Finance and Bookkeeping - Session 13

The 12-Month Operating Forecast

Build an operating forecast from service, staffing and cost assumptions. Help the CEO see how future decisions change expected profit while keeping earned revenue separate from expected cash receipts.

The MSP finance task

The CEO wants to grow, but last year's expense totals do not explain next year's staff, clients or vendor costs. A useful forecast connects the expected work to the resources needed and shows when proposed decisions take effect.

Operating forecast

An operating forecast estimates future revenue, delivery costs and overhead. The admin manager prepares reliable inputs; the CEO approves growth assumptions and decisions.

Drivers and assumptions

A driver changes a financial amount. A forecast assumption states a future quantity, price, cost or date. Record the source and owner of each assumption.

Historical starting figures

Supplied January-September revenue averages $123,321.24 monthly. This is reported historical revenue, including nonrecurring work. It does not establish committed future monthly revenue.

Revenue timing

Practice example: 20 users x $150 = $3,000 monthly. Starting in month four adds nine months of revenue, or $27,000.

Related delivery cost

Practice example: 20 additional users x $30 of monthly tools = $600 monthly cost from the same start date. Link related quantities in the model.

Staffing start dates

Practice example: an employee costing $6,000 monthly from month seven adds $36,000 across six months. Show recruitment and setup costs separately.

Workbook checks

Separate actuals, assumptions, formulas and review results. Match monthly totals to annual totals. Distinguish a missing input from a confirmed zero.

Profit and cash planning

Operating profit estimates earnings. A cash forecast estimates receipt and payment dates. Review both before approving hiring, borrowing or equipment commitments.

A new contract adds $3,000 monthly beginning in month four of a twelve-month forecast. What revenue does it add under the stated assumptions?

  1. $36,000 for a full twelve months
  2. $12,000 using the start month as the multiplier
  3. $27,000
  4. $9,000 based only on the first quarter

The historical recurring-revenue account averages $98,766.27 per month. What is needed before using that amount as committed future service revenue?

  1. A current signed-contract reconciliation
  2. The same average rounded to the nearest thousand
  3. The number of invoices issued in the busiest month
  4. A higher growth percentage applied to the average

A forecast adds 20 users with $30 monthly tools cost per user. What should happen to tools cost when those users begin?

  1. It stays unchanged because tools are already in overhead
  2. It increases by the entire contract selling price
  3. It decreases as the user count grows
  4. It increases by $600 per active month

Key terms

Operating forecast
An estimate of future earned revenue, delivery costs and operating overhead.
Forecast assumption
An input about a future quantity, price, timing or cost, with a stated source and owner.
Driver
An activity or condition that changes a financial amount.
Baseline
The starting set of amounts and assumptions used for a comparison.

Three points to remember

  1. Use current contracts and sourced assumptions for the starting point.
  2. Link quantities, prices and effective dates in the formulas.
  3. Review the operating result and separate cash requirements.