How to create a financial forecast for a dance studio?
Developing and maintaining an up-to-date financial forecast for your dance studio 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 dance studio 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 dance studio?
The financial projections for your dance studio 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 dance studio'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 dance studio financial forecast?
A dance studio'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 dance studio.
If you are creating (or updating) the forecast of an existing dance studio, 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 dance studio 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 dance studio 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 dance studio's financial forecast.
The sales forecast for a dance studio
From experience, it is usually best to start creating your dance studio financial forecast by your sales forecast.
To create an accurate sales forecast for your dance studio, you will have to rely on the data collected in your market research, or if you're running an existing dance studio, 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:
- Class Offerings: The number and types of classes you offer can affect your average price and number of monthly transactions. For example, if you add more specialized classes such as ballet or hip hop, you may be able to charge a higher price and attract more students who are interested in those specific styles.
- Location: The location of your dance studio can also impact your average price and number of monthly transactions. If you are located in a high-income area, you may be able to charge higher prices and attract more students who can afford them. Similarly, if you are in a busy and accessible location, you may see an increase in the number of monthly transactions.
- Competition: The level of competition in your area can also affect your average price and number of monthly transactions. If there are many other dance studios offering similar classes, you may need to lower your prices to stay competitive and attract more students. On the other hand, if you are the only dance studio in the area, you may be able to charge higher prices and see an increase in monthly transactions.
- Instructors: The quality and experience of your dance instructors can also impact your average price and number of monthly transactions. If you have highly trained and experienced instructors, you may be able to charge higher prices for their classes. Additionally, having well-known or popular instructors may attract more students and increase the number of monthly transactions.
- Seasonal Demand: The demand for dance classes can also fluctuate throughout the year, which can affect your average price and number of monthly transactions. For example, during the summer months, there may be a decrease in demand as people go on vacation or participate in other activities. On the other hand, during the holiday season, there may be an increase in demand as people look for fun and festive activities to participate in.
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.
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The operating expenses for a dance studio
The next step is to estimate the expenses needed to run your dance studio 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 dance studio's operating expenses should include the following items at a minimum:
- Rent: Your dance studio will require a physical space for classes and rehearsals. This expense will cover the cost of leasing a suitable location.
- Utilities: You will need to pay for electricity, water, and other utilities to keep your studio running.
- Staff Costs: This includes the salaries and benefits for your dance instructors, administrative staff, and any other employees.
- Accountancy Fees: You may choose to hire an accountant to help with bookkeeping, taxes, and other financial matters for your studio.
- Insurance Costs: It is important to have insurance to protect your dance studio from any potential accidents or lawsuits.
- Software Licences: You may need to invest in software for managing class schedules, payments, and other studio operations.
- Marketing and Advertising: To attract students, you will need to spend money on marketing and advertising efforts, such as flyers, social media ads, and website maintenance.
- Costumes and Props: Depending on the type of dance classes you offer, you may need to purchase costumes and props for performances and recitals.
- Music Licences: If you use copyrighted music in your classes or performances, you will need to obtain licences to avoid legal issues.
- Cleaning and Maintenance: Keeping your dance studio clean and well-maintained is important for both the safety of your students and the overall appearance of your studio.
- Office Supplies: You will need to purchase office supplies such as paper, pens, and printer ink for administrative tasks.
- Cost of Goods Sold: If you sell snacks, drinks, or dance apparel at your studio, this expense will cover the cost of purchasing those items.
- Banking Fees: Your business bank account may have monthly fees or transaction fees that need to be accounted for in your operating expenses.
- Professional Development: It is important for your dance instructors to continue their education and training, so you may need to cover the cost of workshops and conferences.
- Legal Fees: In case of any legal issues, you may need to hire a lawyer, which can result in additional expenses for your studio.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small dance studio might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow a dance studio?
Your dance studio 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 dance studio, these could include:
- Dance Flooring: This is an essential fixed asset for a dance studio as it provides a safe and suitable surface for dancers to perform on. You may need to invest in different types of flooring for different types of dance, such as hardwood for ballet or Marley for contemporary.
- Mirrors: Mirrors are crucial for a dance studio as they allow dancers to see their form and technique while practicing. You may need to invest in large wall-to-wall mirrors or portable mirrors for smaller spaces.
- Ballet Barres: Ballet barres are another essential fixed asset for a dance studio, especially for ballet and other forms of dance that require barre exercises. You may need to invest in different types of barres, such as wall-mounted or portable, depending on your studio's space and needs.
- Sound System: A sound system is necessary for playing music and providing clear audio during dance classes and performances. You may need to invest in high-quality speakers, microphones, and other equipment to ensure the best sound quality for your studio.
- Costumes and Props: While not a traditional fixed asset, costumes and props are essential for dance performances and may need to be purchased or rented for recitals and shows. These should be included in your expenditure forecast to ensure you have the necessary funds for these expenses.
Again, this list will need to be adjusted according to the size and ambitions of your dance studio.
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 dance studio
The next step in the creation of your financial forecast for your dance studio 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 dance studio?
Now let's have a look at the main output tables of your dance studio's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your dance studio's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a dance studio 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 dance studio'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 dance studio. 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 dance studio 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 dance studio'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 dance studio 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 dance studio'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 dance studio's financial forecast?
Using the right tool or solution will make the creation of your dance studio's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your dance studio'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 dance studio 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 dance studio's financial forecast?
Creating an accurate and error-free dance studio 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 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 dance studio.
- 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 dance studio. 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?
- Sample financial forecast for business idea
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Founder & CEO at The Business Plan Shop Ltd
