How to create a financial forecast for a lighting equipment store?
If you are serious about keeping visibility on your future cash flows, then you need to build and maintain a financial forecast for your lighting equipment store.
Putting together a lighting equipment store 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 lighting equipment store.
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 lighting equipment store?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your lighting equipment store and ensure that it can be financially viable in the years to come.
A financial plan for a lighting equipment 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 lighting equipment 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 lighting equipment 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 lighting equipment store financial forecast?
A lighting equipment store's financial forecast is only as good as the inputs used to build it.
If you are creating (or updating) the forecast of an existing lighting equipment store, then you mostly need your accounting information, key historical operating non-financial data, and your team’s input on what to expect for the coming years.
If you are building financial projections for a lighting equipment store startup, you will need to have done your research and have a clear picture of your competitive environment and go-to-market strategy so that you can forecast sales accurately.
For a new venture, you will also need a precise list of the resources needed to keep the lighting equipment store running on a day-to-day basis and a list of the equipment and expenditures required to start the business (more on that later).
Let's now take a closer look at the elements that make up your lighting equipment store's financial forecast.
The sales forecast for a lighting equipment store
From experience, it is usually best to start creating your lighting equipment store financial forecast by your sales forecast.
To create an accurate sales forecast for your lighting equipment store, you will have to rely on the data collected in your market research, or if you're running an existing lighting equipment 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 demand: As a lighting equipment store owner, you know that the demand for lighting products varies throughout the year. During the winter months, customers may be more interested in purchasing indoor lighting for their homes, while in the summer, they may be more focused on outdoor lighting for their gardens or patios. This seasonal demand can affect your average price and number of monthly transactions.
- Availability of new technology: With new advancements in lighting technology, customers may be more interested in purchasing energy-efficient or smart lighting products. This can impact your average price, as these products may be more expensive, and also your number of monthly transactions, as customers may be willing to pay a premium for these innovative products.
- Economic conditions: The overall state of the economy can also affect your business's average price and number of monthly transactions. During a recession, customers may be more price-sensitive and opt for lower-priced lighting options. Conversely, during an economic boom, customers may be willing to spend more on high-end lighting products.
- Competition: Your competitors' pricing and marketing strategies can also impact your business's average price and number of monthly transactions. If your competitors are offering similar products at lower prices, you may need to adjust your prices to remain competitive. On the other hand, if you offer unique or high-quality products that stand out from your competitors, you may be able to charge higher prices and attract more customers.
- Trends and styles: As a lighting equipment store owner, you need to stay on top of current trends and styles in the lighting industry. Customers may be drawn to specific styles or designs, which can affect your average price and number of monthly transactions. For example, if there is a trend towards minimalist lighting fixtures, customers may be more interested in purchasing sleek and simple designs, which may come at a higher price point.
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 lighting equipment store
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your lighting equipment store on a daily basis.
Expenses normally vary based on how much revenue you anticipate (which is why, from experience, it is always better to start your forecast with the topline projection), and where your business is based.
Operating expenses for a lighting equipment store will include some of the following items:
- Staff Costs: This includes salaries, wages, and benefits for all employees working in your lighting equipment store. This expense is crucial as it directly affects the quality of service provided to customers.
- Accountancy Fees: Hiring a professional accountant to handle your financial records and tax filings is necessary for the smooth operation of your store. This expense ensures that your business is compliant with all financial regulations.
- Insurance Costs: Protecting your store from potential risks such as theft, fire, or natural disasters is essential. Insurance costs cover the expenses of any damages that may occur, allowing you to focus on running your business.
- Software Licenses: In today's digital age, having the right software is crucial for any business. Your lighting equipment store may need software for inventory management, point of sale, or accounting purposes, and these licenses come at a cost.
- Banking Fees: As a business, you will have to pay fees for various banking services such as processing credit card transactions, making wire transfers, or maintaining a business bank account. These fees are necessary for the smooth flow of financial transactions.
- Rent: If you are leasing a commercial space for your store, rent is a significant expense. The location of your store plays a crucial role in attracting customers, so it is essential to choose a location that fits your budget and meets the needs of your business.
- Utilities: Keeping your store well-lit and at a comfortable temperature for customers is essential. Utility costs include electricity, water, and gas bills, which can add up quickly.
- Marketing and Advertising: Promoting your lighting equipment store is crucial for attracting customers. This expense includes costs for creating marketing materials, advertising on various platforms, and hosting events to showcase your products.
- Inventory: As a lighting equipment store, you will need to purchase inventory to sell to customers. This expense includes the cost of purchasing new products, restocking popular items, and storing inventory.
- Maintenance and Repairs: Keeping your store in good condition is crucial for creating a positive shopping experience for customers. This expense includes the cost of repairing and maintaining equipment, fixtures, and the physical store itself.
- Professional Services: As a business owner, you may need to hire lawyers, consultants, or other professionals to help with specific tasks such as legal advice, marketing strategy, or website development. These services come at a cost.
- Training and Development: Investing in your employees' training and development is crucial for the success of your lighting equipment store. This expense includes the cost of workshops, seminars, and other training programs to enhance their skills and knowledge.
- Office Supplies: Keeping your store's office stocked with essential supplies such as paper, pens, and printer ink is necessary for day-to-day operations. These expenses may seem small, but they can add up over time.
- Taxes and Licenses: As a business, you will have to pay taxes and obtain necessary licenses to operate legally. These costs may vary depending on your location and the type of business structure.
- Travel and Transportation: If you attend trade shows, visit suppliers, or make deliveries, travel and transportation costs are inevitable. This expense includes airfare, gas, rental cars, and other related costs.
This list will need to be tailored to the specificities of your lighting equipment store, but should offer a good starting point for your budget.
What investments are needed to start or grow a lighting equipment store?
Creating and expanding a lighting equipment store also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a lighting equipment store could include elements such as:
- Lighting Fixtures: This includes all the lighting fixtures in your store, such as chandeliers, track lights, recessed lights, and pendant lights. These are essential for showcasing your products and creating the right ambiance in your store.
- Point of Sale System: A reliable and efficient point of sale system is crucial for any retail store. This includes hardware such as cash registers, barcode scanners, and credit card readers, as well as software for inventory management and sales tracking.
- Store Renovation/Remodeling: If you are opening a new store or planning to renovate your existing one, this would be a significant capital expenditure. This may include costs for painting, flooring, and other store fixtures and displays.
- Store Signage: Your store's exterior signage is essential for attracting customers and creating brand awareness. This can include your store's name, logo, and any additional signage for promotions or sales.
- Security System: Protecting your store and inventory is crucial for any business. A security system can include cameras, alarms, and other measures to deter theft and ensure the safety of your merchandise.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your lighting equipment 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 lighting equipment store
The next step in the creation of your financial forecast for your lighting equipment 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 lighting equipment store?
Now let's have a look at the main output tables of your lighting equipment store'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 lighting equipment store'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 lighting equipment store will look different than for a startup.
The projected balance sheet
The projected balance sheet gives an overview of your lighting equipment 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 lighting equipment 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 cash flow forecast
Your lighting equipment store'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 lighting equipment store:
- 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 lighting equipment store'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 lighting equipment store'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 lighting equipment store's financial projections?
Building a lighting equipment 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 lighting equipment 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 lighting equipment 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 lighting equipment store's financial forecast?
Creating an accurate and error-free lighting equipment store 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 forecast templates for inspiration
The Business Plan Shop has dozens of financial forecast examples available.
Our templates contain both a financial forecast and a written business plan which presents, in detail, the company, the team, the strategy, and the medium-term objectives.
Our templates are a great source of inspiration, whether you just want to see what a complete business plan looks like, or are looking for concrete examples of how you should model financial elements in your own forecast.
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 lighting equipment 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 lighting equipment 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 revenues for a business?
- Sample financial forecast for business idea
Know someone who runs or wants to start a lighting equipment store? Share our financial projection guide with them!
Founder & CEO at The Business Plan Shop Ltd
