How to create a financial forecast for a gift shop?
If you are serious about keeping visibility on your future cash flows, then you need to build and maintain a financial forecast for your gift shop.
Putting together a gift shop 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 gift shop.
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 gift shop?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your gift shop and ensure that it can be financially viable in the years to come.
A financial plan for a gift 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 gift 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 gift 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 used as input to build a gift shop financial forecast?
A gift 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 gift 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 gift 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 gift 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 gift shop's financial forecast.
The sales forecast for a gift shop
From experience, it is usually best to start creating your gift shop financial forecast by your sales forecast.
To create an accurate sales forecast for your gift shop, you will have to rely on the data collected in your market research, or if you're running an existing gift 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:
- Seasonal trends: The average price and number of monthly transactions may be influenced by seasonal trends, such as an increase in sales during the holiday season or a decrease in sales during slow summer months.
- Tourism: The local tourism industry can have a significant impact on your gift shop's sales. A high number of tourists in the area can lead to an increase in transactions and potentially higher average prices as visitors are more likely to purchase souvenirs.
- Competition: The presence of other gift shops in the area can affect your sales forecast. If there are many competitors offering similar products, you may need to adjust your average prices to remain competitive and attract customers.
- Economy: Economic factors, such as a recession or a boom in the local economy, can greatly impact the average price and number of transactions in your gift shop. A downturn in the economy may lead to a decrease in sales, while a strong economy may result in increased spending.
- Product trends: The popularity of certain products can greatly influence your sales forecast. If a particular type of gift or item becomes trendy, you may see an increase in transactions and potentially higher average prices as customers are willing to pay more for popular items.
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 gift shop
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your gift 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 gift shop will include some of the following items:
- Staff costs: This includes the salaries and wages of all employees, as well as any benefits such as health insurance or retirement plans.
- Rent: The cost of leasing or renting the physical space for your gift shop.
- Utilities: This covers expenses such as electricity, gas, water, and other necessary utilities for running your shop.
- Inventory: The cost of purchasing and stocking inventory for your gift shop.
- Accountancy fees: The fees paid to a professional accountant to handle your bookkeeping, tax preparation, and financial statements.
- Insurance costs: This includes general liability insurance, property insurance, and any other necessary insurance policies for your gift shop.
- Marketing and advertising: The cost of promoting your gift shop through various marketing and advertising efforts, such as social media, print ads, and events.
- Software licenses: The cost of any software or online tools used to manage your business, such as point-of-sale systems, inventory management software, or online payment processors.
- Banking fees: This includes any fees associated with your business bank account, such as monthly maintenance fees, transaction fees, or wire transfer fees.
- Supplies: The cost of purchasing necessary supplies for your gift shop, such as packaging materials, office supplies, and cleaning supplies.
- Repairs and maintenance: The cost of repairing and maintaining your shop, including any necessary equipment repairs or routine maintenance tasks.
- Professional services: This includes any fees paid to outside professionals, such as lawyers, consultants, or marketing agencies.
- Credit card processing fees: The fees associated with accepting credit and debit card payments from customers.
- Taxes: The taxes you are required to pay as a business, such as sales tax, property tax, and income tax.
- Training and education: The cost of training and educating yourself and your employees to improve skills and stay up-to-date with industry trends and best practices.
This list will need to be tailored to the specificities of your gift shop, but should offer a good starting point for your budget.
What investments are needed to start or grow a gift shop?
Once you have an idea of how much sales you could achieve and what it will cost to run your gift shop, it is time to look into the equipment required to launch or expand the activity.
For a gift shop, capital expenditures and initial working capital items could include:
- Inventory: This includes the initial purchase of products to stock your gift shop, as well as ongoing inventory purchases to replenish sold items. This can also include the cost of storing and organizing your inventory.
- Store Fixtures and Furniture: These are the physical assets that make up your store, such as shelves, display cases, and cash registers. These items are necessary for the operation of your gift shop and should be factored into your expenditure forecast.
- Point-of-Sale System: A modern and efficient point-of-sale system is essential for any retail business, including gift shops. This can include hardware such as a cash register or tablet, as well as software for managing sales and inventory.
- Decor and Aesthetics: Creating a welcoming and visually appealing atmosphere is important for a gift shop. This may include items such as lighting, signage, and decorations, which can add up in terms of cost.
- Equipment and Tools: Depending on the type of gift shop you have, you may need specialized equipment or tools to create your products or provide certain services. This can include items such as a printing press or jewelry making tools.
Again, this list will need to be adjusted according to the specificities of your gift 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 gift shop
The next step in the creation of your financial forecast for your gift 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 gift shop?
Now let's have a look at the main output tables of your gift shop's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your gift shop is likely to be in the years to come.
For your gift 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 gift 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 gift 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 gift 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 projection
The cash flow forecast of your gift shop will show how much cash the business is expected to generate or consume over the next three to five years.
There are multiple ways of presenting a cash flow forecast but from experience, it is better to organise it by nature in order to clearly show these elements:
- Operating cash flow: how much cash is generated by the gift shop's operations
- Investing cash flow: what is the business investing to expand or maintain its equipment
- Financing cash flow: is the business raising additional funds or repaying financiers (debt repayment, dividends)
Your cash flow forecast is the most important element of your overall financial projection and that’s where you should focus your attention to ensure that your gift shop is adequately funded.
Note: if you are preparing a financial forecast in order to try to secure funding, you will need to include both a yearly and monthly cash flow forecast in your gift shop's financial plan.
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 gift shop's financial forecast?
Using the right tool or solution will make the creation of your gift shop's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your gift shop'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 gift 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 gift 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 gift 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 gift 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 forecasting templates available.
Our examples contain both the financial forecast, and a written business plan which presents, in detail, the company, the team, the strategy, and the medium-term objectives.
Whether you are just starting out or already have your own gift shop, looking at our template is always a good way to get ideas on how to model financial items and what to write when creating a business plan to secure funding.
Takeaways
- A financial forecast shows expected growth, profitability, and cash generation metrics for your gift 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 gift 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 write a business plan for a gift shop
- How to create a turnover forecast for a business?
- Sample financial forecast for business idea
Know someone who runs a gift shop? Share our business guide with them!
Founder & CEO at The Business Plan Shop Ltd
