How to create a financial forecast for a consumer electronics store?
If you are serious about keeping visibility on your future cash flows, then you need to build and maintain a financial forecast for your consumer electronics store.
Putting together a consumer electronics store 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 consumer electronics store.
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 consumer electronics 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 consumer electronics store becomes handy.
Creating a consumer electronics 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 consumer electronics 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 consumer electronics 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 consumer electronics 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 used as input to build a consumer electronics store financial forecast?
A consumer electronics store'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 consumer electronics store, 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 consumer electronics store 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 consumer electronics store 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 consumer electronics store's financial forecast.
The sales forecast for a consumer electronics store
The sales forecast, also called topline projection, is normally where you will start when building your consumer electronics store 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 consumer electronics stores), and consider the elements below:
- Seasonal trends: The average price and number of monthly transactions for a consumer electronics store can be affected by seasonal trends. For example, the holiday season tends to see an increase in sales due to gift-giving, while the summer months may see a decrease in transactions as people prioritize outdoor activities and vacations over purchasing electronics.
- Technological advancements: The constant evolution of technology can greatly impact the average price and number of monthly transactions for a consumer electronics store. The release of new and innovative products can drive up prices and attract customers, while older models may see a decline in sales. Keeping up with these advancements and offering a diverse range of products can help maintain a steady average price and number of transactions.
- Competition: The competition within the consumer electronics market can also affect the average price and number of monthly transactions for a store. For example, if a new competitor enters the market with lower prices, it may lead to a decrease in the store's average price in order to remain competitive. On the other hand, if the store is able to differentiate itself and offer unique products, it may be able to maintain a higher average price and attract more transactions.
- Customer demographics: The average price and number of monthly transactions can also be influenced by the demographics of the store's target customers. For instance, if the store is located in an area with a high percentage of tech-savvy individuals with a higher disposable income, they may be willing to pay a premium for the latest and greatest electronics, resulting in a higher average price and more transactions. On the other hand, if the store is located in an area with a lower income demographic, the average price and number of transactions may be lower.
- Economic conditions: The state of the economy can also play a role in the average price and number of monthly transactions for a consumer electronics store. During a recession, customers may be more price-sensitive and opt for lower-priced products, resulting in a decrease in the store's average price and number of transactions. However, during times of economic growth, customers may be more willing to spend on high-end electronics, leading to an increase in the average price and number of transactions.
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 consumer electronics store
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your consumer electronics 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 consumer electronics store will include some of the following items:
- Staff Costs: This includes salaries, bonuses, and benefits for your employees. You may also need to budget for training and development for your staff to keep up with the fast-paced consumer electronics industry.
- Accountancy Fees: As a business owner, you will need to hire an accountant to help you manage your financial records and prepare taxes. This is especially important as your business grows and becomes more complex.
- Insurance Costs: Protecting your business from potential risks and liabilities is crucial. You will need to budget for insurance coverage for your store, employees, and inventory.
- Software Licenses: As a consumer electronics store, you will likely use various software programs to manage inventory, sales, and customer data. These programs often require annual licensing fees.
- Banking Fees: Your business will incur fees for bank transactions, such as deposits, withdrawals, and wire transfers. These fees can add up over time, so it's important to budget for them.
- Rent: The cost of renting a physical space for your store is a significant expense. It's important to choose a location that is suitable for your target market and budget accordingly.
- Utilities: Your store will need electricity, water, and other utilities to operate. These costs can vary depending on the size of your store and the equipment you use.
- Marketing and Advertising: To attract customers and promote your products, you will need to budget for marketing and advertising expenses. This can include creating ads, printing flyers, and running social media campaigns.
- Inventory: As a consumer electronics store, you will need to purchase inventory to stock your shelves. This can be a significant expense, especially when dealing with fast-moving and expensive products.
- Repairs and Maintenance: As with any business, your store and equipment will require regular maintenance and occasional repairs. It's important to budget for these expenses to keep your store in good working order.
- Credit Card Processing Fees: If you accept credit card payments, you will need to pay processing fees for each transaction. These fees can vary depending on the type of card and the processing company.
- Taxes: As a business owner, you will need to pay various taxes, including income tax, sales tax, and property tax. It's important to budget for these expenses and keep up with tax laws and regulations.
- Security: Protecting your store and inventory from theft and vandalism is crucial. This may include hiring security personnel, installing security systems, and purchasing insurance coverage for potential losses.
- Professional Services: Depending on your business needs, you may need to hire professionals for legal, marketing, or other services. These services can add up, so it's important to budget for them.
- Office Supplies: From paper and pens to printer ink and toner, your store will need a variety of office supplies to operate efficiently. It's important to budget for these expenses to keep your store running smoothly.
This list will need to be tailored to the specificities of your consumer electronics store, but should offer a good starting point for your budget.
What investments are needed to start or grow a consumer electronics store?
Creating and expanding a consumer electronics store also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a consumer electronics store could include elements such as:
- Inventory: This includes the cost of purchasing and stocking consumer electronics products such as smartphones, tablets, laptops, and accessories.
- Store Fixtures and Equipment: These are the physical assets required to run a consumer electronics store, such as display shelves, cash registers, security systems, and computers.
- Point-of-Sale (POS) System: This is a computerized system used to process sales transactions, track inventory, and generate reports. It typically includes hardware, software, and installation costs.
- Store Renovations: If you are opening a new store or remodeling an existing one, you will need to budget for expenses such as painting, flooring, lighting, and signage.
- Furniture and Decor: This includes chairs, tables, and other furnishings used in the store's layout and design, as well as decorations such as posters and displays.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your consumer electronics 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 consumer electronics store
The next step in the creation of your financial forecast for your consumer electronics 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 consumer electronics store?
Now let's have a look at the main output tables of your consumer electronics store's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your consumer electronics store's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a consumer electronics 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
Your consumer electronics store's projected balance sheet provides a snapshot of your business’s financial position at year-end.
It is composed of three types of elements: assets, liabilities and equity:
- Assets: represent what the business possesses including cash, equipment, and accounts receivable (money owed by clients).
- Liabilities: represent funds advanced to the business by lenders and other creditors. They include accounts payable (money owed to suppliers), taxes payable and loans from banks and financial institutions.
- 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 consumer electronics 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 consumer electronics 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 consumer electronics 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 consumer electronics 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 consumer electronics store's financial forecast?
Using the right tool or solution will make the creation of your consumer electronics store's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial projection software to build your consumer electronics store's forecast
The modern and easiest way to build a forecast is to use professional financial projection 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
Outsourcing the creation of your consumer electronics store financial forecast is another possible solution.
This will cost more than using software as you can expect as your price will have to cover the accountant’s time, software cost, and profit margin.
Price can vary greatly based on the complexity of your business. For a small business, from experience, a simple three-year financial forecast (including a balance sheet, income statement, and cash flow statement) will start at around £700 or $1,000.
Bear in mind that this is for forecasts produced at a single point in time, updating or tracking your forecast against actuals will cost extra.
If you decide to outsource your forecasting:
- Make sure the professional has direct experience in your industry and is able to challenge your assumptions constructively.
- Steer away from consultants using sectorial ratios to build their client’s financial forecasts (these projections are worthless for a small business).
Why not use a spreadsheet such as Excel or Google Sheets to build your consumer electronics store's financial forecast?
Creating an accurate and error-free consumer electronics store 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 consumer electronics store, 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
- Having a financial forecast enables you to visualise the expected growth, profitability, and cash generation for your business over the next three to five years.
- Tracking actuals vs. forecast and keeping your financial projections up-to-date is the only way to get a view on what your consumer electronics store future cash flows may look like.
- Using financial forecasting software is the mordern and easy way to create and maintain your forecasts.
This is the end of our guide on how to build the financial forecast for a consumer electronics store, we hope you found it useful. Don't hesitate to contact us if you want to share your feedback or 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
- Example of financial forecast
- How to project revenues for a business?
- Financial forecast for a business idea
Know someone who owns or is thinking of starting a consumer electronics store? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
