How to create a financial forecast for a shop?
Creating a financial forecast for your shop, 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 shop 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 shop?
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 shop becomes handy.
Creating a shop 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 shop.
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 shop 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 shop'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 shop financial forecast?
A shop'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 shop.
If you are creating (or updating) the forecast of an existing shop, 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 shop 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 shop 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 shop's financial forecast.
The sales forecast for a shop
The sales forecast, also called topline projection, is normally where you will start when building your shop 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 shops), and consider the elements below:
- Location: The location of your shop can greatly impact the average price and number of monthly transactions. A shop located in a busy shopping district may have higher prices due to the demand and foot traffic, while a shop located in a quieter area may have lower prices and fewer transactions.
- Competition: The level of competition in your area can also affect your average price and number of monthly transactions. If there are many similar shops nearby, you may need to lower your prices to stay competitive, which could lead to a decrease in average price. Alternatively, if your shop offers unique products, you may be able to charge higher prices and attract more transactions.
- Seasonal trends: Depending on what products your shop sells, there may be seasonal fluctuations in average price and number of transactions. For example, a shop that sells winter clothing may see a decrease in average price and transactions during the summer months, while a shop that sells beach gear may see an increase during the same time period.
- Customer demographics: The demographics of your target customers can also impact your average price and number of monthly transactions. For example, if your shop caters to a higher income demographic, you may be able to charge higher prices and have more transactions, while a shop targeting a lower income demographic may need to lower prices to attract customers.
- Economic factors: Economic factors such as inflation, interest rates, and consumer confidence can have a significant impact on your shop's average price and number of monthly transactions. During times of economic downturn, people may be more price-conscious and less likely to make purchases, leading to a decrease in both average price and transactions. On the other hand, during periods of economic prosperity, people may be willing to spend more, resulting in an increase in average price and transactions.
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 shop
The next step is to estimate the costs you’ll have to incur to operate your shop.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your shop's operating expenses should normally include the following items:
- Staff Costs: This includes salaries, wages, bonuses, and benefits for all employees working in the shop, such as cashiers, sales associates, and managers.
- Rent: The cost of renting the physical space for your shop, including any additional fees for utilities or maintenance.
- Accountancy Fees: The fees paid to an accountant for services such as bookkeeping, tax preparation, and financial advice.
- Insurance Costs: This includes both general liability insurance and property insurance to protect your shop from any potential risks or damages.
- Inventory: The cost of purchasing and stocking inventory for your shop, including products, supplies, and packaging materials.
- Marketing and Advertising: The expenses associated with promoting your shop, such as social media ads, flyers, and collaborations with other businesses.
- Utilities: This includes electricity, water, gas, and any other necessary utilities for running your shop.
- Software Licenses: The cost of purchasing and renewing any software licenses for programs used in your shop, such as point-of-sale systems or inventory management software.
- Banking Fees: The fees associated with maintaining a business bank account, such as transaction fees and monthly service charges.
- Maintenance and Repairs: The cost of maintaining and repairing equipment and fixtures in your shop, such as cash registers, shelves, and lighting.
- Professional Services: Any fees paid to lawyers, consultants, or other professionals for services related to your shop, such as legal advice or business consulting.
- Training and Development: The cost of providing training and development opportunities for your employees to improve their skills and knowledge.
- Office Supplies: The cost of purchasing necessary office supplies for running your shop, such as paper, printer ink, and pens.
- Credit Card Processing Fees: The fees associated with accepting credit and debit card payments from customers.
- Taxes and Licenses: The cost of business taxes and any necessary licenses or permits for operating your shop.
This list is not exhaustive by any means, and will need to be tailored to your shop's specific circumstances.
What investments are needed to start or grow a shop?
Once you have an idea of how much sales you could achieve and what it will cost to run your shop, it is time to look into the equipment required to launch or expand the activity.
For a shop, capital expenditures and initial working capital items could include:
- Point-of-sale system: This is an essential tool for managing sales and inventory in your shop. It includes hardware such as a computer, cash register, barcode scanner, and software for tracking sales and managing inventory levels.
- Store fixtures and displays: These are the shelves, racks, and other display units used to showcase your products in an organized and visually appealing way. These fixtures can be custom-made or purchased from suppliers.
- Furniture and equipment: This includes items such as desks, chairs, tables, and other equipment needed to run your shop. These may also include specialized equipment specific to your industry, such as a commercial oven for a bakery.
- Renovations and improvements: If you are opening a new shop or relocating to a new space, you may need to make renovations or improvements to the space in order to make it suitable for your business. This could include things like painting, flooring, or plumbing upgrades.
- Delivery and transportation vehicles: If your shop offers delivery services or you need a vehicle to transport goods, you may need to purchase or lease a delivery truck or van. This will allow you to efficiently transport products to and from your shop.
Again, this list will need to be adjusted according to the specificities of your shop.
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 shop
The next step in the creation of your financial forecast for your shop 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 shop?
Now let's have a look at the main output tables of your shop'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 shop'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 shop will look different than for a startup.
The projected balance sheet
The projected balance sheet gives an overview of your shop'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 shop. 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 projection
The cash flow forecast of your shop will show how much cash the business is expected to generate or consume over the next three to five years.
There are multiple ways of presenting a cash flow forecast but from experience, it is better to organise it by nature in order to clearly show these elements:
- Operating cash flow: how much cash is generated by the shop's operations
- Investing cash flow: what is the business investing to expand or maintain its equipment
- Financing cash flow: is the business raising additional funds or repaying financiers (debt repayment, dividends)
Your cash flow forecast is the most important element of your overall financial projection and that’s where you should focus your attention to ensure that your shop is adequately funded.
Note: if you are preparing a financial forecast in order to try to secure funding, you will need to include both a yearly and monthly cash flow forecast in your shop's financial plan.
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 shop's financial forecast?
Using the right tool or solution will make the creation of your shop's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your shop's projections
The modern and easiest way is to use professional online financial forecasting 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 shop 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 shop's financial forecast?
Creating an accurate and error-free shop 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 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 shop, 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 shop.
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 shop. 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 create a turnover forecast for a business?
- Financial forecast for a business idea
Know someone who runs or wants to start a shop? Share our financial projection guide with them!
Founder & CEO at The Business Plan Shop Ltd
