How to create a financial forecast for a leather wholesaler?
Creating a financial forecast for your leather wholesaler, 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 leather wholesaler 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 leather wholesaler?
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 leather wholesaler becomes handy.
Creating a leather wholesaler 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 leather wholesaler.
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 leather wholesaler 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 leather wholesaler'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 leather wholesaler financial forecast?
A leather wholesaler'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 leather wholesaler.
If you are creating (or updating) the forecast of an existing leather wholesaler, 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 leather wholesaler 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 leather wholesaler 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 leather wholesaler's financial forecast.
The sales forecast for a leather wholesaler
The sales forecast, also called topline projection, is normally where you will start when building your leather wholesaler 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 leather wholesalers), and consider the elements below:
- Seasonal Trends: As a leather wholesaler, you may experience fluctuations in the average price and number of monthly transactions depending on the time of year. For example, during the colder months, demand for leather products may increase, leading to a higher average price and more transactions. On the other hand, during the summer, when people tend to wear lighter clothing, your average price and number of transactions may decrease.
- Fashion Trends: The fashion industry is constantly evolving, and as a leather wholesaler, you must keep up with the latest trends to stay competitive. If there is a sudden surge in demand for a particular type of leather product, such as leather jackets or handbags, you may see an increase in your average price and number of transactions. However, if a new trend emerges that does not involve leather, it could have a negative impact on your business.
- Economic Conditions: Economic conditions can also greatly affect your business's sales forecast. In times of economic growth, consumers may have more disposable income, leading to an increase in demand for luxury leather products. On the other hand, during an economic downturn, consumers may be more cautious with their spending, leading to a decrease in your average price and number of transactions.
- Competition: The level of competition in the leather industry can also impact your business's sales forecast. If you are facing intense competition from other leather wholesalers, you may need to lower your average price to stay competitive, resulting in a decrease in your profit margin. Additionally, if your competitors are offering similar products at a lower price, you may see a decrease in your number of monthly transactions.
- Raw Material Prices: As a leather wholesaler, your costs are greatly influenced by the price of raw materials. Fluctuations in the price of leather can have a direct impact on your business's average price and number of monthly transactions. For example, if the price of leather increases, you may need to increase your average price to maintain your profit margin, which could lead to a decrease in the number of transactions as customers may seek more affordable alternatives.
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 leather wholesaler
The next step is to estimate the expenses needed to run your leather wholesaler 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 leather wholesaler's operating expenses should include the following items at a minimum:
- Staff costs, including salaries, benefits, and payroll taxes
- Rent or lease payments for warehouse or office space
- Utility expenses, such as electricity and water
- Inventory costs, including purchasing and storage fees
- Marketing and advertising expenses
- Transportation and shipping costs for products
- Accountancy fees for bookkeeping and tax preparation
- Insurance costs for property, liability, and worker's compensation
- Software licenses for inventory management and accounting systems
- Banking fees for business accounts and credit card processing
- Legal fees for contracts and business transactions
- Office supplies and equipment costs
- Travel expenses for business trips and trade shows
- Training and development costs for employees
- Maintenance and repair expenses for equipment and facilities
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small leather wholesaler might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow a leather wholesaler?
Creating and expanding a leather wholesaler also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a leather wholesaler could include elements such as:
- Inventory Management System: As a leather wholesaler, you will need to invest in a reliable inventory management system to keep track of your stock levels and sales. This system will help you optimize your inventory levels, reduce the risk of stockouts, and improve your overall efficiency in managing your inventory.
- Warehouse Equipment: In order to store and organize your leather products, you will need to invest in various warehouse equipment such as shelves, pallet racks, forklifts, and conveyor systems. These fixed assets will not only help you manage your inventory effectively but also ensure the safety of your products.
- Delivery Vehicles: As a leather wholesaler, you will need to transport your products to your customers. Investing in delivery vehicles such as trucks or vans will not only help you save on transportation costs but also ensure timely and efficient delivery of your products.
- Point-of-Sale (POS) System: A POS system is essential for any retail business, including leather wholesalers. This system will help you process sales, manage inventory, and generate sales reports. Investing in a reliable POS system will help you streamline your operations and improve your customer service.
- Office Equipment: To run your leather wholesale business, you will need various office equipment such as computers, printers, and furniture. These fixed assets will help you manage your administrative tasks and ensure a comfortable working environment for your employees.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your leather wholesaler.
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 leather wholesaler
The next step in the creation of your financial forecast for your leather wholesaler 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 leather wholesaler?
Now let's have a look at the main output tables of your leather wholesaler'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 leather wholesaler'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 leather wholesaler will look different than for a startup.
The projected balance sheet
Your leather wholesaler's forecasted balance sheet enables you to assess your financial structure and working capital requirements.
It is composed of three types of elements: assets, liabilities and equity:
- Assets: represent what the business owns and uses to produce cash flows. It includes resources such as cash, equipment, and accounts receivable (money owed by clients).
- Liabilities: represent funds advanced to the business by lenders and other creditors. It includes items such as accounts payable (money owed to suppliers), taxes due and loans.
- 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 forecast
Your leather wholesaler's cash flow forecast shows how much cash your business is expected to consume or generate in the years to come.
It is best practice to organise the cash flow forecast by nature to better explain where cash is used or generated by the leather wholesaler:
- Operating cash flow: shows how much cash is generated by the operating activities
- Investing cash flow: shows how much will be invested in capital expenditure to maintain or expand the business
- Financing cash flow: shows if the business is raising new capital or repaying financiers (debt repayment, dividends)
Keeping an eye on (and regularly updating) your leather wholesaler's cash flow forecast is key to ensuring that your business has sufficient liquidity to operate normally and to detect financing requirements as early as possible.
If you are trying to raise capital, you will normally be asked to provide a monthly cash flow forecast in your leather wholesaler's financial plan - so that banks or investors can assess seasonal variation and ensure your business 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 leather wholesaler's financial projections?
Building a leather wholesaler 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 leather wholesaler'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 leather wholesaler 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 leather wholesaler's financial forecast?
Creating an accurate and error-free leather wholesaler 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 leather wholesaler, 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 leather wholesaler
Takeaways
- A financial forecast shows expected growth, profitability, and cash generation metrics for your leather wholesaler.
- 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 leather wholesaler. 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 project sales for a business?
- Sample financial forecast for business idea
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Founder & CEO at The Business Plan Shop Ltd
