How to create a financial forecast for a textile and fabric wholesaler?
Creating a financial forecast for your textile and fabric 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 textile and fabric 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 textile and fabric wholesaler?
The financial projections for your textile and fabric wholesaler act as a financial blueprint to guide its growth with confidence and ensure its long-term financial viability.
To create them, you will need to look at your business in detail - from sales to operating costs and investments - to assess how much profit it can generate in the years to come and what will be the associated cash flows.
During challenging market conditions, maintaining an up-to-date financial forecast enables early detection of potential financial shortfalls, allowing for timely adjustments or securing financing before facing a cash crisis.
Your textile and fabric wholesaler's financial forecast will also prove invaluable when seeking financing. Banks and investors will undoubtedly request a thorough examination of your financial figures, making precision and presentation essential.
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 and fabric wholesaler financial forecast?
A textile and fabric wholesaler'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 and fabric wholesaler.
If you are creating (or updating) the forecast of an existing textile and fabric wholesaler, 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 and fabric wholesaler 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 and fabric wholesaler 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 and fabric wholesaler's financial forecast.
The sales forecast for a textile and fabric wholesaler
From experience, it usually makes sense to start your textile and fabric wholesaler's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your textile and fabric 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 textile and fabric 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:
- The cost of raw materials can significantly impact your average price and monthly transactions. Fluctuations in the cost of cotton, silk, and other fabrics can affect your pricing strategy and ultimately influence the demand for your products.
- The trends in fashion can also have a significant impact on your sales forecast. As a textile and fabric wholesaler, you are closely tied to the fashion industry. Changes in styles, colors, and designs can affect the demand for certain fabrics, which can, in turn, affect your pricing and sales.
- The state of the economy can also have a significant impact on your business. During an economic downturn, consumers may be more hesitant to spend money on luxury items such as high-end fabrics, resulting in a decrease in your average price and number of monthly transactions.
- The competition in the textile and fabric industry can also affect your sales forecast. If there is an influx of new competitors or if existing competitors lower their prices, you may need to adjust your pricing strategy to remain competitive, which can impact your average price and monthly transactions.
- The seasonal demand for certain fabrics can also play a role in your sales forecast. For example, if you specialize in winter fabrics such as wool and cashmere, you may see a decrease in sales during the summer months. This can affect your average price and number of 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 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 and fabric wholesaler
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your textile and fabric wholesaler 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 and fabric wholesaler will include some of the following items:
- Staff costs: This includes salaries, wages, benefits, and any other related expenses such as payroll taxes and insurance.
- Rent/Lease: This expense covers the cost of renting or leasing a warehouse or office space for your wholesale operations.
- Utilities: You will need to pay for electricity, water, and other utilities to keep your warehouse and office running.
- Inventory costs: This includes the cost of purchasing inventory from suppliers, as well as any storage fees or shipping costs.
- Marketing and advertising: To promote your wholesale business, you may need to invest in marketing and advertising efforts, such as creating a website, attending trade shows, and running social media campaigns.
- Accountancy fees: You may need to hire an accountant or bookkeeper to manage your financial records and prepare tax returns.
- Insurance costs: As a wholesaler, you will need to protect your business with insurance coverage for liability, property, and inventory.
- Software licenses: To manage your inventory, sales, and finances, you may need to purchase licenses for accounting, inventory management, and other software programs.
- Transportation costs: This includes the cost of shipping and delivering goods to and from your warehouse, as well as any transportation fees for attending trade shows and visiting suppliers.
- Banking fees: You will need to pay for bank account fees, credit card processing fees, and other financial transaction fees.
- Legal fees: You may need to consult with a lawyer for legal advice or assistance with contracts and other business matters.
- Office supplies: To keep your office running smoothly, you will need to purchase supplies such as paper, pens, and printer ink.
- Training and development: It may be necessary to invest in training and development for yourself and your employees to stay updated on industry trends and improve skills.
- Business insurance: In addition to general insurance, you may need specific business insurance, such as product liability insurance, to protect your wholesale business.
- Taxes: As a business owner, you will need to pay taxes on your profits, as well as any other applicable taxes such as sales tax.
This list will need to be tailored to the specificities of your textile and fabric wholesaler, but should offer a good starting point for your budget.
What investments are needed to start or grow a textile and fabric wholesaler?
Your textile and fabric 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 textile and fabric wholesaler, these could include:
- Factory or warehouse space renovation or expansion
- Purchase of new textile and fabric production equipment
- Acquisition of delivery trucks or vehicles for transportation
- Investment in computer software for inventory management and sales tracking
- Upgrading or replacement of outdated or malfunctioning machinery
Again, this list will need to be adjusted according to the size and ambitions of your textile and fabric 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 textile and fabric wholesaler
The next step in the creation of your financial forecast for your textile and fabric 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 textile and fabric wholesaler?
Now let's have a look at the main output tables of your textile and fabric wholesaler'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 and fabric wholesaler'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 and fabric wholesaler will look different than for a startup.
The projected balance sheet
Your textile and fabric wholesaler's projected balance sheet provides a snapshot of your business’s financial position at year-end.
It is composed of three types of elements: assets, liabilities and equity:
- Assets: represent what the business possesses including cash, equipment, and accounts receivable (money owed by clients).
- Liabilities: represent funds advanced to the business by lenders and other creditors. They include accounts payable (money owed to suppliers), taxes payable and loans from banks and financial institutions.
- 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 textile and fabric 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 textile and fabric 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 textile and fabric 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 textile and fabric 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 textile and fabric wholesaler's financial forecast?
Creating your textile and fabric 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 forecasting software to build your textile and fabric wholesaler'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 and fabric wholesaler 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 and fabric 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 textile and fabric 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 textile and fabric 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
- 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 textile and fabric wholesaler.
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 textile and fabric wholesaler. 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 project revenues for a business?
- Example of financial forecast for business idea
Know someone who runs or wants to start a textile and fabric wholesaler? Share our financial projection guide with them!
Founder & CEO at The Business Plan Shop Ltd
