How to create a financial forecast for a CBD 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 CBD shop.
Putting together a CBD 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 CBD 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 CBD shop?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your CBD shop and ensure that it can be financially viable in the years to come.
A financial plan for a CBD 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 CBD 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 CBD 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 needed to build a CBD shop 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 CBD shop, 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 CBD shop 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 CBD shop, 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 CBD shop's financial forecast.
The sales forecast for a CBD shop
The sales forecast, also called topline projection, is normally where you will start when building your CBD shop 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 CBD shops), and consider the elements below:
- Changing regulations: As laws and regulations surrounding CBD continue to evolve, it can affect the average price of your products and the number of monthly transactions. For example, if there are stricter regulations on the production or sale of CBD, it may increase your costs and ultimately lead to higher prices for customers.
- Competition: As the CBD market becomes more saturated, the competition among shops increases. This can lead to lower prices as shops try to attract customers, which can also affect your average price and number of transactions. It's important to keep an eye on your competitors and adjust your pricing strategy accordingly.
- Product availability: The availability of certain CBD products can also impact your sales forecast. If there is a shortage of a popular product, you may see an increase in demand and therefore an increase in average price and number of transactions. On the other hand, if a product becomes readily available, it may lead to lower prices and potentially decrease transactions.
- Customer demographics: The demographics of your target market can also play a role in your sales forecast. For example, if your shop is located in an area with a higher percentage of older individuals, they may be less likely to purchase CBD products and therefore your average price and number of transactions may be lower compared to a shop located in an area with a younger demographic.
- Seasonal trends: The time of year can also affect your sales forecast. For example, during the holiday season, there may be an increase in demand for CBD products as people look for gifts or ways to manage stress. This can lead to higher average prices and number of transactions during this time period.
After the sales forecast comes the operating expenses budget, which we will now look into in more detail.
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 CBD shop
The next step is to estimate the costs you’ll have to incur to operate your CBD shop.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your CBD shop's operating expenses should normally include the following items:
- Staff Costs: This includes salaries, wages, and benefits for your employees. As a CBD shop, you may have a team of budtenders, managers, and other staff members to help run your business.
- Accountancy Fees: You will need to hire an accountant or bookkeeper to help you manage your finances and keep track of expenses, taxes, and other financial responsibilities.
- Insurance Costs: It is important to have insurance coverage for your CBD shop to protect against any potential risks, such as theft, property damage, or liability claims.
- Software Licences: To help run your business smoothly, you may need to purchase software licenses for point of sale systems, inventory management, and other tools.
- Banking Fees: As a business, you will have banking fees associated with maintaining a business bank account, processing transactions, and other financial services.
- Rent: Your CBD shop will need a physical location to operate from, and this will likely come with a monthly rent expense.
- Utilities: You will need to pay for utilities such as electricity, water, and internet to keep your shop running.
- Marketing and Advertising: To attract customers and promote your CBD products, you will need to invest in marketing and advertising efforts, such as social media ads, flyers, and other promotional materials.
- Inventory: As a CBD shop, you will need to purchase and maintain inventory of various products, such as CBD oils, edibles, and topicals.
- Packaging and Labeling: To comply with regulations and ensure quality, you will need to invest in packaging and labeling materials for your CBD products.
- Security: To protect your shop and inventory, you may need to invest in security measures, such as cameras, alarms, and security personnel.
- Training and Development: To ensure your staff is knowledgeable about CBD products and regulations, you may need to invest in training and development programs.
- Office Supplies: To keep your shop running smoothly, you will need to purchase office supplies, such as paper, pens, and printer ink.
- Legal Fees: As a CBD shop, you may need to consult with lawyers to ensure compliance with local and federal laws, which may come with legal fees.
- Maintenance and Repairs: To keep your shop in good condition, you will need to budget for maintenance and repairs, such as fixing equipment or repairing the storefront.
This list is not exhaustive by any means, and will need to be tailored to your CBD shop's specific circumstances.
What investments are needed to start or grow a CBD shop?
Your CBD 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 CBD shop, these could include:
- Storefront Renovation: This includes any necessary updates or improvements to the physical storefront of your CBD shop, such as painting, signage, or repairs.
- Display Cases and Shelving: These are essential for showcasing your products and creating an organized and visually appealing store layout.
- Point of Sale System: A reliable and user-friendly point of sale system is crucial for processing transactions and managing inventory and sales data.
- Security System: To protect your business and products, investing in a security system is a wise decision. This can include cameras, alarms, and other security measures.
- Furniture and Fixtures: This includes items such as tables, chairs, and decorative elements that create a welcoming and comfortable atmosphere for your customers.
Again, this list will need to be adjusted according to the size and ambitions of your CBD 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 CBD shop
The next step in the creation of your financial forecast for your CBD 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 CBD shop?
Now let's have a look at the main output tables of your CBD 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 CBD 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 CBD shop will look different than for a startup.
The projected balance sheet
The projected balance sheet gives an overview of your CBD 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 CBD 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 CBD 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 CBD 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 CBD 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 CBD 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 CBD shop's financial forecast?
Using the right tool or solution will make the creation of your CBD shop's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your CBD shop'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 CBD 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 CBD shop's financial forecast?
Creating an accurate and error-free CBD shop 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 CBD shop.
- 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 CBD shop. 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 create a turnover forecast for a business?
- Financial forecast template for a business idea
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Founder & CEO at The Business Plan Shop Ltd
