How to create a financial forecast for a carpet store?
Creating a financial forecast for your carpet store, and ensuring it stays up to date, is the only way to maintain visibility on future cash flows.
This might sound complex, but with the right guidance and tools, creating an accurate financial forecast for your carpet store is not that hard.
In this guide, we'll cover everything from the main goal of a financial projection, the data you need as input, to the tables that compose it, and the tools that can help you build a forecast efficiently.
Without further ado, let us begin!
Why create and maintain a financial forecast for a carpet store?
In order to prosper, your business needs to have visibility on what lies ahead and the right financial resources to grow. This is where having a financial forecast for your carpet store becomes handy.
Creating a carpet store financial forecast forces you to take stock of where your business stands and where you want it to go.
Once you have clarity on the destination, you will need to draw up a plan to get there and assess what it means in terms of future profitability and cash flows for your carpet store.
Having this clear plan in place will give you the confidence needed to move forward with your business’s development.
Having an up-to-date financial forecast for a carpet store is also useful if your trading environment worsens, as the forecast enables you to adjust to your new market conditions and anticipate any potential cash shortfall.
Finally, your carpet store's financial projections will also help you secure financing, as banks and investors alike will want to see accurate projections before agreeing to finance your business.
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 needed to build a carpet store financial forecast?
The quality of your inputs is key when it comes to financial modelling: no matter how good the model is, if your inputs are off, so will the forecast.
If you are building a financial plan to start a carpet store, you will need to have done your market research and have a clear picture of your sales and marketing strategies so that you can project revenues with confidence.
You will also need to have a clear idea of what resources will be required to operate the carpet store on a daily basis, and to have done your research with regard to the equipment needed to launch your venture (see further down this guide).
If you are creating a financial forecast of an existing carpet store, things are usually simpler as you will be able to use your historical accounting data as a budgeting base, and complement that with your team’s view on what lies ahead for the years to come.
Let's now zoom in on what will go in your carpet store's financial forecast.
The sales forecast for a carpet store
From experience, it is usually best to start creating your carpet store financial forecast by your sales forecast.
To create an accurate sales forecast for your carpet store, you will have to rely on the data collected in your market research, or if you're running an existing carpet store, the historical data of the business, to estimate two key variables:
- The average price
- The number of monthly transactions
To get there, you will need to consider the following factors:
- Seasonal demand: As a carpet store owner, you are aware that the demand for carpets tends to increase during the colder months. Therefore, it is important to consider the impact of seasonal changes on your sales forecast. For example, you may expect a higher average price and number of monthly transactions during the winter months, but a decrease during the summer.
- Competition: Your business may face competition from other carpet stores in the area. This can affect your average price and number of monthly transactions as you may need to adjust your prices or offer promotions to remain competitive. Keep an eye on the pricing strategies and promotions of your competitors to stay ahead.
- Economic conditions: The state of the economy can greatly impact your business's sales forecast. For example, during a recession, consumers may be more hesitant to make large purchases like carpets, resulting in a decrease in both average price and number of monthly transactions. On the other hand, during a booming economy, you may see an increase in both areas.
- Trends in home decor: The trends in home decor can also affect your business's sales forecast. For instance, if there is a growing trend towards hardwood floors or rugs instead of wall-to-wall carpeting, you may see a decrease in both average price and number of monthly transactions. Stay informed about the latest trends in home decor to anticipate any potential shifts in demand for carpets.
- Housing market: The state of the housing market can also impact your business's sales forecast. When there is a high demand for homes, there may be an increase in the number of transactions as homeowners look to update their new space with carpets. On the other hand, a slow housing market may result in a decrease in both average price and number of monthly transactions as homeowners are less likely to invest in new carpets.
Once you have an idea of what your future sales will look like, it will be time to work on your overhead budget. Let’s see what this entails.
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 carpet store
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your carpet store on a daily basis.
Expenses normally vary based on how much revenue you anticipate (which is why, from experience, it is always better to start your forecast with the topline projection), and where your business is based.
Operating expenses for a carpet store will include some of the following items:
- Staff Costs: This includes salaries, wages, bonuses, and benefits for all employees, including sales staff, installation technicians, and administrative staff.
- Rent and Utilities: This expense covers the cost of leasing or owning a physical retail space for your carpet store, as well as electricity, water, and other utility bills.
- Inventory Costs: As a carpet store, you will need to purchase and maintain a large inventory of carpets, rugs, and other flooring materials. This expense includes the cost of purchasing inventory, as well as storage and maintenance costs.
- Marketing and Advertising: To attract customers to your store, you will need to invest in marketing and advertising efforts such as print ads, online ads, and social media campaigns.
- Accountancy Fees: It is important to hire a professional accountant to manage your financial records, tax filings, and other financial tasks for your carpet store.
- Insurance Costs: In order to protect your business from unexpected events, you will need to invest in various insurance policies such as property insurance, liability insurance, and workers' compensation insurance.
- Software Licenses: Your carpet store may use various software programs to manage inventory, track sales, and handle other business operations. This expense covers the cost of purchasing and maintaining these software licenses.
- Banking Fees: As a business owner, you will need to open a business bank account and pay various fees such as transaction fees, monthly service fees, and ATM fees.
- Shipping and Delivery Costs: If you offer delivery services for your carpets, you will need to cover the cost of shipping and delivery to customers.
- Training and Development: It is important to invest in training and development programs for your employees to ensure they have the necessary skills and knowledge to provide quality service to customers.
- Office Supplies: This expense covers the cost of purchasing necessary office supplies such as paper, pens, and printer ink for your store.
- Maintenance and Repairs: In order to maintain a clean and inviting store for customers, you will need to cover the cost of regular maintenance and repairs for your store and equipment.
- Professional Services: You may need to hire outside professionals such as lawyers or consultants for certain tasks or projects related to your carpet store.
- Credit Card Processing Fees: If you accept credit card payments from customers, you will need to pay fees to credit card processing companies for each transaction.
- Taxes and Licenses: As a business owner, you will need to pay various taxes and obtain necessary licenses to operate your carpet store legally.
This list will need to be tailored to the specificities of your carpet store, but should offer a good starting point for your budget.
What investments are needed to start or grow a carpet store?
Your carpet store 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 carpet store, these could include:
- Store Renovation: If your carpet store is in need of a facelift, you may need to budget for store renovation expenses. This could include new flooring, paint, lighting, and fixtures to create an inviting and modern shopping environment for your customers.
- Inventory: As a carpet store, your inventory is a crucial part of your business. You will need to budget for the purchase of new carpet rolls, rugs, and other flooring materials. You may also need to invest in equipment such as shelving, storage units, and forklifts to properly store and display your inventory.
- Delivery Vehicles: If your carpet store offers delivery services, you may need to budget for the purchase or lease of delivery vehicles. This could include vans, trucks, or trailers to transport your inventory to customers' homes or businesses.
- Point of Sale System: In order to efficiently track sales, manage inventory, and process transactions, you may need to invest in a point of sale system for your carpet store. This could include hardware such as cash registers, barcode scanners, and credit card readers, as well as software for inventory management and sales reporting.
- Installation Equipment: If your carpet store offers installation services, you will need to budget for the purchase or rental of installation equipment such as carpet stretchers, knee kickers, and power stretchers. This will ensure that your installation team has the necessary tools to provide high-quality services to your customers.
Again, this list will need to be adjusted according to the size and ambitions of your carpet store.
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 carpet store
The next step in the creation of your financial forecast for your carpet store 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 carpet store?
Now let's have a look at the main output tables of your carpet store's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your carpet store's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a carpet store should normally show:
- Sales growing above inflation
- Stable or expanding (ideally) profit margins
- A net profit
This will of course depend on the stage of your business: a new venture might be loss-making until it reaches its breakeven point in year 2 or 3, for example.
The projected balance sheet
The projected balance sheet gives an overview of your carpet store'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 carpet store. 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 forecast
Your carpet store'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 carpet store:
- 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 carpet store'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 carpet store'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 carpet store's financial projections?
Building a carpet store 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 carpet store'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.
Hiring a financial consultant or chartered accountant
Hiring a consultant or chartered accountant is also an efficient way to get a professional carpet store financial projection.
As you can imagine, this solution is much more expensive than using software. From experience, the creation of a simple financial forecast over three years (including a balance sheet, income statement, and cash flow statement) is likely to start around £700 or $1,000 excluding taxes.
The indicative estimate above, is for a small business, and a forecast done as a one-off. Using a financial consultant or accountant to track your actuals vs. forecast and to keep your financial forecast up to date on a monthly or quarterly basis will naturally cost a lot more.
If you choose this solution, make sure your service provider has first-hand experience in your industry, so that they may challenge your assumptions and offer insights (as opposed to just taking your figures at face value to create the forecast’s financial statements).
Why not use a spreadsheet such as Excel or Google Sheets to build your carpet store's financial forecast?
Creating an accurate and error-free carpet store financial forecast with a spreadsheet is very technical and requires a deep knowledge of accounting and an understanding of financial modelling.
Very few business owners are financially savvy enough to be able to build a forecast themselves on Excel without making mistakes.
Lenders and investors know this, which is why forecasts created on Excel by the business owner are often frowned upon.
Having numbers one can trust is key when it comes to financial forecasting and to that end using software is much safer.
Using financial forecasting software is also faster than using a spreadsheet, and, with the rise of artificial intelligence, software is also becoming smarter at helping us analyse the numbers to make smarter decisions.
Finally, like everything with spreadsheets, tracking actuals vs. forecasts and keeping your projections up to date as the year progresses is manual, tedious, and error-prone. Whereas financial projection 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 forecast templates for inspiration
The Business Plan Shop has dozens of financial forecast examples available.
Our templates contain both a financial forecast and a written business plan which presents, in detail, the company, the team, the strategy, and the medium-term objectives.
Our templates are a great source of inspiration, whether you just want to see what a complete business plan looks like, or are looking for concrete examples of how you should model financial elements in your own forecast.
Takeaways
- A financial forecast shows expected growth, profitability, and cash generation metrics for your carpet store.
- Tracking actuals vs. forecast and having an up-to-date financial forecast is key to maintaining visibility on your future cash flows.
- Using financial forecasting software is the modern way of creating and maintaining financial projections.
We hope that this guide helped you gain a clearer perspective on the steps needed to create the financial forecast for a carpet store. Don't hesitate to contact us if you have any questions!
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
- Financial forecast example
- How to project sales for a business?
- Financial forecast template for a business idea
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Founder & CEO at The Business Plan Shop Ltd
