How to create a financial forecast for a music store?
Creating a financial forecast for your music store, 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 music store 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 music store?
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 music store becomes handy.
Creating a music store 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 music store.
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 music store 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 music store'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 music store financial forecast?
A music 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 music 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 music 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 music 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 music store's financial forecast.
The sales forecast for a music store
From experience, it usually makes sense to start your music store's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your music store (which can be used as a starting point for existing businesses) and the data collected in your market research (which both new ventures and existing businesses need to project their sales forward).
Your music store's sales forecast can be broken down into two key estimates:
- The average price
- The number of monthly transactions
To assess these variables accurately, you will need to consider the following factors:
- Competition: The number of music stores in your area and the types of products they offer can greatly impact your average price and number of monthly transactions. If you are in a highly competitive market, you may need to lower your prices to attract customers, which could decrease your average price. On the other hand, if you are the only store offering a certain type of instrument or genre of music, you may be able to charge higher prices and increase your average price.
- Trends in Music: The popularity of certain genres or instruments can also affect your average price and number of monthly transactions. For example, if a certain genre of music becomes popular, you may see an increase in demand for instruments related to that genre, leading to higher prices and more transactions. Keeping up with current music trends can help you anticipate these changes and adjust your prices accordingly.
- Economy: The state of the economy can have a significant impact on your business. During a recession, people may have less disposable income to spend on non-essential items like musical instruments, leading to a decrease in your monthly transactions. Conversely, during a strong economy, people may be more willing to splurge on higher-priced instruments, increasing your average price and number of transactions.
- Tourism: If your music store is located in a popular tourist destination, your average price and number of transactions may be affected by the influx of tourists. Tourists may be more likely to purchase souvenirs or unique instruments, leading to an increase in your average price and transactions. However, if tourism decreases, so may your sales.
- Seasonal Demand: The time of year can also impact your average price and number of monthly transactions. For example, the holiday season may see an increase in demand for musical instruments as people are purchasing gifts, leading to higher prices and more transactions. On the other hand, summer months may see a decrease in demand as people are more focused on outdoor activities and travel, leading to lower prices and fewer transactions.
Once you have a sales forecast in place, the next step will be to work on your overhead budget. Let’s have a look at that now.
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 music store
The next step is to estimate the expenses needed to run your music store 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 music store's operating expenses should include the following items at a minimum:
- Staff costs: This includes salaries, wages, and benefits for your employees, such as sales associates, music instructors, and administrative staff.
- Rent: You will need to pay rent for your storefront, storage space, and any additional facilities you use for your music store.
- Utilities: This includes electricity, water, and gas for your store, as well as any other necessary utilities like internet and phone services.
- Inventory: You will need to purchase and maintain inventory for your music store, including instruments, sheet music, and accessories.
- Marketing and advertising: To attract customers, you will need to invest in various marketing and advertising strategies, such as digital ads, print materials, and event sponsorships.
- Accountancy fees: You may need to hire a professional accountant to handle your business finances, including tax preparation and bookkeeping.
- Insurance costs: It is important to have insurance coverage for your store, including general liability, property, and workers' compensation insurance.
- Software licenses: To operate your music store efficiently, you may need to purchase software licenses for point-of-sale systems, inventory management, and accounting software.
- Banking fees: You will need to pay fees for banking services, such as credit card processing, check deposits, and wire transfers.
- Repairs and maintenance: Your store and equipment may require repairs and regular maintenance, which can include costs for technicians, parts, and supplies.
- Professional development: To stay up-to-date with the latest trends and techniques in the music industry, you may need to invest in professional development for yourself and your employees.
- Licenses and permits: You will need to obtain various licenses and permits to legally operate your music store, such as a business license, sales tax permit, and music performance license.
- Safety and security: To ensure the safety and security of your store and employees, you may need to invest in security systems, training, and procedures.
- Office supplies: You will need to purchase office supplies, such as paper, pens, and printer ink, to keep your store running smoothly.
- Professional services: You may need to hire outside professionals, such as lawyers or consultants, for specific tasks or projects related to your music store.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small music store might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow a music store?
Creating and expanding a music store also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a music store could include elements such as:
- Inventory: This includes the cost of purchasing and stocking musical instruments, accessories, and other products to be sold in the music store.
- Store Fixtures and Equipment: This includes items such as display cases, shelving units, cash registers, and other equipment needed to run the store.
- Musical Instruments and Equipment: This includes the cost of purchasing and maintaining the instruments and equipment used for demonstrations, rentals, and repairs in the music store.
- Store Renovations and Improvements: This includes any renovations or improvements made to the physical space of the music store, such as painting, flooring, or adding new lighting.
- Technology: This includes expenses for purchasing and maintaining computers, software, and other technology used for inventory management, sales transactions, and online presence.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your music 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 music store
The next step in the creation of your financial forecast for your music 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 music store?
Now let's have a look at the main output tables of your music store's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your music store is likely to be in the years to come.
For your music 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 music 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 music 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 music 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 music 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 music 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 music 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 music store's financial forecast?
Creating your music 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 music 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.
Calling in a financial consultant or chartered accountant
Enlisting the help of a consultant or accountant is also a good way to obtain a professional music store financial forecast.
The downside of this solution is its cost. From experience, obtaining a simple financial forecast over three years (including a balance sheet, income statement, and cash flow statement) is likely to cost a minimum of £700 or $1,000.
The indicative cost above, is for a small business, and a forecast is done as a one-shot exercise. Using a consultant or accountant to track your actuals vs. forecast and to keep your financial projections up to date on a monthly or quarterly basis will cost a lot more.
If you opt for this solution, make sure your accountant has in-depth knowledge of your industry, so that they may challenge your figures and offer insights (as opposed to just taking your assumptions at face value to create the forecast).
Why not use a spreadsheet such as Excel or Google Sheets to build your music store's financial forecast?
Creating an accurate and error-free music 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 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 music 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
- 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 music store 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 music store, 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
- How to project sales for a business?
- Example of financial forecast for business idea
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Founder & CEO at The Business Plan Shop Ltd
