How to create a financial forecast for a barber shop?
If you are serious about keeping visibility on your future cash flows, then you need to build and maintain a financial forecast for your barber shop.
Putting together a barber shop financial forecast may sound complex, but don’t worry, with the right tool, it’s easier than it looks, and The Business Plan Shop is here to guide you.
In this practical guide, we'll cover everything you need to know about building financial projections for your barber shop.
We will start by looking at why they are key, what information is needed, what a forecast looks like once completed, and what solutions you can use to create yours.
Let's dive in!
Why create and maintain a financial forecast for a barber shop?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your barber shop and ensure that it can be financially viable in the years to come.
A financial plan for a barber shop enables you to look at your business in detail - from income to operating costs and investments - to evaluate its expected profitability and future cash flows.
This gives you the visibility needed to plan future investments and expansion with confidence.
And, when your trading environment gets tougher, having an up to date barber shop forecast enables you to detect potential upcoming financing shortfalls in advance, enabling you to make adjustments or secure financing before you run out of cash.
It’s also important to remember that your barber shop's financial forecast will be essential when looking for financing. You can be 100% certain that banks and investors will ask to see your numbers, so make sure they’re set out accurately and attractively.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
What information is used as input to build a barber shop financial forecast?
A barber shop's financial forecast needs to be built on the right foundation: your assumptions.
The data required to create your assumptions will depend on whether you are a new or existing barber shop.
If you are creating (or updating) the forecast of an existing barber shop, then your main inputs will be historical accounting data and operating metrics, and your team’s view on what to expect for the next three to five years.
If you are building financial projections for a new barber shop startup, you will need to rely on market research to form your go-to-market strategy and derive your sales forecast.
For a new venture, you will also need an itemised list of resources needed for the barber shop to operate, along with a list of equipment required to launch the venture (more on that below).
Now that you understand what is needed, let’s have a look at what elements will make up your barber shop's financial forecast.
The sales forecast for a barber shop
From experience, it usually makes sense to start your barber shop's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your barber shop (which can be used as a starting point for existing businesses) and the data collected in your market research (which both new ventures and existing businesses need to project their sales forward).
Your barber shop's sales forecast can be broken down into two key estimates:
- The average price
- The number of monthly transactions
To assess these variables accurately, you will need to consider the following factors:
- Seasonal trends: As a barber shop owner, you may notice that your average price and number of monthly transactions fluctuate depending on the season. For example, during the summer months, you may see an increase in the number of customers looking for shorter haircuts, which could potentially lower your average price. On the other hand, during the winter months, customers may be more willing to splurge on longer, more intricate haircuts, resulting in a higher average price.
- Local events: If your barber shop is located near a popular event venue or tourist attraction, such as a sports stadium or amusement park, you may experience a surge in customers during events or peak tourist season. This could lead to an increase in your average price as customers may be willing to pay more for a convenient and quality haircut.
- Competition: Your barber shop's prices and number of transactions may also be influenced by the competition in your area. If there are several other barber shops nearby offering similar services at lower prices, you may need to adjust your prices to stay competitive. This could potentially affect your average price and number of monthly transactions.
- Customer demographics: The average price and number of monthly transactions at your barber shop may also be influenced by the demographics of your customers. For example, if your shop is located in a neighborhood with a higher income demographic, you may be able to charge higher prices for your services and potentially have more monthly transactions. On the other hand, if your customer base consists mostly of students or lower-income individuals, you may need to adjust your prices to accommodate their budget.
- Economic conditions: The state of the economy can also impact your barber shop's average price and number of monthly transactions. During a recession, customers may be more price-sensitive, leading to a decrease in your average price. On the other hand, during a booming economy, customers may be more willing to splurge on higher-priced services, resulting in an increase in your average price.
Once you have a sales forecast in place, the next step will be to work on your overhead budget. Let’s have a look at that now.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
The operating expenses for a barber shop
The next step is to estimate the costs you’ll have to incur to operate your barber shop.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your barber shop's operating expenses should normally include the following items:
- Rent: The cost of renting a space for your barber shop. This can include utilities such as electricity and water.
- Staff Wages: The salaries and wages of your barbers, receptionists, and other staff members.
- Supplies: The cost of purchasing supplies such as hair products, towels, and cleaning supplies.
- Equipment Maintenance: The cost of maintaining and repairing equipment such as barber chairs, clippers, and scissors.
- Marketing and Advertising: The cost of promoting your barber shop through various channels such as social media, print ads, and flyers.
- Accountancy Fees: The fees for hiring an accountant to help with bookkeeping, tax preparation, and financial planning.
- Insurance: The cost of insuring your barber shop against potential risks such as liability claims and property damage.
- Software Licences: The fees for using software programs such as scheduling, inventory management, and accounting software.
- Banking Fees: The fees associated with maintaining a business bank account, such as transaction fees and monthly service fees.
- Professional Memberships: The cost of joining professional organizations for barbers, which can provide networking opportunities and educational resources.
- Uniforms and Work Attire: The cost of purchasing and maintaining uniforms for your employees.
- Training and Development: The cost of providing training and development opportunities for your staff to improve their skills and knowledge.
- Renters Insurance: The cost of insuring your rented space against potential risks such as fire, theft, and natural disasters.
- Office Supplies: The cost of purchasing office supplies such as paper, pens, and printer ink.
- Employee Benefits: The cost of providing benefits to your employees, such as health insurance, retirement plans, and paid time off.
This list is not exhaustive by any means, and will need to be tailored to your barber shop's specific circumstances.
What investments are needed to start or grow a barber shop?
Your barber shop financial forecast will also need to include the capital expenditures (aka investments in plain English) and initial working capital items required for the creation or development of your business.
For a barber shop, these could include:
- Barber chairs: These chairs are essential for your barber shop as they provide a comfortable and functional seating option for your clients. Look for chairs with adjustable height and headrests for maximum convenience.
- Barber station: This is where you will be working on your clients' hair. A good barber station should have storage space for your tools and supplies, as well as a large enough mirror for your clients to see their haircuts.
- Barber tools and equipment: As a barber, you will need a variety of tools and equipment such as clippers, scissors, combs, and capes. These are essential for providing quality haircuts and should be included in your expenditure forecast.
- Decor and furnishings: To create a welcoming and professional atmosphere in your barber shop, you will need to invest in decor and furnishings such as flooring, paint, lighting, and waiting area furniture. These items may seem small, but they can add up in terms of cost.
- Point-of-sale system: A modern and efficient point-of-sale system is necessary for tracking sales, managing inventory, and processing payments. Look for a system that is specifically designed for barber shops to ensure smooth operations.
Again, this list will need to be adjusted according to the size and ambitions of your barber shop.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
The financing plan of your barber shop
The next step in the creation of your financial forecast for your barber shop is to think about how you might finance your business.
You will have to assess how much capital will come from shareholders (equity) and how much can be secured through banks.
Bank loans will have to be modelled so that you can separate the interest expenses from the repayments of principal, and include all this data in your forecast.
Issuing share capital and obtaining a bank loan are two of the most common ways that entrepreneurs finance their businesses.
What tables compose the financial plan for a barber shop?
Now let's have a look at the main output tables of your barber shop's financial forecast.
The forecasted profit & loss statement
The profit & loss forecast gives you a clear picture of your business’ expected growth over the first three to five years, and whether it’s likely to be profitable or not.
A healthy barber shop's P&L statement should show:
- Sales growing at (minimum) or above (better) inflation
- Stable (minimum) or expanding (better) profit margins
- A healthy level of net profitability
This will of course depend on the stage of your business: numbers for an established barber shop will look different than for a startup.
The projected balance sheet
The projected balance sheet gives an overview of your barber shop's financial structure at the end of the financial year.
It is composed of three categories of items: assets, liabilities and equity:
- Assets: are what the business possesses and uses to produce cash flows. It includes resources such as cash, buildings, equipment, and accounts receivable (money owed by clients).
- Liabilities: are the debts of your barber shop. They include accounts payable (money owed to suppliers), taxes due and bank loans.
- Equity: is the combination of what has been invested by the business owners and the cumulative profits to date (which are called retained earnings). Equity is a proxy for the value of the owner's stake in the business.
The cash flow projection
The cash flow forecast of your barber shop will show how much cash the business is expected to generate or consume over the next three to five years.
There are multiple ways of presenting a cash flow forecast but from experience, it is better to organise it by nature in order to clearly show these elements:
- Operating cash flow: how much cash is generated by the barber shop's operations
- Investing cash flow: what is the business investing to expand or maintain its equipment
- Financing cash flow: is the business raising additional funds or repaying financiers (debt repayment, dividends)
Your cash flow forecast is the most important element of your overall financial projection and that’s where you should focus your attention to ensure that your barber shop is adequately funded.
Note: if you are preparing a financial forecast in order to try to secure funding, you will need to include both a yearly and monthly cash flow forecast in your barber shop's financial plan.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Which tool should you use to create your barber shop's financial projections?
Building a barber shop financial forecast is not difficult provided that you use the right tool for the job. Let’s see what options are available below.
Using online financial forecasting software to build your barber shop's projections
The modern and easiest way is to use an online financial forecasting tool such as the one we offer at The Business Plan Shop.
There are several advantages to using specialised software:
- You can easily create your financial forecast by letting the software take care of the financial calculations for you without errors
- You have access to complete financial forecast templates
- You get a complete financial forecast ready to be sent to your bank or investors
- You can easily track your actual financial performance against your financial forecast, and recalibrate your forecast as the year goes by
- You can create scenarios to stress test your forecast's main assumptions
- You can easily update your forecast as time goes by to maintain visibility on future cash flows
- You have a friendly support team on standby to assist you when you are stuck
- It’s cost-efficient and much cheaper than using an accountant or consultant (see below)
If you are interested in this type of solution, you can try our projection software for free by signing up here.
Calling in a financial consultant or chartered accountant
Enlisting the help of a consultant or accountant is also a good way to obtain a professional barber shop financial forecast.
The downside of this solution is its cost. From experience, obtaining a simple financial forecast over three years (including a balance sheet, income statement, and cash flow statement) is likely to cost a minimum of £700 or $1,000.
The indicative cost above, is for a small business, and a forecast is done as a one-shot exercise. Using a consultant or accountant to track your actuals vs. forecast and to keep your financial projections up to date on a monthly or quarterly basis will cost a lot more.
If you opt for this solution, make sure your accountant has in-depth knowledge of your industry, so that they may challenge your figures and offer insights (as opposed to just taking your assumptions at face value to create the forecast).
Why not use a spreadsheet such as Excel or Google Sheets to build your barber shop's financial forecast?
Creating an accurate and error-free barber shop financial forecast on Excel (or any spreadsheet) is very technical and requires both a strong grasp of accounting principles and solid skills in financial modelling.
Most entrepreneurs lack the expertise required to create an accurate financial forecast using spreadsheet software like Excel or Google Sheets. As a result, it is unlikely anyone will trust your numbers.
The second reason is that it is inefficient. Building forecasts on spreadsheets was the only option in the 1990s and early 2000s, nowadays technology has advanced and software can do it much faster and much more accurately.
This is why professional forecasters all use software. With the rise of AI, software is also becoming smarter at helping us detect mistakes in our forecasts and helping us analyse the numbers to make better decisions.
Finally, like everything with spreadsheets, tracking actuals vs. forecasts and updating your forecast as the year progresses is manual, tedious, error-prone, and time-consuming. Whereas financial forecasting software like The Business Plan Shop is built for this.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Use our financial projection templates for inspiration
The Business Plan Shop has dozens of financial forecasting templates available.
Our examples contain both the financial forecast, and a written business plan which presents, in detail, the company, the team, the strategy, and the medium-term objectives.
Whether you are just starting out or already have your own barber shop, looking at our template is always a good way to get ideas on how to model financial items and what to write when creating a business plan to secure funding.
Takeaways
- A financial projection shows expected growth, profitability, and cash generation for your business over the next three to five years.
- Tracking actuals vs. forecast and keeping your financial forecast up-to-date is the only way to maintain visibility on future cash flows.
- Using financial forecasting software makes it easy to create and maintain up-to-date projections for your barber shop.
You have reached the end of our guide. We hope you now have a better understanding of how to create a financial forecast for a barber shop. Don't hesitate to contact our team if you have any questions or want to share your experience building forecasts!
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Also on The Business Plan Shop
- Example of financial projections
- How to project revenues for a business?
- Financial forecast template for a business idea
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Founder & CEO at The Business Plan Shop Ltd
