How to create a financial forecast for a skate shop?
If you are serious about keeping visibility on your future cash flows, then you need to build and maintain a financial forecast for your skate shop.
Putting together a skate shop 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 skate shop.
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 skate 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 skate shop becomes handy.
Creating a skate 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 skate 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 skate 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 skate 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 skate shop financial forecast?
A skate 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 skate shop.
If you are creating (or updating) the forecast of an existing skate 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 skate 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 skate 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 skate shop's financial forecast.
The sales forecast for a skate shop
From experience, it is usually best to start creating your skate shop financial forecast by your sales forecast.
To create an accurate sales forecast for your skate shop, you will have to rely on the data collected in your market research, or if you're running an existing skate shop, 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:
- New Product Releases: As a skate shop owner, you know that new product releases can greatly impact your average price and number of monthly transactions. For example, if a popular skate brand releases a highly anticipated new line of skateboards, your average price may increase as customers are willing to pay more for the latest and greatest products. Additionally, these new releases may also attract more customers and increase your monthly transactions.
- Seasonal Trends: In the skate industry, there are certain seasonal trends that can greatly affect your business. For instance, during the summer months, you may see an increase in sales as more people are out and about skating. However, during the winter months, your average price may decrease as customers are less likely to purchase expensive skate gear when they can't use it as frequently. Being aware of these seasonal trends can help you create a more accurate sales forecast.
- Competition: The competition in your area can also impact your average price and number of monthly transactions. If you are located in an area with a lot of other skate shops, you may need to adjust your prices to stay competitive. This can also affect your monthly transactions as customers may choose to shop at a different store if they can get a better deal.
- Skate Trends: As a skate shop owner, it's important to stay up to date on the latest skate trends. If a certain style or type of skating becomes popular, it can greatly impact your sales. For example, if longboarding becomes the new trend, you may see an increase in average price as longboards tend to be more expensive than traditional skateboards. On the other hand, if a certain trend dies out, it can decrease your average price and number of monthly transactions.
- Economic Factors: Economic factors, such as a recession or a booming economy, can also have a significant impact on your skate shop's sales forecast. During tough economic times, customers may be less likely to spend money on non-essential items like skate gear, resulting in a decrease in both your average price and number of monthly transactions. Conversely, during a strong economy, people may have more disposable income, leading to an increase in sales at your shop.
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 skate shop
The next step is to estimate the costs you’ll have to incur to operate your skate shop.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your skate shop's operating expenses should normally include the following items:
- Staff Costs: This includes salaries, wages, and benefits for your employees, such as sales associates, cashiers, and skate technicians.
- Rent: You will need to pay rent for your physical store location, which can vary depending on the size and location of your shop.
- Utilities: This includes electricity, water, and gas bills for your store.
- Inventory: You will need to purchase inventory, such as skateboards, wheels, and protective gear, to sell in your shop.
- Marketing and Advertising: You may need to budget for marketing and advertising expenses to promote your shop and attract customers.
- Accountancy Fees: You may need to hire an accountant to help you manage your finances and taxes.
- Insurance Costs: It is important to have insurance to protect your shop from potential accidents, theft, and other unforeseen events.
- Software Licenses: You may need to purchase software to help you manage your inventory, sales, and customer data.
- Banking Fees: You will need to pay fees for processing credit and debit card transactions and for managing your business bank account.
- Maintenance and Repairs: You may need to budget for regular maintenance and repairs for your store, such as fixing broken equipment or replacing worn-out displays.
- Professional Services: You may need to hire a lawyer or other professionals for legal or consulting services.
- Office Supplies: You will need to purchase office supplies, such as paper, ink, and pens, to keep your business running smoothly.
- Training and Development: You may need to budget for training and development programs for your employees to improve their skills and knowledge.
- Taxes and Permits: You will need to pay taxes and obtain permits and licenses to legally operate your skate shop.
- Credit Card Processing Fees: You may need to pay fees for processing credit card transactions from your customers.
This list is not exhaustive by any means, and will need to be tailored to your skate shop's specific circumstances.
What investments are needed to start or grow a skate shop?
Your skate shop 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 skate shop, these could include:
- Skateboard Inventory: This includes purchasing new skateboards, decks, trucks, wheels, and other skateboard parts to stock in your shop. You may also need to regularly replenish your inventory to keep up with demand and stay competitive in the market.
- Store Fixtures and Displays: A well-designed and visually appealing store can attract more customers and increase sales. This may include purchasing shelves, racks, mannequins, and other fixtures to display your merchandise in an organized and attractive manner.
- Point-of-Sale (POS) System: A modern and efficient POS system is essential for any retail business, including a skate shop. This can help you track sales, manage inventory, and analyze data to make informed business decisions.
- Store Renovation/Remodeling: Over time, your store may need to be updated or renovated to keep up with changing trends and customer preferences. This may include painting, flooring, lighting, and other improvements to create a fresh and inviting atmosphere for your customers.
- Skate Park Equipment: If your shop also offers a skate park, you may need to invest in ramps, rails, and other equipment to provide a fun and safe experience for your customers. Regular maintenance and repairs may also be necessary to keep the skate park in good condition.
Again, this list will need to be adjusted according to the size and ambitions of your skate 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 skate shop
The next step in the creation of your financial forecast for your skate 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 skate shop?
Now let's have a look at the main output tables of your skate shop's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your skate shop's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a skate shop 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 skate shop'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 projected cash flow statement
A projected cash flow statement for a skate shop 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 skate shop'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 skate shop 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 skate shop's financial projections?
Building a skate shop 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 projection software to build your skate shop'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 skate 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 skate shop's financial forecast?
Creating an accurate and error-free skate 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 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 skate shop, 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 skate shop
Takeaways
- A financial forecast shows expected growth, profitability, and cash generation metrics for your skate shop.
- 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 skate shop. 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
