How to create a financial forecast for a hat store?
Developing and maintaining an up-to-date financial forecast for your hat 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 hat 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 hat store?
The financial projections for your hat store 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 hat store'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 hat store financial forecast?
A hat 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 hat store.
If you are creating (or updating) the forecast of an existing hat 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 hat 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 hat 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 hat store's financial forecast.
The sales forecast for a hat store
From experience, it is usually best to start creating your hat store financial forecast by your sales forecast.
To create an accurate sales forecast for your hat store, you will have to rely on the data collected in your market research, or if you're running an existing hat store, 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: As a hat store owner, you are likely aware that the demand for hats tends to fluctuate with the seasons. For example, during the summer months, you may see an increase in sales of sun hats and visors, while in the colder months, customers may be more inclined to purchase beanies and wool hats. It is important to consider these seasonal trends when creating your sales forecast.
- Trends in Fashion: The fashion industry is constantly evolving, and this can have a significant impact on the types of hats that customers are interested in purchasing. Keeping up with current fashion trends and offering a variety of styles can help attract new customers and retain existing ones.
- Popularity of Outdoor Activities: The popularity of outdoor activities, such as hiking, camping, and sports, can have a direct impact on the demand for hats. If these activities are trending, you may see an increase in sales of hats designed for outdoor use, such as baseball caps and wide-brimmed hats.
- Tourism: If your hat store is located in a tourist destination, the number of visitors to the area can greatly impact your sales. Tourists may be more likely to purchase souvenirs, including hats, to remember their trip. Additionally, if your store is in a popular vacation spot, you may see an increase in sales during peak travel seasons.
- Weather: Unpredictable weather patterns can also affect the demand for hats. For example, if there is a sudden heatwave, customers may be more likely to purchase hats to protect themselves from the sun. On the other hand, a cold and rainy summer may result in lower sales of hats designed for warm weather.
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 hat store
The next step is to estimate the costs you’ll have to incur to operate your hat store.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your hat store's operating expenses should normally include the following items:
- Staff Costs: This includes salaries, wages, benefits, and any other expenses related to your employees. As a hat store, you may have a team of sales associates, managers, and possibly a tailor to create custom hats.
- Rent: Your store's location is crucial to your success, but it also comes with a cost. Rent includes your monthly lease or mortgage payments, as well as any utilities or maintenance fees.
- Inventory: As a hat store, you will need to constantly restock your inventory to keep up with customer demand. This includes the cost of purchasing hats from suppliers and any shipping or handling fees.
- Marketing and Advertising: To attract customers to your store, you will need to invest in marketing and advertising. This can include social media ads, print ads, and collaborations with influencers or other businesses.
- Accountancy Fees: As a business owner, you will need to hire an accountant to help you manage your finances and file taxes. This can include monthly bookkeeping fees and annual tax preparation fees.
- Insurance Costs: It is important to protect your business from any unforeseen events. Insurance costs can include general liability insurance, property insurance, and workers' compensation insurance.
- Software Licenses: To run your business efficiently, you may need to invest in software for inventory management, bookkeeping, and point-of-sale systems. These can come with monthly or annual licensing fees.
- Banking Fees: As a business, you will need to have a business bank account to manage your finances. This can include monthly maintenance fees, transaction fees, and fees for using other banks' ATMs.
- Office Supplies: Running a business requires a variety of office supplies, such as paper, ink, and pens. These may seem like small expenses, but they can add up over time.
- Professional Services: Depending on your business needs, you may need to hire outside help for legal advice, marketing strategy, or website design. These services come with a cost.
- Training and Development: As your business grows, you may need to invest in training and development for yourself and your employees. This can include workshops, conferences, and online courses.
- Equipment Maintenance: If you have any equipment in your store, such as a hat steamer or sewing machine, you will need to budget for regular maintenance and repairs.
- Taxes and Licenses: As a business owner, you will need to pay taxes and obtain any necessary business licenses. These fees can vary depending on your location.
- Shipping and Delivery: If you offer online sales or custom orders, you will need to budget for shipping and delivery fees. These can include packaging materials and postage costs.
- Credit Card Processing Fees: If you accept credit card payments, you will need to pay processing fees for each transaction. These fees can vary depending on your payment processor.
This list is not exhaustive by any means, and will need to be tailored to your hat store's specific circumstances.
What investments are needed to start or grow a hat store?
Your hat store 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 hat store, these could include:
- Store Renovation: This includes any costs associated with renovating or remodeling your hat store, such as painting, flooring, lighting, and fixtures. It also includes any necessary repairs or upgrades to the store's infrastructure, such as plumbing, electrical, or HVAC systems.
- Inventory: As a hat store, you will need to invest in purchasing inventory to sell to your customers. This includes hats, hat accessories, and other related products. It is important to carefully track your inventory levels and regularly replenish your stock to meet customer demand.
- Equipment: You will need certain equipment to run your hat store, such as cash registers, shelving, display cases, and other essential items. These items are considered fixed assets and should be included in your expenditure forecast.
Again, this list will need to be adjusted according to the size and ambitions of your hat 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 hat store
The next step in the creation of your financial forecast for your hat 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 hat store?
Now let's have a look at the main output tables of your hat store's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your hat store is likely to be in the years to come.
For your hat 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 hat 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 hat 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 hat 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 hat 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 hat 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 hat 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 hat store's financial forecast?
Creating your hat store's financial forecast may sound fairly daunting, but the good news is that there are several ways to go about it.
Using online financial projection software to build your hat store'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 hat store 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 hat 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 hat 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 hat 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 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 hat store, 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 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 hat store.
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 hat store. 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 project sales for a business?
- Financial forecast template for a business idea
Know someone who runs or wants to start a hat store? Share our financial projection guide with them!
Founder & CEO at The Business Plan Shop Ltd
