How to create a financial forecast for a theater?
Developing and maintaining an up-to-date financial forecast for your theater 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 theater 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 theater?
The financial projections for your theater 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 theater'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 theater financial forecast?
A theater'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 theater.
If you are creating (or updating) the forecast of an existing theater, 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 theater 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 theater 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 theater's financial forecast.
The sales forecast for a theater
From experience, it is usually best to start creating your theater financial forecast by your sales forecast.
To create an accurate sales forecast for your theater, you will have to rely on the data collected in your market research, or if you're running an existing theater, 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:
- Location: The location of your theater can greatly impact the average price and number of monthly transactions. For example, if your theater is located in a busy downtown area, you may be able to charge higher prices and attract more customers due to the convenience and accessibility.
- Quality of shows: The quality of the shows you offer can also have a significant impact on your average price and number of monthly transactions. If you consistently provide high-quality, popular shows, you may be able to charge higher prices and attract more customers, resulting in increased revenue.
- Competition: The level of competition in your area can affect your average price and number of monthly transactions. If there are other theaters in close proximity offering similar shows, you may need to compete by lowering your prices or offering special deals to attract customers.
- Economic conditions: Economic conditions can also play a role in your theater's sales forecast. During times of economic downturn, people may be less likely to spend money on entertainment, resulting in lower average prices and fewer monthly transactions.
- Seating capacity: The size and seating capacity of your theater can affect your average price and number of monthly transactions. If your theater has a larger seating capacity, you may be able to sell more tickets and potentially charge higher prices for premium seats.
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.
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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 theater
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your theater 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 theater will include some of the following items:
- Staff Costs: This includes salaries, wages, and benefits for all employees working at the theater, such as actors, technicians, ushers, and administrative staff.
- Accountancy Fees: You will need to hire an accountant to help you manage the financial aspects of your theater, such as bookkeeping, tax preparation, and financial reporting.
- Insurance Costs: It is important to have insurance coverage for your theater to protect against potential liability claims, property damage, and other risks.
- Software Licenses: You may need to purchase licenses for software programs used for ticket sales, marketing, and other operational tasks.
- Banking Fees: There may be fees associated with maintaining a business account, processing credit card payments, and other banking services.
- Rent: If you do not own the building where your theater is located, you will need to pay rent to the landlord.
- Utilities: You will need to cover the costs of electricity, water, and other utilities to keep the theater running.
- Advertising and Marketing: It is important to promote your theater and its productions through various marketing channels, such as print ads, social media, and email campaigns.
- Maintenance and Repairs: The theater may require regular maintenance and repairs to keep it in good condition for performances.
- Costumes and Props: Depending on the type of productions you put on, you may need to purchase or rent costumes and props for each show.
- Royalties and Licensing Fees: If you are producing copyrighted material, you will need to pay royalties and licensing fees to the original creators.
- Concession Supplies: If you sell concessions at your theater, you will need to purchase supplies such as snacks, drinks, and paper products.
- Cleaning Services: You may need to hire a cleaning service to keep the theater and its facilities clean and presentable.
- Security: To ensure the safety of your staff and audience, you may need to hire security personnel or install security systems.
- Professional Services: You may need to hire outside professionals, such as lawyers or consultants, for specific projects or tasks related to your theater.
This list will need to be tailored to the specificities of your theater, but should offer a good starting point for your budget.
What investments are needed to start or grow a theater?
Your theater 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 theater, these could include:
- Theater Seating: This includes all seats in the theater, both standard and premium, as well as any upgrades or replacements needed to maintain the comfort and safety of patrons.
- Stage Equipment: This includes items such as lighting, sound systems, and curtains, which are essential for producing high-quality performances and creating a professional atmosphere.
- Box Office and Concession Equipment: These items include ticketing software, point-of-sale systems, and concession stands, which are necessary for efficient and profitable operation of the theater.
- Theater Renovations and Upgrades: This could include anything from major renovations, such as updating the stage or lobby, to smaller upgrades like new carpet or paint, which are important for maintaining a modern and appealing theater.
- Projection and Audio-Visual Equipment: This includes items such as projectors, screens, and speakers, which are crucial for showing films and enhancing the overall theater experience.
Again, this list will need to be adjusted according to the size and ambitions of your theater.
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 theater
The next step in the creation of your financial forecast for your theater 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 theater?
Now let's have a look at the main output tables of your theater's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your theater's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a theater 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 theater'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 cash flow projection
The cash flow forecast of your theater 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 theater'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 theater 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 theater'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 theater's financial forecast?
Creating your theater'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 theater'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
Outsourcing the creation of your theater financial forecast is another possible solution.
This will cost more than using software as you can expect as your price will have to cover the accountant’s time, software cost, and profit margin.
Price can vary greatly based on the complexity of your business. For a small business, from experience, a simple three-year financial forecast (including a balance sheet, income statement, and cash flow statement) will start at around £700 or $1,000.
Bear in mind that this is for forecasts produced at a single point in time, updating or tracking your forecast against actuals will cost extra.
If you decide to outsource your forecasting:
- Make sure the professional has direct experience in your industry and is able to challenge your assumptions constructively.
- Steer away from consultants using sectorial ratios to build their client’s financial forecasts (these projections are worthless for a small business).
Why not use a spreadsheet such as Excel or Google Sheets to build your theater's financial forecast?
Creating an accurate and error-free theater 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 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 theater, 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 theater
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 theater.
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 theater. 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 sales forecast for a business?
- Financial forecast template for a business idea
Know someone who runs or wants to start a theater? Share our financial projection guide with them!
Founder & CEO at The Business Plan Shop Ltd
