How to create a financial forecast for an auto repair shop?
Creating a financial forecast for your auto repair 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 auto repair 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 an auto repair shop?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your auto repair shop and ensure that it can be financially viable in the years to come.
A financial plan for an auto repair 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 auto repair 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 auto repair 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.
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 auto repair shop financial forecast?
A auto repair 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 auto repair shop.
If you are creating (or updating) the forecast of an existing auto repair 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 auto repair 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 auto repair 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 auto repair shop's financial forecast.
The sales forecast for an auto repair shop
From experience, it is usually best to start creating your auto repair shop financial forecast by your sales forecast.
To create an accurate sales forecast for your auto repair shop, you will have to rely on the data collected in your market research, or if you're running an existing auto repair 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:
- The age of the vehicles in your area: The average age of vehicles in your area can affect the demand for your auto repair services. If the vehicles in your area are older, they may require more frequent repairs, leading to higher transaction numbers and potentially higher prices. On the other hand, if the vehicles in your area are newer, they may require fewer repairs, resulting in lower transaction numbers and possibly lower prices.
- The availability of public transportation: The availability of public transportation in your area can also impact the demand for your services. If public transportation is limited or unreliable, more people may rely on their personal vehicles, leading to higher transaction numbers. However, if public transportation is readily available and convenient, fewer people may need to use their personal vehicles, resulting in lower transaction numbers.
- The economic climate: The state of the economy can greatly affect the average price and number of monthly transactions for your auto repair shop. During a recession, people may delay or avoid vehicle repairs to save money, resulting in lower transaction numbers. In contrast, during a strong economy, people may be more willing to spend money on vehicle repairs, leading to higher transaction numbers and potentially higher prices.
- Seasonal changes: Seasonal changes, such as extreme weather conditions or holiday travel, can also impact your sales forecast. For example, during the winter, harsh weather conditions may lead to more accidents and therefore, higher transaction numbers. However, during the summer, many people may be traveling, resulting in lower transaction numbers.
- The availability of competitors: The number and type of competitors in your area can affect your average price and number of monthly transactions. If there are many other auto repair shops in your area, you may need to offer competitive prices to attract customers. On the other hand, if you are the only repair shop in the area, you may be able to charge higher prices and potentially have higher transaction numbers.
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 auto repair shop
The next step is to estimate the costs you’ll have to incur to operate your auto repair shop.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your auto repair shop's operating expenses should normally include the following items:
- Staff costs: This includes the salaries and wages of your auto repair technicians, mechanics, and other employees.
- Accountancy fees: You may need to hire an accountant to help with bookkeeping, tax preparation, and other financial tasks for your auto repair shop.
- Insurance costs: As an auto repair shop, you will need insurance to protect your business from liability, property damage, and other unforeseen events.
- Software licenses: You may need to purchase software programs specifically designed for auto repair shops, such as inventory management or customer management systems.
- Banking fees: To manage your finances, you will likely have to pay for services such as checking accounts, credit card processing, and merchant fees.
- Rent or lease: If you do not own the building where your shop is located, you will need to pay rent or lease fees.
- Utilities: This includes electricity, water, and gas for your shop.
- Marketing and advertising: To attract customers, you may need to spend money on advertising and marketing efforts, such as online ads or flyers.
- Vehicle maintenance: As an auto repair shop, you may have company vehicles that need regular maintenance and repairs, such as oil changes and tire rotations.
- Supplies and materials: You will need to purchase supplies and materials for your shop, such as oil, filters, and other parts for repairs.
- Equipment rental: If you do not own all the necessary equipment for your shop, you may need to rent or lease it.
- Training and certifications: To stay up-to-date with the latest technology and techniques, your staff may need training and certifications, which can be costly.
- Taxes and licenses: You will need to pay taxes and obtain necessary licenses and permits to operate your auto repair shop legally.
- Office supplies: You will need to purchase office supplies, such as paper, pens, and printer ink, for administrative tasks.
- Uniforms and protective gear: You may need to provide uniforms and protective gear, such as gloves and safety glasses, for your employees.
This list is not exhaustive by any means, and will need to be tailored to your auto repair shop's specific circumstances.
What investments are needed to start or grow an auto repair shop?
Once you have an idea of how much sales you could achieve and what it will cost to run your auto repair shop, it is time to look into the equipment required to launch or expand the activity.
For an auto repair shop, capital expenditures and initial working capital items could include:
- Equipment: This includes all the necessary tools and machinery needed to perform auto repair services such as lifts, diagnostic equipment, and specialized tools. These are essential fixed assets for an auto repair shop and should be included in your expenditure forecast.
- Facility improvements: This includes any renovations or upgrades needed for your repair shop, such as electrical work, plumbing, or HVAC systems. It's important to factor in these costs as they are crucial for creating a safe and efficient workspace for your staff and customers.
- Fleet vehicles: If you plan on offering mobile repair services or need to transport vehicles to and from your shop, you may need to purchase or lease fleet vehicles. These are considered fixed assets and should be included in your expenditure forecast.
- Computer systems: An auto repair shop relies heavily on computer systems for invoicing, inventory management, and other administrative tasks. It's important to budget for the purchase and maintenance of computers, software, and other technology needed to run your shop efficiently.
- Furniture and fixtures: This includes items such as desks, chairs, waiting room furniture, and other necessary fixtures for your shop. These may seem like smaller expenses, but they add up and should be included in your expenditure forecast.
Again, this list will need to be adjusted according to the specificities of your auto repair 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 auto repair shop
The next step in the creation of your financial forecast for your auto repair 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 auto repair shop?
Now let's have a look at the main output tables of your auto repair shop'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 auto repair shop'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 auto repair shop will look different than for a startup.
The projected balance sheet
Your auto repair 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 projected cash flow statement
A projected cash flow statement for an auto repair 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 auto repair 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 auto repair 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 auto repair shop's financial forecast?
Using the right tool or solution will make the creation of your auto repair shop's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial projection software to build your auto repair 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.
Calling in a financial consultant or chartered accountant
Outsourcing the creation of your auto repair shop financial forecast is another possible solution.
This will cost more than using software as you can expect as your price will have to cover the accountant’s time, software cost, and profit margin.
Price can vary greatly based on the complexity of your business. For a small business, from experience, a simple three-year financial forecast (including a balance sheet, income statement, and cash flow statement) will start at around £700 or $1,000.
Bear in mind that this is for forecasts produced at a single point in time, updating or tracking your forecast against actuals will cost extra.
If you decide to outsource your forecasting:
- Make sure the professional has direct experience in your industry and is able to challenge your assumptions constructively.
- Steer away from consultants using sectorial ratios to build their client’s financial forecasts (these projections are worthless for a small business).
Why not use a spreadsheet such as Excel or Google Sheets to build your auto repair shop's financial forecast?
Creating an accurate and error-free auto repair 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 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 auto repair shop.
- 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 auto repair shop. 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
- Financial forecast example
- How to create a sales forecast for a business?
- Financial forecast for a business idea
Know someone who runs an auto repair shop? Share our business guide with them!
Founder & CEO at The Business Plan Shop Ltd
