How to create a financial forecast for a doughnut shop?
Creating a financial forecast for your doughnut shop, 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 doughnut shop 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 doughnut shop?
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 doughnut shop becomes handy.
Creating a doughnut shop 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 doughnut shop.
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 doughnut shop 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 doughnut shop'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 doughnut shop financial forecast?
A doughnut shop'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 doughnut shop.
If you are creating (or updating) the forecast of an existing doughnut shop, 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 doughnut shop 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 doughnut shop 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 doughnut shop's financial forecast.
The sales forecast for a doughnut shop
The sales forecast, also called topline projection, is normally where you will start when building your doughnut 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 doughnut shops), and consider the elements below:
- Seasonal Demand: As a doughnut shop owner, you know that your sales may vary depending on the season. For example, during the summer months, people may be more likely to buy ice cream than doughnuts. Therefore, it is important to consider the potential fluctuations in demand throughout the year when creating your sales forecast.
- New Product Offerings: Introducing new and innovative doughnut flavors and products can attract new customers and increase your average price per transaction. However, it is important to carefully consider the cost and potential impact on existing products before adding them to your menu.
- Competition: The presence of other doughnut shops in your local area may affect your business's average price and number of monthly transactions. Keep an eye on your competitors and their pricing strategies to stay competitive and maintain your customer base.
- Changes in Consumer Preferences: Consumer trends and preferences can greatly impact your business. For example, if there is a sudden shift towards healthier food options, it may affect your doughnut sales. Consider conducting market research to stay updated on the latest consumer preferences and adapt your offerings accordingly.
- Economic Factors: Economic factors such as inflation, unemployment rates, and disposable income levels can also affect your doughnut shop's sales. During times of economic downturn, people may be more cautious with their spending, which could lead to a decrease in sales. Stay informed on the current economic climate and adjust your sales forecast accordingly.
After the sales forecast comes the operating expenses budget, which we will now look into in more detail.
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The operating expenses for a doughnut shop
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your doughnut shop 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 doughnut shop will include some of the following items:
- Staff costs: This includes wages, salaries, benefits, and any other expenses related to your employees. As a doughnut shop, you will need to hire staff to assist with making and selling doughnuts, as well as managing the day-to-day operations of your shop.
- Ingredients: The cost of ingredients is a major expense for any doughnut shop. This includes flour, sugar, butter, eggs, and any other ingredients you may use in your doughnut recipes. You will need to keep track of ingredient costs and adjust your prices accordingly to ensure profitability.
- Rent: Your rent or lease payments for your doughnut shop will be a significant expense. You will need to find a suitable location for your shop that is easily accessible to customers and has enough space for your operations.
- Utilities: This includes electricity, gas, water, and any other utilities required to run your shop. You will need to factor in these costs when setting your prices to ensure you are covering all expenses.
- Equipment maintenance: As a doughnut shop owner, you will need to invest in equipment such as ovens, mixers, and display cases. These will need to be regularly maintained and repaired, which can be a significant expense.
- Marketing and advertising: To attract customers to your doughnut shop, you will need to invest in marketing and advertising. This can include social media ads, flyers, and other promotional materials.
- Accounting fees: It is essential to keep accurate financial records for your doughnut shop. Hiring an accountant to help you with bookkeeping, taxes, and other financial tasks will be an expense to consider.
- Insurance: As a business owner, you will need to have insurance to protect your doughnut shop from any unforeseen events. This can include liability insurance, property insurance, and workers' compensation insurance for your employees.
- Software licenses: To keep track of your sales, inventory, and other business operations, you may need to purchase software licenses. This can include point-of-sale systems, accounting software, and scheduling software for your employees.
- Banking fees: You will likely have a business bank account to manage your doughnut shop's finances. This may come with various fees, such as transaction fees, monthly fees, and overdraft fees.
- Packaging and supplies: To package your doughnuts for customers, you will need to purchase boxes, bags, and other supplies. These costs can add up, so it is essential to factor them into your expenses.
- Training and development: As a business owner, you may need to invest in training and development for yourself and your employees. This can include attending workshops, conferences, or online courses to improve your skills and knowledge.
- Cleaning and maintenance: Keeping your doughnut shop clean and well-maintained is crucial for customer satisfaction. You may need to hire a cleaning service or purchase cleaning supplies to ensure your shop is always in top shape.
- Licenses and permits: Depending on your location, you may need to obtain licenses and permits to operate your doughnut shop. These can include health permits, food service permits, and business licenses.
- Legal fees: It is always wise to have a lawyer review any contracts or legal documents related to your doughnut shop. You may also need to seek legal advice for any business-related issues that may arise.
This list will need to be tailored to the specificities of your doughnut shop, but should offer a good starting point for your budget.
What investments are needed to start or grow a doughnut shop?
Your doughnut 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 doughnut shop, these could include:
- Doughnut Making Equipment: This includes items such as doughnut fryers, doughnut mixers, and doughnut glazing machines. These are necessary for producing the doughnuts that you will sell in your shop.
- Display Cases: Display cases are essential for showcasing your delicious doughnuts to customers. They come in various sizes and styles, so make sure to choose ones that fit the aesthetic of your shop.
- Furniture and Fixtures: This includes tables, chairs, and other furnishings for your shop. You want to create a comfortable and inviting atmosphere for customers to enjoy their doughnuts.
- Signage: A well-designed and eye-catching sign is crucial for attracting customers to your doughnut shop. Consider investing in a professional sign to make a strong first impression.
- Refrigeration Equipment: If you plan on selling filled or frosted doughnuts, you will need refrigeration equipment to keep them fresh. This includes refrigerators, freezers, and display cases with refrigerated sections.
Again, this list will need to be adjusted according to the size and ambitions of your doughnut 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 doughnut shop
The next step in the creation of your financial forecast for your doughnut 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 doughnut shop?
Now let's have a look at the main output tables of your doughnut 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 doughnut 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 doughnut shop will look different than for a startup.
The projected balance sheet
Your doughnut shop'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 cash flow forecast
Your doughnut shop'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 doughnut shop:
- 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 doughnut shop'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 doughnut shop'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 doughnut shop's financial forecast?
Creating your doughnut shop's financial forecast may sound fairly daunting, but the good news is that there are several ways to go about it.
Using online financial projection software to build your doughnut shop'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.
Hiring a financial consultant or chartered accountant
Hiring a consultant or chartered accountant is also an efficient way to get a professional doughnut shop 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 doughnut shop's financial forecast?
You and your financial partners need numbers you can trust. Unless you have studied finance or accounting, creating a trustworthy and error-free doughnut shop financial forecast on a spreadsheet is likely to prove challenging.
Financial modelling is very technical by nature and requires a solid grasp of accounting principles to be done without errors. This means that using spreadsheet software like Excel or Google Sheets to create accurate financial forecasts is out of reach for most business owners.
Creating forecasts in Excel is also inefficient nowadays:
- Software has advanced to the point where forecasting can be done much faster and more accurately than manually on a spreadsheet.
- With artificial intelligence, the software is capable of detecting mistakes and helping decision-making.
Spreadsheets are versatile tools but they are not tailor-made for reporting. Importing your doughnut shop's accounting data in Excel to track actual vs. forecast is incredibly manual and tedious (and so is keeping forecasts up to date). It is much faster to use dedicated financial planning tools like The Business Plan Shop which are built specially 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 forecast templates available.
Our examples contain a complete business plan with a financial forecast and a written presentation of the company, the team, the strategy, and the medium-term objectives.
Whether you are just starting out or already have your own doughnut shop, looking at our financial forecast template is a good way to:
- Understand what a complete business plan should look like
- Understand how you should model financial items for your doughnut shop
Takeaways
- A financial forecast shows expected growth, profitability, and cash generation metrics for your doughnut 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 doughnut 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 sales forecast for a business?
- Sample financial forecast for business idea
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Founder & CEO at The Business Plan Shop Ltd
