How to create a financial forecast for a hairdressing salon?
If you are serious about keeping visibility on your future cash flows, then you need to build and maintain a financial forecast for your hairdressing salon.
Putting together a hairdressing salon 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 hairdressing salon.
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 hairdressing salon?
The financial projections for your hairdressing salon act as a financial blueprint to guide its growth with confidence and ensure its long-term financial viability.
To create them, you will need to look at your business in detail - from sales to operating costs and investments - to assess how much profit it can generate in the years to come and what will be the associated cash flows.
During challenging market conditions, maintaining an up-to-date financial forecast enables early detection of potential financial shortfalls, allowing for timely adjustments or securing financing before facing a cash crisis.
Your hairdressing salon's financial forecast will also prove invaluable when seeking financing. Banks and investors will undoubtedly request a thorough examination of your financial figures, making precision and presentation essential.
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 hairdressing salon financial forecast?
A hairdressing salon'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 hairdressing salon.
If you are creating (or updating) the forecast of an existing hairdressing salon, 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 hairdressing salon 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 hairdressing salon 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 hairdressing salon's financial forecast.
The sales forecast for a hairdressing salon
The sales forecast, also called topline projection, is normally where you will start when building your hairdressing salon 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 hairdressing salons), and consider the elements below:
- Seasonal Trends: As a hairdressing salon, you may experience fluctuations in your average price or number of monthly transactions depending on the season. For example, during the summer months, you may see an increase in the number of customers seeking haircuts and highlights for a fresh summer look. On the other hand, during the winter months, you may see a decrease in business as people tend to spend less on hair services and may opt to cover up their hair with hats and scarves.
- Local Competition: The presence of other hairdressing salons in your area can also affect your average price or number of monthly transactions. If there are many other salons offering similar services nearby, you may need to adjust your prices to remain competitive. Additionally, if a new salon opens up in your area, it may attract some of your regular customers, resulting in a decrease in your monthly transactions.
- Economic Conditions: The overall economic conditions in your area can also have an impact on your business. During times of economic downturn, people may cut back on non-essential expenses, such as hair services, resulting in a decrease in your average price or number of monthly transactions. On the other hand, during times of economic growth, people may be more willing to splurge on hair treatments, leading to an increase in your business.
- Trends and Fashion: As a hairdressing salon, it's important to stay up-to-date with the latest trends and fashion in the industry. If a certain hairstyle or hair color becomes popular, you may see an increase in customers requesting that specific service, leading to a higher average price or number of monthly transactions. On the other hand, if a trend fades, you may need to adjust your services to meet the changing demands of your customers.
- Customer Loyalty: The loyalty of your customers can also play a significant role in your sales forecast. If you have a loyal customer base who trusts and values your services, they are more likely to return for regular appointments and may also refer their friends and family to your salon. This can result in a steady flow of monthly transactions and potentially even an increase in average price as loyal customers are more willing to pay for quality services.
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 hairdressing salon
The next step is to estimate the costs you’ll have to incur to operate your hairdressing salon.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your hairdressing salon's operating expenses should normally include the following items:
- Rent: This is the cost of your salon's physical space. It includes lease or mortgage payments, property taxes, and utilities.
- Staff Costs: This includes the salaries or wages of your hairdressers and other staff, as well as any benefits and taxes you are required to pay on their behalf.
- Accountancy Fees: Hiring an accountant to help with your salon's financial management and tax preparation can be a valuable expense.
- Insurance Costs: Protect your salon and its assets by purchasing insurance, including liability insurance and coverage for equipment and inventory.
- Product Costs: These are the costs of the hair products and styling tools you use in your salon, such as shampoo, conditioner, hair dye, and scissors.
- Marketing and Advertising: Promoting your salon through advertising, social media, and other marketing efforts can help attract new clients and grow your business.
- Software Licences: Many salons use software for booking appointments, managing inventory, and processing payments. These programs often require a monthly or yearly licence fee.
- Banking Fees: Your salon will likely have a business bank account, and there may be fees associated with maintaining this account, such as monthly service fees or transaction fees.
- Cleaning and Maintenance: Keeping your salon clean and in good condition is important for both the health and safety of your clients and the appearance of your business.
- Professional Development: It's important to invest in ongoing training and education for yourself and your staff to stay up-to-date with the latest hairdressing techniques and trends.
- Equipment and Supplies: This includes the cost of purchasing and maintaining equipment such as salon chairs, hair dryers, and styling tools, as well as the cost of supplies like towels, capes, and hair products for clients.
- Rent for Booth Renters: If you have booth renters working in your salon, they may pay a monthly fee to use your space, which can help cover some of your salon's operating expenses.
- Legal Fees: As a business owner, you may encounter legal issues that require the assistance of a lawyer, such as drafting contracts or resolving disputes.
- Taxes: In addition to the taxes you pay on behalf of your employees, you will also need to pay taxes on your salon's profits.
- Credit Card Processing Fees: If you accept credit or debit card payments from clients, your salon will likely pay a fee for each transaction.
This list is not exhaustive by any means, and will need to be tailored to your hairdressing salon's specific circumstances.
What investments are needed to start or grow a hairdressing salon?
Creating and expanding a hairdressing salon also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a hairdressing salon could include elements such as:
- Salon Equipment and Furniture: This includes items such as styling chairs, shampoo units, hair dryers, and other essential equipment for your salon. These items are necessary for providing services to your clients and should be of good quality to ensure customer satisfaction.
- Renovations and Improvements: As your salon grows and evolves, you may need to make changes to the physical space to accommodate new services or equipment. This could include adding new plumbing for a spa room or renovating the reception area to create a more modern and welcoming atmosphere.
- Technology and Software: In today's digital age, having the right technology and software in your salon is crucial for efficient operations. This may include a point-of-sale system, appointment scheduling software, and even online booking capabilities to make it easier for clients to book appointments.
- Inventory and Supplies: As a hairdressing salon, you will need a constant supply of hair products, tools, and other supplies. These are considered fixed assets as they are necessary for your business to function and generate revenue.
- Marketing Materials: While marketing and advertising are not considered capital expenditures, the materials used for these purposes such as business cards, brochures, and signage can be. These items are essential for promoting your salon and attracting new clients.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your hairdressing salon.
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 hairdressing salon
The next step in the creation of your financial forecast for your hairdressing salon 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 hairdressing salon?
Now let's have a look at the main output tables of your hairdressing salon's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your hairdressing salon's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a hairdressing salon should normally show:
- Sales growing above inflation
- Stable or expanding (ideally) profit margins
- A net profit
This will of course depend on the stage of your business: a new venture might be loss-making until it reaches its breakeven point in year 2 or 3, for example.
The projected balance sheet
The projected balance sheet gives an overview of your hairdressing salon'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 hairdressing salon. 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 hairdressing salon 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 hairdressing salon'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 hairdressing salon 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 hairdressing salon's financial forecast?
Using the right tool or solution will make the creation of your hairdressing salon's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial projection software to build your hairdressing salon'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 hairdressing salon 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 hairdressing salon's financial forecast?
Creating an accurate and error-free hairdressing salon financial forecast on Excel (or any spreadsheet) is very technical and requires both a strong grasp of accounting principles and solid skills in financial modelling.
Most entrepreneurs lack the expertise required to create an accurate financial forecast using spreadsheet software like Excel or Google Sheets. As a result, it is unlikely anyone will trust your numbers.
The second reason is that it is inefficient. Building forecasts on spreadsheets was the only option in the 1990s and early 2000s, nowadays technology has advanced and software can do it much faster and much more accurately.
This is why professional forecasters all use software. With the rise of AI, software is also becoming smarter at helping us detect mistakes in our forecasts and helping us analyse the numbers to make better decisions.
Finally, like everything with spreadsheets, tracking actuals vs. forecasts and updating your forecast as the year progresses is manual, tedious, error-prone, and time-consuming. Whereas financial forecasting 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 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 hairdressing salon, 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 hairdressing salon
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 hairdressing salon 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 hairdressing salon, 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 template for a business idea
- How to project revenues for a business?
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Founder & CEO at The Business Plan Shop Ltd
