How to create a financial forecast for a video rental store?
Creating a financial forecast for your video rental store, 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 video rental store 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 video rental store?
The financial projections for your video rental store 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 video rental store'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 video rental store financial forecast?
A video rental store'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 video rental store.
If you are creating (or updating) the forecast of an existing video rental store, 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 video rental store 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 video rental store 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 video rental store's financial forecast.
The sales forecast for a video rental store
From experience, it usually makes sense to start your video rental store's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your video rental store (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 video rental store'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 popularity of streaming services, such as Netflix and Hulu, may affect the average price and number of monthly transactions for your video rental store. As more customers turn to streaming options, your store may see a decrease in both average price and transactions.
- Economic downturns in the local area can also directly impact your store's average price and number of monthly transactions. During times of financial struggle, customers may be less likely to spend money on entertainment, leading to a decrease in transactions and a need to lower prices to remain competitive.
- The release of highly anticipated movies can have a significant impact on your store's sales forecast. A blockbuster hit with high demand can lead to an increase in average price and transactions as customers rush to rent the latest release.
- Changes in technology can also affect your store's average price and number of monthly transactions. For instance, the adoption of new video formats or devices may require you to update your inventory, which could lead to a temporary decrease in average price as customers adjust to the changes.
- The location of your video rental store can also play a role in your sales forecast. If you are located in a heavily populated area with high foot traffic, you may see an increase in both average price and transactions. On the other hand, if your store is located in a less busy area, you may need to adjust your prices and marketing strategies to attract more customers.
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 video rental store
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your video rental store 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 video rental store will include some of the following items:
- Staff Costs: This includes salaries, wages, and benefits for all employees, including store clerks, managers, and maintenance staff.
- Rent: This is the cost of leasing or renting the physical space for the store.
- Inventory Costs: This includes the cost of purchasing new DVDs, Blu-rays, and other rental items for your store.
- Utilities: This includes electricity, water, and gas bills for the store.
- Accountancy Fees: This is the cost of hiring an accountant or bookkeeper to manage your store's financial records and taxes.
- Marketing and Advertising: This includes the cost of promoting your store through flyers, ads, and other marketing materials.
- Insurance: This covers the cost of insuring your store against potential risks and liabilities.
- Software Licenses: This includes the cost of purchasing and maintaining software for managing inventory, sales, and customer data.
- Banking Fees: This includes fees for using bank services, such as ATM withdrawals and credit card processing.
- Maintenance and Repairs: This covers the cost of repairing and maintaining equipment and fixtures in the store, such as shelves and cash registers.
- Cleaning Supplies: This includes the cost of purchasing cleaning supplies for the store, such as mops, brooms, and cleaning solutions.
- Security: This includes the cost of installing and maintaining security systems and hiring security personnel for the store.
- Legal Fees: This includes the cost of hiring a lawyer for legal advice and assistance with any legal issues that may arise.
- Office Supplies: This includes the cost of purchasing office supplies, such as paper, pens, and printer ink, for the store.
- Credit Card Processing Fees: This includes fees for processing credit card payments from customers.
This list will need to be tailored to the specificities of your video rental store, but should offer a good starting point for your budget.
What investments are needed to start or grow a video rental store?
Your video rental store 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 video rental store, these could include:
- Store fixtures and equipment: This includes items such as shelves, display racks, cash registers, and computers that are necessary for running a video rental store.
- Inventory: Video rental stores need to purchase DVDs, Blu-rays, and other media to stock their shelves. This can be a significant expense, especially for new releases.
- Furniture: In addition to store fixtures, you may also need to purchase furniture such as chairs and tables for customers to sit and browse through movies.
- Renovations or leasehold improvements: Depending on the condition of the space you are renting, you may need to make renovations or improvements to create a suitable environment for a video rental store.
- Security system: To protect your inventory and equipment, you may need to invest in a security system, such as cameras and alarms.
Again, this list will need to be adjusted according to the size and ambitions of your video rental store.
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 video rental store
The next step in the creation of your financial forecast for your video rental store 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 video rental store?
Now let's have a look at the main output tables of your video rental store'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 video rental store'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 video rental store will look different than for a startup.
The projected balance sheet
The projected balance sheet gives an overview of your video rental store'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 video rental store. 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 cash flow projection
The cash flow forecast of your video rental store 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 video rental store'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 video rental store 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 video rental store'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 video rental store's financial projections?
Building a video rental store financial forecast is not difficult provided that you use the right tool for the job. Let’s see what options are available below.
Using online financial projection software to build your video rental store's forecast
The modern and easiest way to build a forecast is to use professional financial projection 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.
Hiring a financial consultant or chartered accountant
Hiring a consultant or chartered accountant is also an efficient way to get a professional video rental store financial projection.
As you can imagine, this solution is much more expensive than using software. From experience, the creation of a simple financial forecast over three years (including a balance sheet, income statement, and cash flow statement) is likely to start around £700 or $1,000 excluding taxes.
The indicative estimate above, is for a small business, and a forecast done as a one-off. Using a financial consultant or accountant to track your actuals vs. forecast and to keep your financial forecast up to date on a monthly or quarterly basis will naturally cost a lot more.
If you choose this solution, make sure your service provider has first-hand experience in your industry, so that they may challenge your assumptions and offer insights (as opposed to just taking your figures at face value to create the forecast’s financial statements).
Why not use a spreadsheet such as Excel or Google Sheets to build your video rental store's financial forecast?
Creating an accurate and error-free video rental store 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 video rental store, 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 video rental store
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 video rental store.
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 video rental store. 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?
- Financial forecast template for a business idea
Know someone who runs or wants to start a video rental store? Share our financial projection guide with them!
Founder & CEO at The Business Plan Shop Ltd
