How to create a financial forecast for a textile agency?
Developing and maintaining an up-to-date financial forecast for your textile agency 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 textile agency 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 textile agency?
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 textile agency becomes handy.
Creating a textile agency 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 textile agency.
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 textile agency 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 textile agency'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 textile agency financial forecast?
A textile agency'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 textile agency.
If you are creating (or updating) the forecast of an existing textile agency, 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 textile agency 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 textile agency 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 textile agency's financial forecast.
The sales forecast for a textile agency
From experience, it usually makes sense to start your textile agency's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your textile agency (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 textile agency'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:
- Economic conditions: Changes in the economy, such as inflation or recession, can affect the demand for textile products and ultimately impact your average price and number of monthly transactions. For example, during a recession, consumers may be more price-sensitive and opt for cheaper textile products, while during a period of economic growth, they may be more willing to pay higher prices for quality products.
- Seasonal demand: As a textile agency, your sales may be affected by seasonal demand for certain products. For instance, winter clothing may sell more during the colder months, while summer clothing may see a spike in sales during the summer. Understanding these seasonal trends can help you forecast your average price and monthly transactions more accurately.
- Competition: The presence of other textile agencies in your market can also impact your average price and number of monthly transactions. If there are many competitors offering similar products, you may have to lower your prices to stay competitive and attract customers. Similarly, if you have a unique product or brand, you may be able to command higher prices and see a higher number of transactions.
- Fashion trends: As a textile agency, you are likely to offer products that follow current fashion trends. Keeping up with these trends and offering products that are in demand can help you maintain a higher average price and see more monthly transactions. On the other hand, if your products are not in line with current trends, you may have to lower your prices to remain competitive.
- Raw material costs: The cost of raw materials, such as cotton or silk, can also impact your average price and number of monthly transactions. If the cost of these materials increases, you may have to raise your prices to maintain your profit margins. However, this could also lead to a decrease in the number of transactions as customers may be unwilling to pay higher prices.
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 textile agency
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your textile agency 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 textile agency will include some of the following items:
- Staff costs: This includes salaries, benefits, and taxes for all employees of the textile agency.
- Accountancy fees: You will need to hire an accountant to help with financial management, tax preparation, and other financial tasks.
- Insurance costs: This includes both general liability insurance and professional liability insurance to protect your business from potential risks and lawsuits.
- Software licenses: As a textile agency, you will need to invest in software licenses for design programs, inventory management, and other necessary tools.
- Banking fees: You will need to pay fees for business bank accounts, credit card processing, and other banking services.
- Rent or lease: If you have a physical office or warehouse space, you will need to pay rent or lease fees.
- Utilities: This includes electricity, water, and other essential services for your office or warehouse.
- Marketing and advertising: To promote your textile agency and attract clients, you will need to budget for marketing and advertising expenses.
- Travel expenses: If you need to travel for business meetings or to attend trade shows, you will need to budget for travel expenses such as airfare, hotel, and meals.
- Office supplies: This includes items such as paper, pens, printer ink, and other essential office supplies.
- Professional development: To stay up-to-date with industry trends and improve your skills, you may need to budget for professional development courses or workshops.
- Legal fees: You may need to hire a lawyer for contract reviews, trademark registrations, or other legal matters related to your textile agency.
- Shipping and handling: If you ship products to clients, you will need to budget for shipping and handling fees.
- Internet and phone: To stay connected with clients and suppliers, you will need to pay for internet and phone services.
- Taxes: You will need to pay taxes on your business income, property taxes for your office or warehouse, and other taxes applicable to your textile agency.
This list will need to be tailored to the specificities of your textile agency, but should offer a good starting point for your budget.
What investments are needed to start or grow a textile agency?
Your textile agency 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 textile agency, these could include:
- Textile Machinery and Equipment - This includes purchasing or leasing machinery and equipment such as looms, sewing machines, cutting tables, and embroidery machines. These are necessary for producing textile products and are considered fixed assets.
- Warehouse and Storage Space - As a textile agency, you will need a dedicated space to store your raw materials, finished products, and packaging materials. This can include renting or purchasing a warehouse, as well as any necessary renovations or improvements to the space.
- Transportation Vehicles - In order to transport your products to clients or to deliver raw materials to your facility, you may need to purchase or lease transportation vehicles such as trucks or vans. These are essential for the day-to-day operations of a textile agency.
- Computer Systems and Software - As technology plays a crucial role in the textile industry, investing in computer systems and software is necessary for a textile agency. This includes purchasing computers, printers, design software, and inventory management software.
- Furniture and Fixtures - In order to create a professional and efficient workspace, you may need to invest in office furniture and fixtures such as desks, chairs, shelves, and lighting. These are considered fixed assets as they are essential for the daily operations of your agency.
Again, this list will need to be adjusted according to the size and ambitions of your textile agency.
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 textile agency
The next step in the creation of your financial forecast for your textile agency 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 textile agency?
Now let's have a look at the main output tables of your textile agency'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 textile agency'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 textile agency will look different than for a startup.
The projected balance sheet
Your textile agency'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 textile agency 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 textile agency'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 textile agency 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 textile agency's financial forecast?
Using the right tool or solution will make the creation of your textile agency's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your textile agency'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.
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 textile agency 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 textile agency's financial forecast?
Creating an accurate and error-free textile agency 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 textile agency, 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 textile agency 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 textile agency, 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 revenues for a business?
- Example of financial forecast for business idea
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Founder & CEO at The Business Plan Shop Ltd
