How to create a financial forecast for a fabric and sewing shop?
Developing and maintaining an up-to-date financial forecast for your fabric and sewing shop 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 fabric and sewing shop 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 fabric and sewing 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 fabric and sewing shop becomes handy.
Creating a fabric and sewing 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 fabric and sewing 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 fabric and sewing 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 fabric and sewing 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 fabric and sewing shop financial forecast?
A fabric and sewing shop's financial forecast is only as good as the inputs used to build it.
If you are creating (or updating) the forecast of an existing fabric and sewing shop, then you mostly need your accounting information, key historical operating non-financial data, and your team’s input on what to expect for the coming years.
If you are building financial projections for a fabric and sewing shop startup, you will need to have done your research and have a clear picture of your competitive environment and go-to-market strategy so that you can forecast sales accurately.
For a new venture, you will also need a precise list of the resources needed to keep the fabric and sewing shop running on a day-to-day basis and a list of the equipment and expenditures required to start the business (more on that later).
Let's now take a closer look at the elements that make up your fabric and sewing shop's financial forecast.
The sales forecast for a fabric and sewing shop
From experience, it is usually best to start creating your fabric and sewing shop financial forecast by your sales forecast.
To create an accurate sales forecast for your fabric and sewing shop, you will have to rely on the data collected in your market research, or if you're running an existing fabric and sewing shop, 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:
- You may see an increase in average price per transaction due to an increase in demand for high-quality, designer fabrics. This could be driven by a trend towards handmade and sustainable fashion, as well as increased interest in sewing and DIY projects.
- Your average price per transaction may also be affected by the cost of raw materials, such as cotton or silk, which can fluctuate depending on global supply and demand. This could lead to an increase or decrease in prices for these materials, which in turn could impact your average price per transaction.
- If you offer classes or workshops at your shop, the number of monthly transactions may be influenced by the popularity of certain sewing techniques or projects. For example, if there is a surge in interest for quilting, you may see more customers signing up for classes and purchasing quilting supplies.
- The seasonality of sewing projects can also impact the number of monthly transactions. For instance, during the holiday season, there may be a higher demand for holiday-themed fabrics and patterns, which could lead to an increase in transactions.
- Your average price per transaction may be affected by the availability of new and trendy fabrics. If you are able to constantly update your inventory with the latest fabric collections, you may be able to attract more customers and potentially increase your average price per transaction.
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.
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 fabric and sewing shop
The next step is to estimate the costs you’ll have to incur to operate your fabric and sewing shop.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your fabric and sewing shop's operating expenses should normally include the following items:
- Staff costs: This includes salaries, wages, and benefits for all employees, including sales associates, seamstresses, and administrative staff.
- Accountancy fees: As a fabric and sewing shop owner, you'll need to hire an accountant to manage your financial records, file taxes, and provide financial advice.
- Rent: The cost of leasing a retail space to operate your shop. This could also include utilities and maintenance fees.
- Inventory: The cost of purchasing fabric, thread, buttons, and other sewing supplies to stock your shop.
- Insurance: As a business owner, it's important to have insurance to protect your shop from any potential risks or liabilities.
- Marketing and advertising: This includes the cost of promoting your business through various channels, such as social media, print ads, and events.
- Equipment and supplies: The cost of purchasing and maintaining sewing machines, cutting tables, and other equipment necessary for your shop.
- Software licenses: You may need to purchase software licenses for programs such as accounting software or point of sale systems.
- Banking fees: This includes transaction fees, monthly account fees, and any other fees associated with your business bank account.
- Professional fees: This includes any fees you may pay to attorneys, consultants, or other professionals for their services.
- Repairs and maintenance: The cost of repairing and maintaining your shop, including any equipment or fixtures that may need to be fixed or replaced.
- Training and development: The cost of providing training for your employees to improve their skills and knowledge.
- Taxes: As a business owner, you'll need to pay various taxes, including income tax, sales tax, and payroll tax.
- Office supplies: The cost of purchasing office supplies such as pens, paper, and printer ink.
- Shipping and delivery: If you offer online or mail order services, you'll need to budget for shipping and delivery costs.
This list is not exhaustive by any means, and will need to be tailored to your fabric and sewing shop's specific circumstances.
What investments are needed to start or grow a fabric and sewing shop?
Creating and expanding a fabric and sewing shop also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a fabric and sewing shop could include elements such as:
- Sewing Machines: These are essential tools for any fabric and sewing shop. You will need to invest in high-quality sewing machines for various tasks such as embroidery, quilting, and garment construction.
- Cutting Tables: A cutting table is a large, flat surface used for cutting fabric. It is important to have a durable and sturdy cutting table to ensure accuracy and efficiency in cutting fabric for your projects.
- Fabric Inventory: As a fabric and sewing shop, your main product is fabric. Therefore, it is important to have a well-stocked inventory of different types of fabric to meet the needs and preferences of your customers.
- Display and Shelving Units: These units are necessary to showcase your fabric and other sewing supplies in an organized and visually appealing manner. They also help in maximizing your store space and making it easier for customers to browse and find what they need.
- Point-of-Sale System: A point-of-sale system is a valuable investment for any business, including a fabric and sewing shop. It helps in tracking sales, managing inventory, and processing payments efficiently.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your fabric and sewing 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 fabric and sewing shop
The next step in the creation of your financial forecast for your fabric and sewing 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 fabric and sewing shop?
Now let's have a look at the main output tables of your fabric and sewing shop's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your fabric and sewing shop is likely to be in the years to come.
For your fabric and sewing shop 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 fabric and sewing shops, 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 fabric and sewing shop'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 fabric and sewing shop. 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 forecast
Your fabric and sewing 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 fabric and sewing 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 fabric and sewing 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 fabric and sewing 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 fabric and sewing shop's financial forecast?
Using the right tool or solution will make the creation of your fabric and sewing shop's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial projection software to build your fabric and sewing 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.
Calling in a financial consultant or chartered accountant
Outsourcing the creation of your fabric and sewing shop 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 fabric and sewing shop's financial forecast?
Creating an accurate and error-free fabric and sewing shop 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
- 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 fabric and sewing 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 fabric and sewing 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 project revenues for a business?
- Financial forecast for a business idea
Know someone who owns or is thinking of starting a fabric and sewing shop? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
