How to create a financial forecast for a tie shop?
Creating a financial forecast for your tie shop, 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 tie shop 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 tie shop?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your tie shop and ensure that it can be financially viable in the years to come.
A financial plan for a tie 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 tie 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 tie 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.
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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.
What information is used as input to build a tie shop financial forecast?
A tie 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 tie 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 tie 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 tie 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 tie shop's financial forecast.
The sales forecast for a tie shop
The sales forecast, also called topline projection, is normally where you will start when building your tie shop financial forecast.
Creating a coherent sales projection boils down to estimating two key drivers:
- The average price
- The number of monthly transactions
To do this, you will need to rely on historical data (for an existing business), market research data (for both new and existing tie shops), and consider the elements below:
- Seasonal Trends: As a tie shop owner, you may experience fluctuations in the number of monthly transactions and average price depending on the time of year. For example, during wedding season, you may see an increase in transactions and average price as people purchase ties for special events.
- Fashion Trends: The fashion industry is constantly changing, and as a tie shop owner, you must stay up-to-date with the latest trends to remain competitive. If a certain style or color of tie becomes popular, you may see an increase in both the number of monthly transactions and average price.
- Competition: The presence of other tie shops in your area can also affect your business's average price and number of monthly transactions. If you have a lot of competition, you may need to adjust your prices or offer promotions to attract customers.
- Economic Factors: Economic conditions, such as a recession or a booming economy, can also impact your business's sales forecast. During a recession, customers may be more price-conscious and purchase fewer ties, while during a booming economy, they may be more willing to spend and purchase higher-priced ties.
- Customer Demographics: Your target market can also influence your sales forecast. For example, if your tie shop caters to a younger demographic, you may see an increase in monthly transactions during back-to-school season as students purchase ties for job interviews or internships.
After the sales forecast comes the operating expenses budget, which we will now look into in more detail.
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The operating expenses for a tie shop
The next step is to estimate the expenses needed to run your tie shop on a day-to-day basis.
These will vary based on the level of sales expected, and the location and size of your business.
But your tie shop's operating expenses should include the following items at a minimum:
- Staff Costs: This includes the salaries and wages for all employees working in your tie shop, including sales staff, tailors, and administrative staff.
- Rent: This is the cost of leasing or renting the physical space for your tie shop. It may also include utilities such as electricity and water.
- Inventory: This includes the cost of purchasing the ties and other accessories that you sell in your shop.
- Marketing and Advertising: This includes the cost of promoting your tie shop, such as creating advertisements, printing flyers, and hosting events.
- Accountancy Fees: You may need to hire an accountant to help you keep track of your financial records and file taxes for your tie shop.
- Insurance Costs: It is important to have insurance to protect your tie shop from any unexpected events, such as theft or natural disasters.
- Software Licences: You may need to purchase software to help you manage your inventory, sales, and other aspects of your tie shop.
- Banking Fees: This includes any fees associated with maintaining a business bank account, such as transaction fees or monthly maintenance fees.
- Supplies: This includes the cost of purchasing office supplies, packaging materials, and other items necessary for running your tie shop.
- Professional Services: You may need to hire professionals, such as lawyers or consultants, to help you with legal or business matters related to your tie shop.
- Training and Development: It is important to invest in the training and development of your employees to ensure they have the necessary skills and knowledge to provide excellent customer service.
- Maintenance and Repairs: This includes the cost of keeping your tie shop in good condition, such as repairing equipment or fixing any damages to the physical space.
- Credit Card Processing Fees: If you accept credit card payments in your tie shop, you may need to pay fees to the credit card company for each transaction.
- Taxes: You will need to pay taxes on your tie shop's profits, so it is important to budget for this expense.
- Employee Benefits: This includes any benefits you provide to your employees, such as health insurance or retirement plans.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small tie shop might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow a tie shop?
Once you have an idea of how much sales you could achieve and what it will cost to run your tie shop, it is time to look into the equipment required to launch or expand the activity.
For a tie shop, capital expenditures and initial working capital items could include:
Again, this list will need to be adjusted according to the specificities of your tie 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 tie shop
The next step in the creation of your financial forecast for your tie 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 tie shop?
Now let's have a look at the main output tables of your tie shop's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your tie shop is likely to be in the years to come.
For your tie 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 tie 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 tie 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 tie 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 projected cash flow statement
A projected cash flow statement for a tie 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 tie 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 tie 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 tie shop's financial forecast?
Using the right tool or solution will make the creation of your tie shop's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your tie shop'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
Enlisting the help of a consultant or accountant is also a good way to obtain a professional tie 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 tie shop'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 tie shop 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 tie shop'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 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 tie 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 tie shop
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 tie shop 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 tie shop, 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 create a sales forecast for a business?
- Example of financial forecast for business idea
Know someone who owns or is thinking of starting a tie shop? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
