How to create a financial forecast for a book publishing house?
Developing and maintaining an up-to-date financial forecast for your book publishing house is key in order to maintain visibility on your business’s future cash flows.
If you feel overwhelmed at the thought of putting together a book publishing house financial forecast then don’t worry as this guide is here to help you.
We'll cover everything from: the main objectives of a financial forecast, the data you need to gather before starting, to the tables that compose it, and the tools that will help you create and maintain your forecast efficiently.
Let's get started!
Why create and maintain a financial forecast for a book publishing house?
The financial projections for your book publishing house act as a financial blueprint to guide its growth with confidence and ensure its long-term financial viability.
To create them, you will need to look at your business in detail - from sales to operating costs and investments - to assess how much profit it can generate in the years to come and what will be the associated cash flows.
During challenging market conditions, maintaining an up-to-date financial forecast enables early detection of potential financial shortfalls, allowing for timely adjustments or securing financing before facing a cash crisis.
Your book publishing house's financial forecast will also prove invaluable when seeking financing. Banks and investors will undoubtedly request a thorough examination of your financial figures, making precision and presentation essential.
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 book publishing house financial forecast?
A book publishing house's financial forecast is only as good as the inputs used to build it.
If you are creating (or updating) the forecast of an existing book publishing house, then you mostly need your accounting information, key historical operating non-financial data, and your team’s input on what to expect for the coming years.
If you are building financial projections for a book publishing house startup, you will need to have done your research and have a clear picture of your competitive environment and go-to-market strategy so that you can forecast sales accurately.
For a new venture, you will also need a precise list of the resources needed to keep the book publishing house running on a day-to-day basis and a list of the equipment and expenditures required to start the business (more on that later).
Let's now take a closer look at the elements that make up your book publishing house's financial forecast.
The sales forecast for a book publishing house
The sales forecast, also called topline projection, is normally where you will start when building your book publishing house financial forecast.
Creating a coherent sales projection boils down to estimating two key drivers:
- The average price
- The number of monthly transactions
To do this, you will need to rely on historical data (for an existing business), market research data (for both new and existing book publishing houses), and consider the elements below:
- Economic conditions: The current state of the economy can greatly impact the average price and number of monthly transactions for your book publishing house. If the economy is struggling, consumers may be less willing to spend money on books, leading to a decrease in both average price and number of transactions. On the other hand, a strong economy can lead to higher consumer confidence and an increase in book sales, potentially resulting in a higher average price and more monthly transactions.
- Trends in popular genres: The popularity of different book genres can fluctuate over time, and this can have a significant impact on your sales forecast. For example, if there is a sudden surge in demand for a specific genre that your publishing house specializes in, you may see an increase in both average price and number of monthly transactions. On the other hand, a decline in the popularity of certain genres may result in a decrease in sales.
- Competition: The level of competition in the book publishing industry can also affect your sales forecast. If there are a lot of other publishers releasing similar books, you may need to adjust your pricing strategy to remain competitive. This can lead to changes in average price and number of monthly transactions for your business.
- Author popularity: The popularity of the authors that your publishing house works with can also influence your sales forecast. If you have well-known and highly sought-after authors on your roster, you may be able to command a higher average price for their books and see an increase in monthly transactions. However, if your authors are not as well-known, it may be more challenging to sell books at a higher price point.
- Technology advancements: Advancements in technology can also have a significant impact on the book publishing industry. For example, the rise of e-books and audiobooks has changed the way consumers purchase and consume books. This can lead to changes in both average price and number of monthly transactions for your publishing house as you adapt to these new formats and platforms.
After the sales forecast comes the operating expenses budget, which we will now look into in more detail.
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The operating expenses for a book publishing house
The next step is to estimate the expenses needed to run your book publishing house on a day-to-day basis.
These will vary based on the level of sales expected, and the location and size of your business.
But your book publishing house's operating expenses should include the following items at a minimum:
- Staff Costs: This includes salaries, benefits, and any other compensation for your employees, including editors, designers, and marketing staff.
- Accountancy Fees: You may need to hire an accountant to help you manage your financial records, prepare tax returns, and provide financial advice.
- Insurance Costs: As a book publishing house, you will need to protect your assets and business with insurance policies such as general liability, property, and professional liability insurance.
- Software Licenses: You will need to purchase licenses for software programs to help with tasks such as book formatting, project management, and accounting.
- Banking Fees: You will incur fees for services such as wire transfers, check processing, and credit card transactions.
- Printing Costs: This includes the cost of printing physical copies of books, as well as any related expenses such as paper and ink.
- Marketing and Advertising: To promote your books and reach potential readers, you will need to invest in marketing and advertising efforts such as social media ads, book tours, and book reviews.
- Distribution Fees: If you are working with a distributor to get your books into bookstores and online retailers, you will need to pay fees for their services.
- Royalty Payments: You will need to pay royalties to authors for each book sold, as outlined in your publishing contracts.
- Rent and Utilities: You will need to cover the cost of rent for your office space, as well as utilities such as electricity, water, and internet.
- Travel Expenses: If you attend book fairs and conferences, you will need to budget for travel expenses such as airfare, hotel accommodations, and meals.
- Legal Fees: You may need to hire a lawyer for legal advice and assistance with contracts, copyright protection, and other legal matters.
- Office Supplies: This includes items such as paper, pens, printer ink, and other supplies needed to run your office.
- Professional Memberships: You may choose to join professional organizations and associations related to the publishing industry, which often require membership fees.
- Technology Upgrades: As technology evolves, you may need to upgrade your equipment and software to stay competitive in the industry.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small book publishing house might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow a book publishing house?
Your book publishing house 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 book publishing house, these could include:
- Printing Press Equipment: This includes the machinery and equipment necessary for printing books, such as offset printers, binding machines, and trimming equipment.
- Computer and Design Software: A book publishing house needs computers and design software to create digital versions of books and design book covers.
- Inventory Management System: This is a software program or system used to manage and track inventory of books, including stock levels and distribution.
- Office Furniture and Equipment: This includes desks, chairs, filing cabinets, and other necessary furniture and equipment for the office.
- Book Distribution Vehicles: A book publishing house may need to purchase vehicles such as trucks or vans for transporting books to distribution centers and bookstores.
Again, this list will need to be adjusted according to the size and ambitions of your book publishing house.
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 book publishing house
The next step in the creation of your financial forecast for your book publishing house 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 book publishing house?
Now let's have a look at the main output tables of your book publishing house's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your book publishing house is likely to be in the years to come.
For your book publishing house to be financially viable, your projected P&L should ideally show:
- Sales growing above inflation (the higher the better)
- Profit margins which are stable or expanding (the higher the better)
- A net profit at the end of each financial year (the higher the better)
This is for established book publishing houses, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.
The projected balance sheet
Your book publishing house's forecasted balance sheet enables you to assess your financial structure and working capital requirements.
It is composed of three types of elements: assets, liabilities and equity:
- Assets: represent what the business owns and uses to produce cash flows. It includes resources such as cash, equipment, and accounts receivable (money owed by clients).
- Liabilities: represent funds advanced to the business by lenders and other creditors. It includes items such as accounts payable (money owed to suppliers), taxes due and loans.
- Equity: is the combination of what has been invested by the business owners and the cumulative profits and losses generated by the business 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 forecast
Your book publishing house's cash flow forecast shows how much cash your business is expected to consume or generate in the years to come.
It is best practice to organise the cash flow forecast by nature to better explain where cash is used or generated by the book publishing house:
- Operating cash flow: shows how much cash is generated by the operating activities
- Investing cash flow: shows how much will be invested in capital expenditure to maintain or expand the business
- Financing cash flow: shows if the business is raising new capital or repaying financiers (debt repayment, dividends)
Keeping an eye on (and regularly updating) your book publishing house's cash flow forecast is key to ensuring that your business has sufficient liquidity to operate normally and to detect financing requirements as early as possible.
If you are trying to raise capital, you will normally be asked to provide a monthly cash flow forecast in your book publishing house's financial plan - so that banks or investors can assess seasonal variation and ensure your business is appropriately capitalised.
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 book publishing house's financial forecast?
Using the right tool or solution will make the creation of your book publishing house's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your book publishing house's projections
The modern and easiest way is to use professional online financial forecasting software 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 forecasting 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 book publishing house 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 book publishing house's financial forecast?
You and your financial partners need numbers you can trust. Unless you have studied finance or accounting, creating a trustworthy and error-free book publishing house financial forecast on a spreadsheet is likely to prove challenging.
Financial modelling is very technical by nature and requires a solid grasp of accounting principles to be done without errors. This means that using spreadsheet software like Excel or Google Sheets to create accurate financial forecasts is out of reach for most business owners.
Creating forecasts in Excel is also inefficient nowadays:
- Software has advanced to the point where forecasting can be done much faster and more accurately than manually on a spreadsheet.
- With artificial intelligence, the software is capable of detecting mistakes and helping decision-making.
Spreadsheets are versatile tools but they are not tailor-made for reporting. Importing your book publishing house's accounting data in Excel to track actual vs. forecast is incredibly manual and tedious (and so is keeping forecasts up to date). It is much faster to use dedicated financial planning tools like The Business Plan Shop which are built specially 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 forecast templates available.
Our examples contain a complete business plan with a financial forecast and a written presentation of the company, the team, the strategy, and the medium-term objectives.
Whether you are just starting out or already have your own book publishing house, looking at our financial forecast template is a good way to:
- Understand what a complete business plan should look like
- Understand how you should model financial items for your book publishing house
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 book publishing house.
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 book publishing house. 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 create a turnover forecast for a business?
- Sample financial forecast for business idea
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Founder & CEO at The Business Plan Shop Ltd
