How to create a financial forecast for a diving equipment store?
Creating a financial forecast for your diving equipment 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 diving equipment 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 diving equipment store?
The financial projections for your diving equipment store 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 diving equipment store'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 diving equipment store financial forecast?
A diving equipment store'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 diving equipment store.
If you are creating (or updating) the forecast of an existing diving equipment store, 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 diving equipment store 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 diving equipment store 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 diving equipment store's financial forecast.
The sales forecast for a diving equipment store
From experience, it usually makes sense to start your diving equipment store's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your diving equipment store (which can be used as a starting point for existing businesses) and the data collected in your market research (which both new ventures and existing businesses need to project their sales forward).
Your diving equipment store's sales forecast can be broken down into two key estimates:
- The average price
- The number of monthly transactions
To assess these variables accurately, you will need to consider the following factors:
- Seasonal demand: As a diving equipment store, you may experience a surge in sales during the summer months when more people are participating in water activities. However, this may also mean a decrease in sales during the winter months when the weather is unfavorable for diving.
- New technology: The diving industry is constantly evolving, and new and improved equipment is regularly introduced to the market. This can affect your average price as customers may be willing to pay more for the latest and most advanced gear.
- Economic conditions: Economic downturns or recessions can have a direct impact on consumer spending habits. If the economy is struggling, customers may be less likely to make big purchases like diving equipment, resulting in a decrease in your monthly transactions.
- Competitor prices: The prices of your competitors can also affect your sales forecast. If they are offering similar products at lower prices, you may need to adjust your prices to remain competitive and maintain your average number of monthly transactions.
- Changes in regulations: As a diving equipment store, you may be affected by any changes in regulations related to diving safety or equipment standards. This could result in an increase in your average price as you may need to invest in new equipment to comply with the regulations.
Once you have a sales forecast in place, the next step will be to work on your overhead budget. Let’s have a look at that now.
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The operating expenses for a diving equipment store
The next step is to estimate the expenses needed to run your diving equipment store 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 diving equipment store's operating expenses should include the following items at a minimum:
- Staff Costs: Includes salaries, benefits, and training for employees such as sales associates, dive instructors, and repair technicians.
- Accountancy Fees: Expenses for hiring a professional accountant to manage your financial records and taxes.
- Insurance Costs: Necessary to protect your business from liabilities and risks associated with selling and renting diving equipment.
- Software Licences: Fees for purchasing or renewing software programs used for inventory management, point of sale, and accounting.
- Banking Fees: Charges for services such as processing credit card transactions, wire transfers, and deposits.
- Rent and Utilities: Monthly expenses for your store's physical location, including electricity, water, and internet.
- Inventory Costs: Purchasing and restocking diving equipment from suppliers to ensure a diverse and up-to-date inventory for customers.
- Marketing and Advertising: Promoting your store through various channels such as social media, print ads, and event sponsorships.
- Equipment Maintenance: Regular maintenance and repairs for equipment used in the store, such as air compressors and dive tanks.
- Training and Certification: Fees for obtaining and renewing certifications to sell and service diving equipment, as well as training for employees.
- Travel Expenses: Costs associated with attending trade shows, conferences, and diving events to network and stay updated on industry trends.
- Supplies and Office Expenses: Purchasing office supplies, packaging materials, and other necessary items for day-to-day operations.
- Customer Service Expenses: Providing exceptional customer service may require expenses such as refunds, exchanges, and shipping costs.
- Facility Maintenance: Costs for cleaning, repairs, and upgrades to maintain a safe and visually appealing store environment.
- Professional Memberships and Subscriptions: Joining industry associations and subscribing to trade publications to stay informed and connected within the diving community.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small diving equipment store might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow a diving equipment store?
Your diving equipment 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 diving equipment store, these could include:
- Diving Gear and Equipment: This includes all the necessary gear and equipment for diving such as wetsuits, masks, fins, tanks, regulators, and other specialized equipment. As a diving equipment store, you will need to invest in high-quality and durable gear to ensure the safety and satisfaction of your customers.
- Store Fixtures and Displays: These are the physical structures and displays in your store that showcase and organize your diving equipment. This can include shelves, racks, hangers, and mannequins. It's important to have an attractive and organized store layout to attract customers and make it easy for them to find what they need.
- Point of Sale (POS) System: This is the system used to process sales transactions and manage inventory. A good POS system is essential for any retail store, including a diving equipment store, as it helps with tracking sales, managing inventory levels, and providing data for financial analysis.
- Dive Boat: If your diving equipment store offers guided diving tours or classes, you may need to invest in a dive boat. This is a significant capital expenditure, but it can greatly enhance your business by allowing you to offer unique experiences to your customers.
- Store Renovations and Maintenance: It's important to keep your store in good condition to create a positive and professional image for your business. This may include ongoing maintenance, repairs, and renovations to update the store's appearance and ensure it is safe and functional for customers.
Again, this list will need to be adjusted according to the size and ambitions of your diving equipment 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 diving equipment store
The next step in the creation of your financial forecast for your diving equipment 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 diving equipment store?
Now let's have a look at the main output tables of your diving equipment store'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 diving equipment store'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 diving equipment store will look different than for a startup.
The projected balance sheet
Your diving equipment store'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 projected cash flow statement
A projected cash flow statement for a diving equipment store is used to show how much cash the business is generating or consuming.
The cash flow forecast is usually organised by nature to show three key metrics:
- The operating cash flow: do the core business activities generate or consume cash?
- The investing cash flow: how much is the business investing in long-term assets (this is usually compared to the level of fixed assets on the balance sheet to assess whether the business is regularly maintaining and renewing its equipment)?
- The financing cash flow: is the business raising new financing or repaying financiers (debt repayment, dividends)?
Cash is king and keeping an eye on future cash flows is imperative for running a successful business. Therefore, you should pay close attention to your diving equipment store's cash flow forecast.
If you are trying to secure financing, note that it is customary to provide both yearly and monthly cash flow forecasts in a financial plan - so that the reader can analyze seasonal variation and ensure the diving equipment store 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 diving equipment store's financial forecast?
Creating your diving equipment store's financial forecast may sound fairly daunting, but the good news is that there are several ways to go about it.
Using online financial forecasting software to build your diving equipment 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.
Calling in a financial consultant or chartered accountant
Outsourcing the creation of your diving equipment 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 diving equipment store's financial forecast?
Creating an accurate and error-free diving equipment 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 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 diving equipment store.
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 diving equipment store. 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 project revenues for a business?
- Example of financial forecast for business idea
Know someone who runs or wants to start a diving equipment store? Share our financial projection guide with them!
Founder & CEO at The Business Plan Shop Ltd
