How to create a financial forecast for a hair extension company?
Creating a financial forecast for your hair extension company, 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 hair extension company 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 hair extension company?
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 hair extension company becomes handy.
Creating a hair extension company 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 hair extension company.
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 hair extension company 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 hair extension company'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 hair extension company financial forecast?
A hair extension company'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 hair extension company.
If you are creating (or updating) the forecast of an existing hair extension company, 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 hair extension company 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 hair extension company 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 hair extension company's financial forecast.
The sales forecast for a hair extension company
The sales forecast, also called topline projection, is normally where you will start when building your hair extension company 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 hair extension companies), and consider the elements below:
- The growing popularity of social media influencers using hair extensions can drive up your average price as demand increases.
- The emergence of new hair extension trends, such as colored or textured extensions, can also drive up your average price as customers are willing to pay more for these unique styles.
- A decrease in the availability of high-quality human hair, due to factors such as weather or supply chain disruptions, can drive up your average price as the cost of materials increases.
- The development of new, more efficient hair extension application methods can lead to an increase in the number of monthly transactions as customers are attracted to the convenience and ease of the process.
- The rise of sustainable and eco-friendly beauty practices can lead to an increase in your average price as customers are willing to pay more for hair extensions made from ethically sourced and environmentally-friendly materials.
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 hair extension company
The next step is to estimate the expenses needed to run your hair extension company on a day-to-day basis.
These will vary based on the level of sales expected, and the location and size of your business.
But your hair extension company's operating expenses should include the following items at a minimum:
- Staff Costs: This includes salaries and wages for your hair extension technicians, sales staff, and administrative staff. You may also have to pay for benefits such as health insurance and retirement plans for your employees.
- Accountancy Fees: As a business owner, you will need to hire an accountant to help you manage your finances, prepare taxes, and provide financial advice. This can be a significant expense for your hair extension company.
- Insurance Costs: You will need to purchase insurance to protect your business from liabilities such as theft, property damage, and lawsuits. This may include general liability insurance, professional liability insurance, and worker's compensation insurance.
- Software Licenses: To run your hair extension business efficiently, you will need to invest in software licenses for programs such as accounting software, inventory management software, and appointment scheduling software.
- Banking Fees: You will need to open a business bank account to manage your finances. This may involve monthly maintenance fees, transaction fees, and fees for additional services such as wire transfers or overdraft protection.
- Rent: If you operate your hair extension business from a physical location, you will have to pay rent for your storefront or salon space.
- Utilities: You will need to cover the costs of electricity, water, and other utilities to keep your salon running.
- Inventory Costs: As a hair extension company, you will need to purchase and maintain inventory of hair extensions, styling products, and other hair care products.
- Marketing and Advertising: To attract customers, you will need to invest in marketing and advertising efforts such as social media ads, print ads, and influencer partnerships.
- Training and Education: To stay up-to-date with the latest hair extension techniques and trends, you may need to invest in training and education for yourself and your staff.
- Equipment Maintenance: You will need to regularly maintain and repair your salon equipment such as hair extension tools, chairs, and sinks.
- Travel Expenses: If you attend hair shows or conferences to learn about new products and techniques, you will need to cover the costs of travel, lodging, and meals.
- Professional Memberships: Joining professional organizations for hair extension technicians can provide networking opportunities and access to industry resources, but may also come with membership fees.
- Legal Fees: You may need to consult with a lawyer for legal advice or to draft contracts for your salon services.
- Cleaning and Maintenance: Keeping your salon clean and well-maintained is essential for creating a positive experience for your customers, so you will need to budget for cleaning supplies and maintenance services.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small hair extension company might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow a hair extension company?
Your hair extension company financial forecast will also need to include the capital expenditures (aka investments in plain English) and initial working capital items required for the creation or development of your business.
For a hair extension company, these could include:
- Equipment and machinery: This includes items such as hair extension machines, hair dryers, and hair cutting tools. These are essential for the production and installation of hair extensions, and are considered fixed assets as they have a long lifespan and are not easily disposable.
- Furniture and fixtures: This category includes items such as salon chairs, styling stations, and display shelves for the hair extensions. These items are necessary for creating a professional and inviting environment for clients, and are also considered fixed assets as they have a long lifespan.
- Inventory: As a hair extension company, you will need to purchase and maintain a stock of hair extensions in various colors, lengths, and styles. This is considered a capital expenditure as the inventory is a key asset of the business and will be used to generate revenue.
- Renovations and improvements: If you are opening a physical salon for your hair extension company, you may need to make renovations and improvements to the space. This could include installing new flooring, painting the walls, or adding storage space. These costs are considered capital expenditures as they enhance the value of the property and have a long-term impact on the business.
- Software and technology: In today's digital age, it is important for businesses to invest in software and technology to streamline operations and improve customer experience. As a hair extension company, you may need to invest in software for appointment booking, inventory management, and client communication. These are considered fixed assets as they have a long lifespan and are essential for the smooth functioning of the business.
Again, this list will need to be adjusted according to the size and ambitions of your hair extension company.
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 hair extension company
The next step in the creation of your financial forecast for your hair extension company 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 hair extension company?
Now let's have a look at the main output tables of your hair extension company'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 hair extension company'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 hair extension company will look different than for a startup.
The projected balance sheet
The projected balance sheet gives an overview of your hair extension company'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 hair extension company. 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 hair extension company 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 hair extension company'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 hair extension company 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 hair extension company'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 hair extension company's financial forecast?
Using the right tool or solution will make the creation of your hair extension company's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your hair extension company'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 hair extension company 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 hair extension company's financial forecast?
Creating an accurate and error-free hair extension company 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 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 hair extension company, 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
- 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 hair extension company 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 hair extension company, 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
- Financial forecast for a business idea
- How to create a turnover forecast for a business?
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Founder & CEO at The Business Plan Shop Ltd
