How to create a financial forecast for an arts and crafts shop?
Developing and maintaining an up-to-date financial forecast for your arts and crafts shop is key in order to maintain visibility on your business’s future cash flows.
If you feel overwhelmed at the thought of putting together an arts and crafts shop 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 an arts and crafts shop?
The financial projections for your arts and crafts shop 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 arts and crafts shop'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 an arts and crafts shop financial forecast?
A arts and crafts shop'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 arts and crafts shop.
If you are creating (or updating) the forecast of an existing arts and crafts shop, 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 arts and crafts shop 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 arts and crafts shop 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 arts and crafts shop's financial forecast.
The sales forecast for an arts and crafts shop
From experience, it is usually best to start creating your arts and crafts shop financial forecast by your sales forecast.
To create an accurate sales forecast for your arts and crafts shop, you will have to rely on the data collected in your market research, or if you're running an existing arts and crafts shop, 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:
- Your shop's location: The location of your shop can greatly affect the average price and number of monthly transactions. If your shop is located in a popular tourist destination, you may be able to charge higher prices and see an increase in transactions during peak tourist seasons.
- The popularity of certain crafts: Keep an eye on current trends and popular crafts in the market. If a certain craft becomes popular, you may be able to charge higher prices and see an increase in transactions for related supplies.
- Seasonal demand: Some crafts may be more popular during certain seasons, such as holiday decorations or summer outdoor activities. Take into account the seasonal demand for certain crafts when forecasting your sales.
- Competition: Keep an eye on your competitors' prices and products. If they are offering similar products at lower prices, you may need to adjust your prices to stay competitive and maintain your number of monthly transactions.
- Economic factors: Economic factors such as inflation and consumer spending can also affect your average price and number of monthly transactions. During times of economic uncertainty, consumers may be more cautious with their spending and you may need to adjust your prices accordingly.
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.
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 an arts and crafts shop
The next step is to estimate the costs you’ll have to incur to operate your arts and crafts shop.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your arts and crafts shop's operating expenses should normally include the following items:
- Rent: This is the cost of renting the physical space for your arts and crafts shop. It can include utilities such as electricity and water.
- Inventory: You will need to purchase supplies and materials for your shop, which will be an ongoing expense.
- Staff Wages: If you have employees, you will need to budget for their salaries and any other benefits.
- Marketing and Advertising: You will need to promote your shop and products, which can include expenses such as printing flyers, social media ads, and sponsoring local events.
- Accountancy Fees: It is important to keep track of your finances and taxes, so hiring an accountant or bookkeeper can be a necessary expense.
- Insurance: To protect your shop and its contents, you will need to purchase business insurance.
- Software Licences: If you use any specialized software for your shop, such as design or inventory management software, you will need to pay for licenses.
- Banking Fees: This includes fees for maintaining a business bank account, processing credit card payments, and other financial transactions associated with your shop.
- Shipping and Delivery Costs: If you offer online sales or ship products to customers, you will need to budget for shipping and delivery costs.
- Office Supplies: This includes items such as printer ink, paper, pens, and other supplies needed for day-to-day operations.
- Maintenance and Repairs: You will need to budget for any repairs or maintenance needed for your shop, such as fixing equipment or replacing damaged displays.
- Professional Memberships and Subscriptions: If you belong to any arts and crafts organizations or subscribe to trade magazines, you will need to include these expenses in your budget.
- Training and Development: To stay updated on new techniques and trends in the arts and crafts industry, you may need to attend workshops or conferences, which can be an operating expense.
- Credit Card Processing Fees: If you accept credit card payments, you will need to factor in the fees associated with each transaction.
- Taxes and Licenses: Your shop will need to pay taxes and obtain any necessary licenses or permits to operate legally.
This list is not exhaustive by any means, and will need to be tailored to your arts and crafts shop's specific circumstances.
What investments are needed to start or grow an arts and crafts shop?
Your arts and crafts shop 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 arts and crafts shop, these could include:
- Inventory: This includes the initial purchase of all the arts and crafts supplies and materials that you will sell in your shop. This can range from paint and brushes to yarn and needles, depending on the type of crafts you intend to sell.
- Equipment: This includes any necessary equipment for your shop, such as display shelves, tables, cash registers, and packaging supplies. You may also need equipment for creating your own products, such as a sewing machine or pottery wheel.
- Furniture and Fixtures: This includes items such as chairs, tables, and lighting fixtures for your shop. It also includes any necessary renovations or repairs to the physical space, such as painting or installing new flooring.
- Point of Sale (POS) System: This is the electronic system that allows you to process sales, manage inventory, and track customer purchases. It may include a cash register, barcode scanner, and software.
- Signage and Branding: This includes the cost of designing and creating signs, logos, and other branding materials for your shop. This is important for creating a cohesive and attractive brand for your business.
Again, this list will need to be adjusted according to the size and ambitions of your arts and crafts 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 arts and crafts shop
The next step in the creation of your financial forecast for your arts and crafts 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 an arts and crafts shop?
Now let's have a look at the main output tables of your arts and crafts shop's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your arts and crafts shop's expected growth and profitability over the next three to five years.
A financially viable P&L statement for an arts and crafts shop 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 arts and crafts shop's projected balance sheet provides a snapshot of your business’s financial position at year-end.
It is composed of three types of elements: assets, liabilities and equity:
- Assets: represent what the business possesses including cash, equipment, and accounts receivable (money owed by clients).
- Liabilities: represent funds advanced to the business by lenders and other creditors. They include accounts payable (money owed to suppliers), taxes payable and loans from banks and financial institutions.
- 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 arts and crafts shop 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 arts and crafts shop'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 arts and crafts shop 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 arts and crafts shop'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 arts and crafts shop's financial projections?
Building an arts and crafts shop 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 arts and crafts shop'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 arts and crafts shop 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 arts and crafts shop's financial forecast?
Creating an accurate and error-free arts and crafts shop 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 arts and crafts shop, 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 arts and crafts shop.
You have reached the end of our guide. We hope you now have a better understanding of how to create a financial forecast for an arts and crafts shop. 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 for a business idea
Know someone who runs or wants to start an arts and crafts shop? Share our financial projection guide with them!
Founder & CEO at The Business Plan Shop Ltd
