How to create a financial forecast for a drugstore?
If you are serious about keeping visibility on your future cash flows, then you need to build and maintain a financial forecast for your drugstore.
Putting together a drugstore 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 drugstore.
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 drugstore?
The financial projections for your drugstore 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 drugstore'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 drugstore financial forecast?
A drugstore'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 drugstore.
If you are creating (or updating) the forecast of an existing drugstore, 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 drugstore 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 drugstore 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 drugstore's financial forecast.
The sales forecast for a drugstore
The sales forecast, also called topline projection, is normally where you will start when building your drugstore 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 drugstores), and consider the elements below:
- New Medications: As new medications are introduced to the market, they may have higher prices compared to existing ones. This could lead to an increase in your average price per transaction, as customers may be willing to pay more for these new treatments.
- Changes in Insurance Coverage: Changes in insurance coverage can affect the average price per transaction, as they may cover certain medications while limiting coverage for others. This could result in fluctuations in your average price as customers may opt for cheaper alternatives if their insurance does not cover the full cost.
- Demographic Changes: Changes in the demographics of your area can also affect your average price per transaction. For example, if there is an increase in the elderly population, there may be a higher demand for medications typically used by this age group, which could result in a higher average price per transaction.
- Seasonal Illnesses: Seasonal illnesses such as the flu can impact your average price per transaction as customers may need to purchase medications to treat their symptoms. This could lead to an increase in your average price during certain times of the year.
- Competitor Pricing: The pricing strategies of your competitors can also affect your average price per transaction. If your competitors lower their prices, you may need to adjust your prices to remain competitive, which could result in a decrease in your average price per transaction.
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 drugstore
The next step is to estimate the costs you’ll have to incur to operate your drugstore.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your drugstore's operating expenses should normally include the following items:
- Staff costs: This includes the salaries, benefits, and bonuses for all employees, including pharmacists, pharmacy technicians, and cashiers.
- Rent and utilities: You'll need a physical space to operate your drugstore, and this expense covers the rent, electricity, water, and other utilities for your store.
- Inventory costs: This includes the cost of purchasing and restocking medications, over-the-counter products, and other items sold in your drugstore.
- Marketing and advertising: To attract customers and promote your products and services, you'll need to allocate funds for marketing and advertising efforts, such as flyers, online ads, and sponsorships.
- Accountancy fees: You'll need to hire an accountant to manage your financial records, prepare tax returns, and provide financial advice.
- Insurance costs: As a business owner, you'll need to protect your drugstore and its assets with insurance, including liability insurance, property insurance, and workers' compensation insurance.
- Software licenses: To manage inventory, sales, and other operations, you'll need to purchase software licenses for point-of-sale systems, accounting software, and other necessary programs.
- Banking fees: This expense covers the fees associated with maintaining a business bank account, such as monthly service fees, transaction fees, and ATM fees.
- Maintenance and repairs: To ensure your store is safe and up to code, you'll need to budget for maintenance and repairs, such as plumbing, electrical, and HVAC services.
- Professional fees: If you need to consult with lawyers, tax specialists, or other professionals, you'll need to budget for their fees.
- Training and development: To keep your employees up to date with the latest products and regulations, you may need to invest in training and development programs.
- Supplies: This includes the cost of office supplies, cleaning supplies, and other necessary items for your drugstore.
- Security expenses: To protect your store and its assets, you may need to invest in security measures, such as cameras, alarms, and security personnel.
- Taxes and licenses: As a business owner, you'll need to pay taxes and obtain necessary licenses to operate your drugstore legally.
- Credit card processing fees: If you accept credit and debit cards as payment, you'll need to budget for the fees associated with processing these transactions.
This list is not exhaustive by any means, and will need to be tailored to your drugstore's specific circumstances.
What investments are needed to start or grow a drugstore?
Creating and expanding a drugstore also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a drugstore could include elements such as:
- Store fixtures and equipment: This includes items such as shelves, display cases, cash registers, and other equipment necessary for the operation of the drugstore. These items are considered fixed assets as they are not expected to be consumed or sold within a year.
- Pharmacy equipment: As a drugstore, you will need specialized equipment for your pharmacy operations, such as prescription counters, pill counters, and medication dispensers. These items are essential for the daily functioning of your drugstore and are considered fixed assets.
- Building improvements: If you own the building that houses your drugstore, you may need to make improvements or renovations to maintain or enhance its value. This could include things like repairing the roof, updating the heating and cooling systems, or installing new flooring.
- Delivery vehicles: If your drugstore offers delivery services, you may need to purchase or lease vehicles to transport medications and other supplies to your customers. These vehicles are considered fixed assets as they are necessary for the ongoing operations of your drugstore.
- Computer hardware and software: In today's digital age, having reliable computer systems and software is crucial for the smooth functioning of any business. As a drugstore, you will need computers and software for tasks such as inventory management, accounting, and customer records. These items are considered fixed assets as they are not expected to be consumed or sold within a year.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your drugstore.
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 drugstore
The next step in the creation of your financial forecast for your drugstore 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 drugstore?
Now let's have a look at the main output tables of your drugstore's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your drugstore is likely to be in the years to come.
For your drugstore to be financially viable, your projected P&L should ideally show:
- Sales growing above inflation (the higher the better)
- Profit margins which are stable or expanding (the higher the better)
- A net profit at the end of each financial year (the higher the better)
This is for established drugstores, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.
The projected balance sheet
The projected balance sheet gives an overview of your drugstore'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 drugstore. 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 projected cash flow statement
A projected cash flow statement for a drugstore 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 drugstore'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 drugstore 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 drugstore's financial forecast?
Using the right tool or solution will make the creation of your drugstore's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial projection software to build your drugstore'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 drugstore 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 drugstore's financial forecast?
Creating an accurate and error-free drugstore 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 drugstore.
- 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 drugstore. 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 project sales for a business?
- Sample financial forecast for business idea
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Founder & CEO at The Business Plan Shop Ltd
