How to create a financial forecast for a grocery store?
Developing and maintaining an up-to-date financial forecast for your grocery store 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 grocery store 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 grocery store?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your grocery store and ensure that it can be financially viable in the years to come.
A financial plan for a grocery store 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 grocery store 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 grocery store'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 grocery store financial forecast?
A grocery store'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 grocery store.
If you are creating (or updating) the forecast of an existing grocery store, 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 grocery store 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 grocery store 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 grocery store's financial forecast.
The sales forecast for a grocery store
The sales forecast, also called topline projection, is normally where you will start when building your grocery store 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 grocery stores), and consider the elements below:
- Seasonal Demand: As a grocery store owner, you know that certain products have a higher demand during specific seasons. For example, fresh produce may have a higher demand in the summer months, while holiday-themed items may have a higher demand during the winter months. Keeping track of these seasonal trends can help you forecast your average price and number of monthly transactions.
- Competition: The competition in your area can greatly affect your average price and number of monthly transactions. If there are multiple grocery stores in close proximity, you may need to adjust your prices or offer promotions to stay competitive. Additionally, if a new store opens in your area, it could impact your sales as customers may choose to shop at the new store instead.
- Economic Factors: Fluctuations in the economy can also have an impact on your business. In times of economic downturn, customers may be more price-sensitive and opt for cheaper alternatives, which could lower your average price. On the other hand, during times of economic growth, customers may be more willing to spend, resulting in higher average prices.
- Changes in Consumer Preferences: As a grocery store owner, it's important to stay on top of current trends and changing consumer preferences. For example, if there is a growing demand for organic or sustainable products, you may need to adjust your inventory to meet this demand, which could affect your average price and number of monthly transactions.
- Health and Safety Concerns: In light of recent events, health and safety concerns have become a top priority for many consumers. As a grocery store owner, it's important to ensure that your store is following all necessary protocols and precautions to keep customers safe. Failure to do so could result in a decrease in customers and ultimately impact your average price and number of monthly transactions.
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 grocery store
The next step is to estimate the costs you’ll have to incur to operate your grocery store.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your grocery store's operating expenses should normally include the following items:
- Staff costs: This includes salaries, wages, benefits, and payroll taxes for all employees working in your grocery store. This can also include bonuses and incentives for top-performing staff members.
- Rent or lease: Your grocery store will need a physical space to operate, and this will come at a cost. This can include rent, utilities, and maintenance fees for your store location.
- Inventory costs: As a grocery store, you will need to constantly restock your shelves with fresh produce, packaged goods, and other items. This will incur costs for purchasing and storing inventory.
- Marketing and advertising: In order to attract customers to your grocery store, you will need to invest in marketing and advertising efforts. This can include flyers, newspaper ads, social media campaigns, and other forms of advertising.
- Accountancy fees: It is important to keep track of your grocery store's financial health and taxes. This will require the services of an accountant or bookkeeper, which will incur fees.
- Insurance costs: Your grocery store will need insurance to protect against potential risks such as property damage, theft, or liability. This will come at a cost, depending on the coverage and size of your store.
- Software licenses: In order to efficiently manage your grocery store, you may need to invest in software licenses for point-of-sale systems, inventory management, and other operational tools.
- Banking fees: Your grocery store will need to have a business bank account to manage transactions and payments. This may include fees for maintaining the account, processing transactions, and other banking services.
- Cleaning and maintenance: Keeping your grocery store clean and well-maintained is essential for creating a positive shopping experience. This may include costs for cleaning supplies, equipment, and hiring a cleaning service.
- Utilities: Your grocery store will incur costs for electricity, water, and other utilities needed to run the store. This may also include fees for waste disposal and recycling services.
- Equipment rental or leasing: In addition to purchasing equipment, you may also need to rent or lease certain items such as refrigerators, freezers, and point-of-sale systems. These costs should be factored into your operating expenses.
- Employee training and development: It is important to invest in the training and development of your employees to ensure they can provide high-quality service to your customers. This may include costs for training programs, workshops, and seminars.
- Professional fees: Depending on your business needs, you may need to hire professionals such as lawyers, consultants, or marketing experts. These services will come at a cost and should be included in your forecast.
- Taxes and licenses: As a business owner, you will be responsible for paying taxes and obtaining necessary licenses to operate your grocery store. These costs should be factored into your operating expenses.
- Security: It is important to keep your grocery store and its employees and customers safe. This may include costs for security systems, hiring security personnel, and other safety measures.
This list is not exhaustive by any means, and will need to be tailored to your grocery store's specific circumstances.
What investments are needed to start or grow a grocery store?
Creating and expanding a grocery store also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a grocery store could include elements such as:
- Equipment: This includes items such as refrigeration units, ovens, and cash registers. These are essential for the day-to-day operations of a grocery store and typically have a longer lifespan compared to other fixed assets.
- Store Fixtures: These are the shelves, displays, and other structures used to organize and showcase products in the store. While they may not have as long of a lifespan as equipment, they are still important investments for creating an attractive and functional shopping environment.
- Delivery Vehicles: For a grocery store that offers delivery services, investing in delivery vehicles is necessary. These can include vans or trucks to transport goods to customers' homes.
- Point-of-Sale (POS) System: A reliable and efficient POS system is crucial for processing transactions, managing inventory, and tracking sales data. This is an important investment for any modern grocery store.
- Renovations/Remodeling: Over time, a grocery store may need to undergo renovations or remodeling to update its look or accommodate changes in consumer needs. This can include things like updating flooring, expanding store space, or adding new features such as a bakery or deli section.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your grocery store.
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 grocery store
The next step in the creation of your financial forecast for your grocery store 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 grocery store?
Now let's have a look at the main output tables of your grocery store's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your grocery store is likely to be in the years to come.
For your grocery store 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 grocery stores, 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 grocery store'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 grocery store. 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 grocery store 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 grocery store'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 grocery store 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 grocery store's financial projections?
Building a grocery store 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 forecasting software to build your grocery store'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 grocery store 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 grocery store'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 grocery store 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 grocery store'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 grocery store, 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 grocery store
Takeaways
- A financial forecast shows expected growth, profitability, and cash generation metrics for your grocery store.
- 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 grocery store. 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 create a turnover forecast for a business?
- Financial forecast for a business idea
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Founder & CEO at The Business Plan Shop Ltd
