confusing invoiced and receivedA cash flow forecast is written only with actual payment dates, never with invoice dates. This is non-negotiable.
• Forgetting social security contributions on payA salary or a manager’s pay comes with contributions that can amount to 40 to 80% of the net amount, depending on legal status. Always put them on a separate line.
• Building a single scenario, always optimisticAlso build a cautious scenario, with sales or grants revised downwards. You will know in advance how far the project remains sustainable if things do not go to plan, and things never go exactly to plan.
• Not updating the forecast once the project is up and runningA forecast is only useful when compared with reality. Revisit the figures every quarter: you will spot a gap early and be able to adjust, instead of discovering it at the end of the year when it is too late.
• Presenting a forecast with no written assumptionsA table of figures on its own convinces no one. A panel wants to know what each line is based on: how many customers, at what price, at what conversion rate. It is these assumptions that will be discussed, not the raw figures.

What comes next

The financial forecast becomes the centrepiece of an application or funding request, provided it is presented clearly, in one or two readable pages, rather than in a fifteen-tab spreadsheet that no one will ever read to the end.

Building a first forecast on your own, with a simple spreadsheet, is entirely doable. Having someone outside the project review it before attaching it to an application is what catches the overly optimistic assumption or the forgotten line. Do not skip this step.