How to create a financial forecast for a goldsmith?
Creating a financial forecast for your goldsmith, 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 goldsmith 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 goldsmith?
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 goldsmith becomes handy.
Creating a goldsmith 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 goldsmith.
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 goldsmith 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 goldsmith'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 needed to build a goldsmith 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 goldsmith, 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 goldsmith 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 goldsmith, 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 goldsmith's financial forecast.
The sales forecast for a goldsmith
From experience, it is usually best to start creating your goldsmith financial forecast by your sales forecast.
To create an accurate sales forecast for your goldsmith, you will have to rely on the data collected in your market research, or if you're running an existing goldsmith, 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:
- The price of gold: As a goldsmith, the price of gold is a significant driver that can affect your average price and number of monthly transactions. Fluctuations in the price of gold can impact the cost of materials, which in turn can affect your pricing strategy and ultimately, the number of transactions you make.
- Trends in fashion and jewelry: Fashion trends and styles can greatly influence the demand for certain types of jewelry. As a goldsmith, it's important to keep an eye on current trends and adjust your designs accordingly. This can impact both your average price and the number of transactions you make, as certain styles may be more sought after than others.
- Economic conditions: The state of the economy can also play a role in your sales forecast. During times of economic hardship, consumers may be more hesitant to make luxury purchases, which can affect the number of monthly transactions. However, during times of economic prosperity, there may be an increase in demand for high-end jewelry, potentially leading to a higher average price.
- Competition: The level of competition in your local market can also impact your sales forecast. If there are other goldsmiths in the area offering similar products at lower prices, it may be more difficult to maintain a high average price. On the other hand, if there is less competition, you may be able to charge higher prices and potentially see an increase in transactions.
- Holidays and special occasions: Seasonal events such as holidays and special occasions like weddings can greatly impact your sales as a goldsmith. During these times, there may be an increase in demand for certain types of jewelry, leading to a higher number of transactions and potentially an increase in average price as well.
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 goldsmith
The next step is to estimate the costs you’ll have to incur to operate your goldsmith.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your goldsmith's operating expenses should normally include the following items:
- Staff costs: This includes the salaries and benefits of your employees, such as goldsmiths, apprentices, and administrative staff.
- Accountancy fees: You will need to hire an accountant to help you with financial management, tax preparation, and other financial tasks.
- Insurance costs: As a goldsmith, you will need to protect your business and its assets with insurance, such as liability insurance and property insurance.
- Software licences: You may need to purchase software licences for programs that are essential for your business, such as design software or inventory management software.
- Banking fees: Your business will incur fees for services such as maintaining a business bank account, processing transactions, and obtaining loans.
- Rent and utilities: You will need to pay rent for your workshop or storefront, as well as cover the cost of utilities such as electricity and water.
- Materials and supplies: As a goldsmith, you will need to purchase materials and supplies such as precious metals, gemstones, and tools to create your pieces.
- Marketing and advertising: You may need to invest in marketing and advertising efforts to promote your business and attract customers.
- Professional development: It's important to continue learning and improving your skills as a goldsmith, so budget for workshops, classes, and other forms of professional development.
- Equipment maintenance: Your tools and equipment will need regular maintenance and repairs to ensure they continue to function properly.
- Shipping and packaging: If you sell your pieces online or ship them to customers, you will need to budget for shipping costs and packaging materials.
- Taxes: As a business owner, you will need to pay taxes on your profits, so make sure to budget for this expense.
- Legal fees: You may need to hire a lawyer for legal advice or assistance with contracts and other legal matters.
- Office supplies: Your business will need basic supplies such as paper, pens, and ink cartridges for printing.
- Repairs and maintenance: In addition to equipment maintenance, you may also need to budget for repairs and maintenance of your workshop or storefront.
This list is not exhaustive by any means, and will need to be tailored to your goldsmith's specific circumstances.
What investments are needed to start or grow a goldsmith?
Once you have an idea of how much sales you could achieve and what it will cost to run your goldsmith, it is time to look into the equipment required to launch or expand the activity.
For a goldsmith, capital expenditures and initial working capital items could include:
- Jewelry Making Equipment: This includes items such as a soldering torch, rolling mill, and polishing machine. These tools are essential for creating and finishing jewelry pieces.
- Precious Metal Inventory: As a goldsmith, you will need to have a supply of precious metals such as gold, silver, and platinum to create your jewelry. This inventory should be accounted for in your expenditure forecast.
- Gemstones and Supplies: In addition to precious metals, you will also need to purchase gemstones and other supplies such as clasps and findings to complete your jewelry pieces. These items can be quite expensive and should be included in your forecast.
- Jewelry Display Cases: If you plan on selling your jewelry in a physical storefront, you will need to purchase display cases to showcase your pieces. These can range from simple countertop displays to more elaborate custom-made cases.
- Workshop Renovations: If you are setting up a new workshop or expanding your current one, you may need to make renovations or upgrades to the space. This could include installing new lighting, adding workbenches, or upgrading your ventilation system.
Again, this list will need to be adjusted according to the specificities of your goldsmith.
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 goldsmith
The next step in the creation of your financial forecast for your goldsmith 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 goldsmith?
Now let's have a look at the main output tables of your goldsmith's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your goldsmith is likely to be in the years to come.
For your goldsmith 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 goldsmiths, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.
The projected balance sheet
Your goldsmith'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 projection
The cash flow forecast of your goldsmith 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 goldsmith'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 goldsmith 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 goldsmith'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 goldsmith's financial forecast?
Using the right tool or solution will make the creation of your goldsmith's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial projection software to build your goldsmith'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 goldsmith 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 goldsmith'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 goldsmith 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 goldsmith'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 goldsmith, 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 goldsmith
Takeaways
- A financial projection shows expected growth, profitability, and cash generation for your business over the next three to five years.
- Tracking actuals vs. forecast and keeping your financial forecast up-to-date is the only way to maintain visibility on future cash flows.
- Using financial forecasting software makes it easy to create and maintain up-to-date projections for your goldsmith.
You have reached the end of our guide. We hope you now have a better understanding of how to create a financial forecast for a goldsmith. Don't hesitate to contact our team if you have any questions or want to share your experience building forecasts!
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 projections
- How to create a turnover forecast for a business?
- Financial forecast template for a business idea
Know someone who runs or wants to start a goldsmith? Share our financial projection guide with them!
Founder & CEO at The Business Plan Shop Ltd
