How to create a financial forecast for an art gallery?
Creating a financial forecast for your art gallery, 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 art gallery 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 an art gallery?
The financial projections for your art gallery 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 art gallery'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.
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What information is needed to build an art gallery 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 an art gallery, 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 art gallery 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 art gallery, 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 art gallery's financial forecast.
The sales forecast for an art gallery
The sales forecast, also called topline projection, is normally where you will start when building your art gallery 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 art galleries), and consider the elements below:
- Local Events: Keep an eye on upcoming local events such as art festivals, fairs, and exhibitions that may attract potential buyers to your gallery. If there are multiple events happening at the same time, it may affect the average price of your artwork as buyers have more options to choose from.
- Economy: Changes in the economy, such as a recession or a booming economy, can greatly impact the art market. In a downturn, buyers may be more hesitant to make big purchases, whereas in a thriving economy, they may be more willing to spend on luxury items such as art.
- Tourism: If your gallery is located in a tourist destination, the number of monthly transactions may be affected by the influx of tourists. During peak tourist seasons, you may see an increase in transactions as tourists are more likely to purchase souvenirs and artwork to bring back home.
- Trends: Keep an eye on current art trends and styles that may be popular among buyers. If a certain style or artist becomes trendy, it may affect the average price of your artwork and attract more buyers to your gallery.
- Competition: The number of art galleries in your area and their pricing strategies can also affect your average price and number of transactions. Keep an eye on your competitors and their offerings to stay competitive in the market.
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 an art gallery
The next step is to estimate the expenses needed to run your art gallery 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 art gallery's operating expenses should include the following items at a minimum:
- Staff costs: This includes salaries, wages, and benefits for all staff members, including curators, gallery assistants, and administrative staff.
- Accountancy fees: Hiring an accountant is essential for managing your gallery's financial records, tax filings, and budgeting.
- Insurance costs: You will need to purchase insurance to protect your gallery's assets, artwork, and liability.
- Software licenses: To keep your gallery running smoothly, you may need to invest in software for managing inventory, sales, and customer relationships.
- Banking fees: You will incur fees for bank account maintenance, credit card processing, and other banking services.
- Rent: Your gallery's location is crucial for attracting visitors, but it also comes with a cost. Rent may vary depending on the size and location of your space.
- Utilities: Electricity, water, and other utility expenses are necessary for keeping your gallery open and running.
- Marketing and advertising: To promote your gallery and attract visitors, you may need to invest in advertising, social media, and other marketing efforts.
- Professional fees: You may need to hire lawyers, consultants, or other professionals for legal, HR, or other specialized services.
- Supplies and materials: These include art supplies, office supplies, and other materials needed for running and maintaining your gallery.
- Travel expenses: If you plan to attend art fairs, exhibitions, or other events, you will need to budget for travel expenses such as flights, accommodation, and transportation.
- Repairs and maintenance: Maintaining your gallery's physical space, including cleaning, repairs, and maintenance, is essential for creating a welcoming and professional environment.
- Security: Protecting your valuable artwork and assets may require investing in security measures, such as alarms, cameras, and insurance.
- Professional development: As a gallery owner, you may need to attend conferences, workshops, or other events to stay updated on industry trends and network with other professionals.
- Taxes and licenses: You will need to budget for taxes, permits, and licenses required to operate your gallery legally.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small art gallery might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow an art gallery?
Your art gallery 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 an art gallery, these could include:
- Art Inventory: This includes purchasing or acquiring new works of art to display in your gallery. This can also include the cost of shipping and handling the artworks.
- Gallery Renovation: Updating or renovating your gallery space to improve its overall appearance and functionality. This can include costs for new flooring, lighting, paint, and fixtures.
- Technology and Equipment: Investing in technology and equipment to enhance the gallery experience for visitors, such as digital displays, projectors, and sound systems.
- Furniture and Display Cases: Purchasing new furniture and display cases to showcase and protect the artworks in your gallery.
- Security Systems: Installing security systems, such as cameras and alarms, to protect your valuable artworks from theft or damage.
Again, this list will need to be adjusted according to the size and ambitions of your art gallery.
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 art gallery
The next step in the creation of your financial forecast for your art gallery 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 an art gallery?
Now let's have a look at the main output tables of your art gallery's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your art gallery's expected growth and profitability over the next three to five years.
A financially viable P&L statement for an art gallery 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
The projected balance sheet gives an overview of your art gallery'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 art gallery. 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 forecast
Your art gallery'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 art gallery:
- 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 art gallery'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 art gallery'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 art gallery's financial forecast?
Creating your art gallery'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 art gallery'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 art gallery 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 art gallery's financial forecast?
Creating an accurate and error-free art gallery 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 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 forecast shows expected growth, profitability, and cash generation metrics for your art gallery.
- Tracking actuals vs. forecast and having an up-to-date financial forecast is key to maintaining visibility on your future cash flows.
- Using financial forecasting software is the modern way of creating and maintaining financial projections.
We hope that this guide helped you gain a clearer perspective on the steps needed to create the financial forecast for an art gallery. Don't hesitate to contact us if you 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
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- Sample financial forecast for business idea
- How to create a turnover forecast for a business?
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Founder & CEO at The Business Plan Shop Ltd
