How to create a financial forecast for a vape shop?
Creating a financial forecast for your vape 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 vape 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 vape shop?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your vape shop and ensure that it can be financially viable in the years to come.
A financial plan for a vape shop enables you to look at your business in detail - from income to operating costs and investments - to evaluate its expected profitability and future cash flows.
This gives you the visibility needed to plan future investments and expansion with confidence.
And, when your trading environment gets tougher, having an up to date vape shop forecast enables you to detect potential upcoming financing shortfalls in advance, enabling you to make adjustments or secure financing before you run out of cash.
It’s also important to remember that your vape shop's financial forecast will be essential when looking for financing. You can be 100% certain that banks and investors will ask to see your numbers, so make sure they’re set out accurately and attractively.
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 needed to build a vape shop financial forecast?
The quality of your inputs is key when it comes to financial modelling: no matter how good the model is, if your inputs are off, so will the forecast.
If you are building a financial plan to start a vape shop, you will need to have done your market research and have a clear picture of your sales and marketing strategies so that you can project revenues with confidence.
You will also need to have a clear idea of what resources will be required to operate the vape shop on a daily basis, and to have done your research with regard to the equipment needed to launch your venture (see further down this guide).
If you are creating a financial forecast of an existing vape shop, things are usually simpler as you will be able to use your historical accounting data as a budgeting base, and complement that with your team’s view on what lies ahead for the years to come.
Let's now zoom in on what will go in your vape shop's financial forecast.
The sales forecast for a vape shop
From experience, it usually makes sense to start your vape shop's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your vape shop (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 vape shop'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:
- New product releases: As a vape shop owner, you know that new product releases can greatly impact your average price and number of monthly transactions. If a popular new vape product is released, you may see an increase in both the average price of your products and the number of transactions as customers rush to try out the latest trend.
- Changes in legislation: Legislation surrounding vaping and e-cigarettes can have a significant impact on your business. For example, if a new law is passed that restricts the sale of certain flavors or products, you may see a decrease in your average price and number of transactions as customers are limited in their choices.
- Seasonal trends: Like any retail business, your vape shop may experience seasonal fluctuations in sales. For example, during the summer months, you may see an increase in sales as more people are out and about and may be interested in trying out new vape products while on vacation.
- Competitor pricing: Your competitors' pricing can also impact your average price and number of transactions. If a competitor offers a similar product at a lower price, you may need to adjust your own prices in order to stay competitive and maintain your customer base.
- Health concerns: With the ongoing debate surrounding the safety and health risks of vaping, any negative publicity or health concerns can greatly impact your business. If there is a widespread belief that vaping is harmful, you may see a decrease in both your average price and number of transactions as customers become hesitant to purchase your products.
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.
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 vape shop
The next step is to estimate the costs you’ll have to incur to operate your vape shop.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your vape shop's operating expenses should normally include the following items:
- Staff costs: This includes salaries, wages, and benefits for your employees. You will need to account for the salaries of your sales associates, managers, and any other staff members you hire.
- Rent: The cost of renting your storefront or office space is a significant expense. Make sure to include the monthly rent or lease payments in your forecast.
- Inventory: As a vape shop, you will need to stock a variety of products to meet the needs of your customers. This includes e-liquids, vape devices, and accessories. Keep track of your inventory costs to accurately forecast your operating expenses.
- Utilities: You will need to factor in the cost of utilities such as electricity, water, and gas for your shop. These costs may vary depending on the size of your shop and the equipment you use.
- Marketing and Advertising: To attract customers, you will need to invest in marketing and advertising. This can include social media ads, flyers, and other promotional materials.
- Accountancy fees: It's important to keep your financial records in order, so you may need to hire an accountant to help you with bookkeeping, tax preparation, and other financial tasks.
- Insurance costs: As a business owner, it's crucial to have insurance to protect your shop from potential risks. This can include liability insurance, property insurance, and workers' compensation insurance.
- Software licenses: You may need to purchase software licenses for accounting, inventory management, or point-of-sale systems. These costs should be factored into your operating expenses.
- Banking fees: As a business, you will have banking fees such as transaction fees, monthly account fees, and ATM fees. Make sure to include these costs in your forecast.
- Credit card processing fees: If you accept credit card payments, you will need to pay processing fees for each transaction. These fees can add up and should be included in your operating expenses.
- Maintenance and repairs: Your vape shop equipment and fixtures may need regular maintenance or repairs. Be sure to budget for these expenses to keep your shop running smoothly.
- Professional fees: You may need to hire lawyers, consultants, or other professionals for legal or business advice. These fees should be included in your forecast.
- Office supplies: You will need to purchase office supplies such as paper, pens, and printer ink. These small expenses can add up over time.
- Training and development: Investing in training and development for your staff can improve their skills and ultimately benefit your business. Be sure to budget for these expenses.
- Cleaning and maintenance services: You may need to hire a cleaning service to keep your shop clean and presentable. This is an essential expense to include in your operating expenses.
This list is not exhaustive by any means, and will need to be tailored to your vape shop's specific circumstances.
What investments are needed to start or grow a vape shop?
Once you have an idea of how much sales you could achieve and what it will cost to run your vape shop, it is time to look into the equipment required to launch or expand the activity.
For a vape shop, capital expenditures and initial working capital items could include:
- Inventory: This includes the initial purchase of vaping products and accessories that will be sold in your shop, such as vape pens, e-liquids, coils, and batteries. It's important to have a well-stocked inventory to attract customers and generate revenue.
- Store Fixtures and Furniture: This includes items such as display cases, shelving, countertops, and seating for your customers. These fixtures and furniture will not only make your shop look professional and inviting, but they also play a crucial role in organizing and showcasing your products.
- Point of Sale System: A reliable and efficient point of sale (POS) system is essential for any retail business, including a vape shop. This system will help you track sales, manage inventory, and process transactions, making it a necessary capital expenditure for your shop.
- Security System: As a vape shop owner, you will have valuable inventory and cash on hand, making it a potential target for theft. Investing in a security system, including cameras, alarms, and locks, will help protect your assets and give you peace of mind.
- Vaping Equipment: In addition to selling vaping products, you may also want to offer customers the option to try out different devices and flavors before making a purchase. This may require investing in demonstration devices, tasting stations, and cleaning supplies for maintaining the equipment.
Again, this list will need to be adjusted according to the specificities of your vape 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 vape shop
The next step in the creation of your financial forecast for your vape 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 vape shop?
Now let's have a look at the main output tables of your vape 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 vape 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 vape shop will look different than for a startup.
The projected balance sheet
Your vape shop'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 vape 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 vape 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 vape 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 vape 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 vape shop's financial projections?
Building a vape shop financial forecast is not difficult provided that you use the right tool for the job. Let’s see what options are available below.
Using online financial projection software to build your vape 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 vape 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 vape 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 vape 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 vape 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 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
- 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 vape shop 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 vape shop, 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 create a turnover forecast for a business?
- Sample financial forecast for business idea
Know someone who owns or is thinking of starting a vape shop? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
