How to create a financial forecast for a trade publishing firm?
Developing and maintaining an up-to-date financial forecast for your trade publishing firm 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 trade publishing firm 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 trade publishing firm?
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 trade publishing firm becomes handy.
Creating a trade publishing firm 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 trade publishing firm.
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 trade publishing firm 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 trade publishing firm'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 needed to build a trade publishing firm financial forecast?
The quality of your inputs is key when it comes to financial modelling: no matter how good the model is, if your inputs are off, so will the forecast.
If you are building a financial plan to start a trade publishing firm, you will need to have done your market research and have a clear picture of your sales and marketing strategies so that you can project revenues with confidence.
You will also need to have a clear idea of what resources will be required to operate the trade publishing firm on a daily basis, and to have done your research with regard to the equipment needed to launch your venture (see further down this guide).
If you are creating a financial forecast of an existing trade publishing firm, things are usually simpler as you will be able to use your historical accounting data as a budgeting base, and complement that with your team’s view on what lies ahead for the years to come.
Let's now zoom in on what will go in your trade publishing firm's financial forecast.
The sales forecast for a trade publishing firm
The sales forecast, also called topline projection, is normally where you will start when building your trade publishing firm 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 trade publishing firms), and consider the elements below:
- Competition: The level of competition in the publishing industry can greatly affect the average price and number of transactions for a trade publishing firm. If there are many other publishers producing similar books, you may need to lower your prices to stay competitive and attract more transactions.
- Economy: Economic conditions can have a significant impact on the sales of trade books. During times of economic downturn, people may be less likely to spend money on non-essential items such as books, leading to a decrease in both your average price and number of transactions.
- Genre Trends: The popularity of certain book genres can also affect your sales forecast. If a particular genre is currently trending, you may see an increase in both your average price and number of transactions for books in that genre.
- Author Reputation: The reputation of an author can also have an impact on your sales forecast. A well-known and highly regarded author may be able to command higher prices for their books, leading to an increase in your average price.
- Technology: Advancements in technology, such as the rise of e-books and audiobooks, can also affect the sales forecast for a trade publishing firm. If more readers are choosing to purchase digital versions of books, this may lead to a decrease in your average price but an increase in the number of transactions.
After the sales forecast comes the operating expenses budget, which we will now look into in more detail.
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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 trade publishing firm
The next step is to estimate the costs you’ll have to incur to operate your trade publishing firm.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your trade publishing firm's operating expenses should normally include the following items:
- Staff costs: This includes salaries, benefits, and payroll taxes for all employees, including editorial staff, marketing staff, and administrative staff.
- Accountancy fees: These are fees paid to a professional accountant or accounting firm for services such as tax preparation, financial reporting, and budgeting.
- Insurance costs: This includes both general liability insurance and professional liability insurance to protect the company and its employees from potential legal claims.
- Software licenses: Trade publishing firms often use specialized software for tasks such as editing, layout design, and distribution tracking. These software licenses come with annual or monthly fees.
- Banking fees: This includes fees for maintaining a business bank account, wire transfer fees, and credit card processing fees.
- Printing and production costs: This covers the cost of printing physical copies of books and any associated production costs, such as binding and packaging.
- Marketing and advertising expenses: This includes costs for promoting books through advertising, book fairs, and other marketing channels.
- Distribution fees: Trade publishing firms often use third-party distributors to get their books into bookstores and online retailers. These distributors charge fees for their services.
- Royalty payments: This refers to the payments made to authors for the rights to publish their books. These payments are typically a percentage of the book's sales.
- Rent and utilities: This includes the cost of renting office space and utilities such as electricity, water, and internet.
- Travel and entertainment expenses: These are costs associated with business travel, such as airfare, lodging, and meals, as well as expenses for client meetings and events.
- Professional development and training: Trade publishing firms may invest in training and professional development for their employees to improve their skills and knowledge in the industry.
- Legal fees: This includes fees for legal services, such as contracts, copyright protection, and any legal disputes or issues that may arise.
- Office supplies and equipment: This covers the cost of office supplies, such as paper, ink, and toner, as well as any necessary equipment, such as computers and printers.
- Office maintenance and cleaning: This includes the cost of keeping the office space clean and maintained, such as janitorial services and repairs.
This list is not exhaustive by any means, and will need to be tailored to your trade publishing firm's specific circumstances.
What investments are needed to start or grow a trade publishing firm?
Your trade publishing firm 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 trade publishing firm, these could include:
- Printing press: As a trade publishing firm, you will need to invest in a high-quality printing press to produce physical copies of your books. This is a significant capital expenditure that will enable you to print books in-house and control the quality and timing of production.
- Computers and software: In today's digital age, technology is crucial for a trade publishing firm. You will need to invest in computers and software for various tasks such as editing, typesetting, and design. These are essential tools for creating and producing books.
- Distribution equipment: To effectively distribute your books to bookstores and other retailers, you will need to invest in distribution equipment. This can include items like forklifts, pallet jacks, and storage shelves to store and transport your books.
- Office furniture and equipment: As a publishing firm, you will need a well-equipped office space to carry out daily operations. This can include desks, chairs, filing cabinets, and other office equipment. These are necessary fixed assets that will enable you to run your business efficiently.
- Inventory: As a trade publishing firm, you will need to invest in inventory to store your books and other materials. This can include purchasing physical copies of your books, as well as materials for marketing and promotions, such as bookmarks and posters.
Again, this list will need to be adjusted according to the size and ambitions of your trade publishing firm.
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 trade publishing firm
The next step in the creation of your financial forecast for your trade publishing firm 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 trade publishing firm?
Now let's have a look at the main output tables of your trade publishing firm's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your trade publishing firm is likely to be in the years to come.
For your trade publishing firm 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 trade publishing firms, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.
The projected balance sheet
Your trade publishing firm'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 forecast
Your trade publishing firm'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 trade publishing firm:
- 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 trade publishing firm'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 trade publishing firm'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 trade publishing firm's financial forecast?
Using the right tool or solution will make the creation of your trade publishing firm's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your trade publishing firm'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 trade publishing firm 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 trade publishing firm's financial forecast?
Creating an accurate and error-free trade publishing firm financial forecast on Excel (or any spreadsheet) is very technical and requires both a strong grasp of accounting principles and solid skills in financial modelling.
Most entrepreneurs lack the expertise required to create an accurate financial forecast using spreadsheet software like Excel or Google Sheets. As a result, it is unlikely anyone will trust your numbers.
The second reason is that it is inefficient. Building forecasts on spreadsheets was the only option in the 1990s and early 2000s, nowadays technology has advanced and software can do it much faster and much more accurately.
This is why professional forecasters all use software. With the rise of AI, software is also becoming smarter at helping us detect mistakes in our forecasts and helping us analyse the numbers to make better decisions.
Finally, like everything with spreadsheets, tracking actuals vs. forecasts and updating your forecast as the year progresses is manual, tedious, error-prone, and time-consuming. Whereas financial forecasting 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 trade publishing firm, 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 trade publishing firm.
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 trade publishing firm. 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 sales for a business?
- Example of financial forecast for business idea
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Founder & CEO at The Business Plan Shop Ltd
