How to create a financial forecast for a musical instrument wholesaler?
Creating a financial forecast for your musical instrument 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 musical instrument 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 musical instrument 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 musical instrument wholesaler becomes handy.
Creating a musical instrument 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 musical instrument 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 musical instrument 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 musical instrument 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 musical instrument wholesaler financial forecast?
A musical instrument wholesaler'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 musical instrument wholesaler, 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 musical instrument wholesaler 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 musical instrument wholesaler 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 musical instrument wholesaler's financial forecast.
The sales forecast for a musical instrument wholesaler
From experience, it usually makes sense to start your musical instrument wholesaler's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your musical instrument wholesaler (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 musical instrument wholesaler'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:
- Product demand: The demand for musical instruments can greatly impact the average price and number of monthly transactions. For example, if there is a high demand for a particular instrument, you may be able to charge a higher price and expect more frequent transactions. On the other hand, if there is a decrease in demand for certain instruments, you may need to lower prices in order to maintain sales.
- Competition: The level of competition in the market can also affect your average price and monthly transactions. If there are many other wholesalers selling similar musical instruments, you may need to lower your prices in order to stay competitive. This can result in a decrease in average price and potentially lead to more monthly transactions as customers are drawn to your lower prices.
- Economic conditions: The state of the economy can also play a role in your sales forecast. During times of economic downturn, customers may be more cautious with their spending and may be less likely to make large purchases such as musical instruments. This could result in a decrease in both average price and monthly transactions. Conversely, during times of economic growth, customers may be more willing to spend on musical instruments, leading to an increase in both average price and monthly transactions.
- Supplier relationships: Your relationships with suppliers can also impact your sales forecast. If you have strong relationships with reliable suppliers, you may be able to negotiate better prices and discounts, allowing you to offer lower prices to customers and potentially increase monthly transactions. On the other hand, if you have strained relationships with suppliers, you may need to pay higher prices for your inventory, resulting in a higher average price and potentially leading to fewer monthly transactions.
- Technology advancements: Advancements in technology can also affect your sales forecast. For example, if there is a new technology that allows for more efficient and cost-effective production of musical instruments, you may be able to offer lower prices to customers and potentially increase monthly transactions. However, if there is a new technology that makes certain instruments obsolete, you may need to lower prices on those instruments or discontinue selling them altogether, which can impact both average price and monthly 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.
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The operating expenses for a musical instrument wholesaler
The next step is to estimate the costs you’ll have to incur to operate your musical instrument wholesaler.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your musical instrument wholesaler's operating expenses should normally include the following items:
- Staff Costs: This includes salaries, bonuses, benefits, and payroll taxes for your employees. As a musical instrument wholesaler, you will likely need a sales team, warehouse staff, and administrative staff to manage your operations.
- Accountancy Fees: You will need to hire an accountant or use the services of an accounting firm to manage your financial records, prepare tax returns, and provide financial advice. This is essential for the success of your business.
- Insurance Costs: As a wholesaler, you will need to protect your business from potential risks such as theft, damage, and liability. This may include general liability insurance, property insurance, and worker's compensation insurance.
- Software Licenses: You will need to invest in software for managing your inventory, processing sales, and handling financial transactions. This may include accounting software, inventory management software, and point-of-sale systems.
- Banking Fees: In order to manage your finances, you will incur fees for various banking services such as checking and savings accounts, wire transfers, credit card processing, and loan applications.
- Rent/Mortgage: If you have a physical location for your business, you will need to pay rent or a mortgage for the space. This could also include utilities and maintenance costs.
- Marketing and Advertising: To attract customers and promote your business, you will need to invest in marketing and advertising efforts such as print ads, online ads, and social media campaigns.
- Travel Expenses: As a wholesaler, you may need to attend trade shows, conferences, and meetings to network and source new products. This will incur travel expenses such as airfare, lodging, and meals.
- Inventory Costs: As a wholesaler, you will need to purchase inventory from manufacturers and suppliers. This includes the cost of the products, as well as shipping and handling fees.
- Professional Memberships: To stay updated on industry trends and network with other professionals, you may need to join professional organizations and attend conferences. This will incur membership fees and event registration fees.
- Office Supplies: You will need basic office supplies such as paper, pens, and printer ink for daily operations.
- Legal Fees: As a business owner, you may need to consult with a lawyer for legal advice, contract reviews, and other legal matters. This will incur legal fees.
- Telephone and Internet: You will need to have reliable phone and internet services for communication and conducting business online.
- Training and Development: To ensure your employees are knowledgeable and up-to-date on industry trends, you may need to invest in training and development programs.
- Taxes and Licenses: As a wholesaler, you will need to pay taxes and obtain necessary licenses to operate your business legally.
This list is not exhaustive by any means, and will need to be tailored to your musical instrument wholesaler's specific circumstances.
What investments are needed to start or grow a musical instrument wholesaler?
Your musical instrument wholesaler 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 musical instrument wholesaler, these could include:
- Inventory - As a musical instrument wholesaler, you will need to purchase and maintain a large inventory of instruments and accessories. This could include pianos, guitars, drums, and other instruments, as well as cases, strings, and other necessary parts.
- Storage and Warehouse Space - In order to store and organize your inventory, you will need to invest in warehouse space. This could include renting or purchasing a warehouse, as well as purchasing shelves, racks, and other storage equipment.
- Delivery Vehicles - To transport your inventory to customers, you will need to invest in delivery vehicles. This could include trucks, vans, or other vehicles that are large enough to transport musical instruments safely.
- Computer Systems and Software - As a wholesaler, you will need to keep track of inventory, sales, and other financial information. This will require purchasing computers and software specifically designed for inventory management and accounting.
- Office Equipment - In addition to computers, you will also need to purchase other office equipment such as printers, scanners, and fax machines. These will be necessary for day-to-day operations and communication with customers and suppliers.
Again, this list will need to be adjusted according to the size and ambitions of your musical instrument 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 musical instrument wholesaler
The next step in the creation of your financial forecast for your musical instrument 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 musical instrument wholesaler?
Now let's have a look at the main output tables of your musical instrument wholesaler's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your musical instrument wholesaler's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a musical instrument wholesaler 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
Your musical instrument 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 musical instrument 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 musical instrument 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 musical instrument 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 musical instrument 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 musical instrument wholesaler's financial forecast?
Creating your musical instrument wholesaler'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 musical instrument wholesaler'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 musical instrument wholesaler 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 musical instrument wholesaler'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 musical instrument wholesaler 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 musical instrument wholesaler'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 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
- 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 musical instrument wholesaler 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 musical instrument wholesaler, 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?
- Financial forecast template for a business idea
Know someone who owns or is thinking of starting a musical instrument wholesaler? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
