How to create a financial forecast for a tailor shop?
Developing and maintaining an up-to-date financial forecast for your tailor shop is key in order to maintain visibility on your business’s future cash flows.
If you feel overwhelmed at the thought of putting together a tailor shop financial forecast then don’t worry as this guide is here to help you.
We'll cover everything from: the main objectives of a financial forecast, the data you need to gather before starting, to the tables that compose it, and the tools that will help you create and maintain your forecast efficiently.
Let's get started!
Why create and maintain a financial forecast for a tailor shop?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your tailor shop and ensure that it can be financially viable in the years to come.
A financial plan for a tailor shop 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 tailor shop 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 tailor shop'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 tailor shop financial forecast?
A tailor shop'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 tailor shop, 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 tailor shop 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 tailor shop 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 tailor shop's financial forecast.
The sales forecast for a tailor shop
From experience, it usually makes sense to start your tailor shop's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your tailor shop (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 tailor shop'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:
- Seasonal Trends: As a tailor shop, you may experience fluctuations in your average price and number of monthly transactions depending on the season. During the wedding season, for example, you may see an increase in the demand for custom-made suits and dresses, leading to a higher average price and more transactions. On the other hand, during the holiday season, you may see a decrease in demand, resulting in lower average prices and fewer transactions.
- Fashion Trends: The fashion industry is constantly changing, and as a tailor shop, you must stay updated on the latest trends to attract customers. If a particular style or design becomes popular, you may see a surge in demand for that specific type of clothing, leading to a higher average price and more transactions. On the other hand, if a trend becomes outdated, you may experience a decline in demand, resulting in lower average prices and fewer transactions.
- Economic Conditions: Economic conditions can greatly impact the average price and number of monthly transactions for a tailor shop. During a recession, customers may be more price-sensitive and opt for cheaper alternatives rather than custom-made clothing, resulting in lower average prices and fewer transactions. On the other hand, during a booming economy, customers may have more disposable income and be willing to spend more on high-quality, custom-made clothing, leading to higher average prices and more transactions for your business.
- Competition: The presence of other tailor shops in your area can also affect your average price and number of monthly transactions. If you have direct competitors offering similar services at a lower price, you may have to adjust your prices to stay competitive, resulting in lower average prices and potentially fewer transactions. On the other hand, if you are the only tailor shop in the area, you may be able to charge higher prices for your unique services, resulting in higher average prices and more transactions.
- Customer Preferences: Understanding your target audience and their preferences can also impact your average price and number of monthly transactions. For example, if your customers are mainly professionals looking for high-end, custom-made suits, you may be able to charge higher prices for your services. However, if your customer base consists of budget-conscious individuals, you may need to adjust your prices to attract more transactions. Additionally, if your customers have a preference for certain fabrics or styles, you may see fluctuations in your average price and number of transactions depending on their demands.
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 tailor shop
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your tailor shop 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 tailor shop will include some of the following items:
- Staff costs: This includes salaries, benefits, and any other expenses related to your employees such as training and uniforms.
- Rent: You may need to rent a space for your tailor shop, and this expense can vary depending on the location and size of your shop.
- Utilities: This includes electricity, water, and other necessary services to keep your shop running.
- Inventory: As a tailor shop, you will need to purchase materials such as fabric, thread, and buttons to make your products.
- Equipment and supplies: This includes sewing machines, scissors, measuring tools, and other necessary supplies for your shop.
- Marketing and advertising: To attract customers, you may need to invest in marketing and advertising efforts such as flyers, social media ads, and collaborations with other businesses.
- Accountancy fees: You may need to hire an accountant to help you with bookkeeping, tax preparation, and other financial matters.
- Insurance costs: To protect your business, you may need to pay for insurance such as liability insurance and property insurance.
- Software licenses: You may need to purchase software licenses for your accounting, inventory management, and other business needs.
- Banking fees: This includes fees for processing credit card transactions, wire transfers, and other banking services.
- Maintenance and repairs: Your equipment and shop may require regular maintenance and occasional repairs, which can be an added expense.
- Professional services: You may need to hire a lawyer or consultant for legal or business advice.
- Cleaning services: To keep your shop clean and presentable, you may need to hire a cleaning service.
- Professional development: As a tailor, it's important to stay updated on the latest trends and techniques in your industry, so you may need to budget for professional development courses or workshops.
- Taxes and licenses: You will need to pay taxes and obtain necessary licenses to legally operate your tailor shop.
This list will need to be tailored to the specificities of your tailor shop, but should offer a good starting point for your budget.
What investments are needed to start or grow a tailor shop?
Your tailor 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 tailor shop, these could include:
- Sewing machines: As a tailor shop owner, you will need to invest in high-quality sewing machines to produce your garments. These machines can range in price from a few hundred to several thousand dollars, depending on the brand and features. You may need to purchase multiple machines to accommodate different types of stitching and fabric.
- Fabric cutting table: A sturdy and spacious fabric cutting table is essential for accurately cutting and measuring fabric for your garments. This will be a fixed asset that you can use for many years to come. Consider investing in a table with adjustable height and built-in storage for your cutting tools.
- Inventory: In order to produce your garments, you will need to purchase a variety of fabrics, threads, buttons, and other materials. These items will be considered fixed assets as they are essential for your business operations and can be used for multiple garment orders.
- Mannequins: Mannequins are an important tool for displaying your garments and taking accurate measurements. They can also be used for fitting and alterations. Consider investing in various sizes and styles to accommodate different types of garments.
- Furniture and fixtures: Your tailor shop will also need furniture and fixtures such as display racks, shelves, and chairs for your customers. These items will be considered fixed assets as they are necessary for your business operations and can be used for many years.
Again, this list will need to be adjusted according to the size and ambitions of your tailor 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 tailor shop
The next step in the creation of your financial forecast for your tailor 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 tailor shop?
Now let's have a look at the main output tables of your tailor shop's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your tailor shop is likely to be in the years to come.
For your tailor shop 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 tailor shops, 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 tailor 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 tailor 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 forecast
Your tailor shop'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 tailor shop:
- 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 tailor shop'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 tailor shop'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 tailor shop's financial forecast?
Creating your tailor shop's financial forecast may sound fairly daunting, but the good news is that there are several ways to go about it.
Using online financial forecasting software to build your tailor shop'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.
Hiring a financial consultant or chartered accountant
Hiring a consultant or chartered accountant is also an efficient way to get a professional tailor shop 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 tailor shop's financial forecast?
Creating an accurate and error-free tailor shop 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 tailor 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 tailor 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 tailor 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
- Financial forecast template for a business idea
- How to create a turnover forecast for a business?
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Founder & CEO at The Business Plan Shop Ltd
