How to create a financial forecast for an escape room?
Creating a financial forecast for your escape room, 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 escape room 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 escape room?
The financial projections for your escape room 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 escape room'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 escape room financial forecast?
A escape room's financial forecast is only as good as the inputs used to build it.
If you are creating (or updating) the forecast of an existing escape room, then you mostly need your accounting information, key historical operating non-financial data, and your team’s input on what to expect for the coming years.
If you are building financial projections for an escape room startup, you will need to have done your research and have a clear picture of your competitive environment and go-to-market strategy so that you can forecast sales accurately.
For a new venture, you will also need a precise list of the resources needed to keep the escape room running on a day-to-day basis and a list of the equipment and expenditures required to start the business (more on that later).
Let's now take a closer look at the elements that make up your escape room's financial forecast.
The sales forecast for an escape room
From experience, it is usually best to start creating your escape room financial forecast by your sales forecast.
To create an accurate sales forecast for your escape room, you will have to rely on the data collected in your market research, or if you're running an existing escape room, 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:
- Seasonal demand: As an escape room owner, you may notice a fluctuation in the average price and number of monthly transactions depending on the season. For example, during summer months when school is out and families are on vacation, you may see an increase in demand and be able to charge a higher price. On the other hand, during slower seasons such as winter when people are less likely to go out, you may need to lower your prices to attract customers.
- Competition: The presence of other escape rooms in your area can also affect your average price and number of monthly transactions. If you are the only escape room in town, you may be able to charge a higher price and have more transactions. However, if there are multiple escape rooms competing for the same customers, you may need to lower your prices to remain competitive and attract more business.
- Repeat customers: Building a loyal customer base can greatly impact your sales forecast. If you are able to provide a high-quality and enjoyable experience, you may see an increase in repeat customers. These customers are more likely to pay a higher price and may also bring in new customers through word-of-mouth recommendations.
- Location: The location of your escape room can also play a role in your sales forecast. If you are located in a popular tourist destination or in a busy city center, you may be able to charge a higher price and have more monthly transactions. However, if your escape room is in a less desirable location, you may need to adjust your prices accordingly.
- Special events/promotions: Offering special events or promotions can also impact your average price and number of monthly transactions. For example, hosting a themed escape room for a holiday or offering a discount for large groups can attract more customers and increase your sales for that month.
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 escape room
The next step is to estimate the costs you’ll have to incur to operate your escape room.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your escape room's operating expenses should normally include the following items:
- Staff costs: This includes salaries, wages, and benefits for your escape room staff. You will need to consider the number of employees you will have and their hourly rates or salaries.
- Accountancy fees: You may need to hire an accountant to help you manage your finances and taxes. They can assist with bookkeeping, tax preparation, and financial planning for your escape room business.
- Insurance costs: It is important to have insurance coverage for your escape room to protect against any accidents or liabilities that may occur.
- Software licenses: You will need to purchase software licenses for any technology or software that you use in your escape room, such as booking systems or virtual reality equipment.
- Banking fees: There may be fees associated with setting up a business bank account or for processing credit card payments for your escape room.
- Rent: You will need to pay for the space where your escape room is located. This may include monthly rent, utilities, and maintenance fees.
- Marketing and advertising: To attract customers to your escape room, you will need to spend money on marketing and advertising efforts such as social media ads, flyers, and event sponsorships.
- Supplies and materials: This includes any props, puzzles, or other materials that you will need to purchase and replace for your escape room.
- Utilities: You will need to pay for utilities such as electricity, water, and internet for your escape room.
- Repairs and maintenance: As with any business, unexpected repairs and maintenance may arise for your escape room. It is important to budget for these expenses.
- Credit card processing fees: If you accept credit card payments for bookings, you will need to account for the fees associated with each transaction.
- Professional services: This may include hiring lawyers, consultants, or other professionals for legal or advisory services related to your escape room business.
- Cleaning and janitorial services: It is important to keep your escape room clean and well-maintained for customers. You may need to hire a cleaning or janitorial service to help with this.
- Entertainment and event costs: You may want to host special events or offer additional entertainment options in your escape room, which will require additional expenses.
- Taxes and fees: Don't forget to budget for taxes and any other fees associated with running your escape room business.
This list is not exhaustive by any means, and will need to be tailored to your escape room's specific circumstances.
What investments are needed to start or grow an escape room?
Your escape room 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 escape room, these could include:
- Escape Room Props and Decorations: This includes any items used to enhance the atmosphere and overall experience of the escape room. Examples may include furniture, lighting, sound effects, and other thematic elements.
- Puzzles and Challenges: These are the heart of the escape room, and it's important to invest in high-quality and engaging puzzles and challenges. This may include items such as locks, sensors, electronic components, and other props specific to the puzzles.
- Technology and Audiovisual Equipment: Depending on the theme and complexity of the escape room, you may need to invest in technology and audiovisual equipment to enhance the overall experience. This may include projectors, screens, sound systems, and other equipment.
- Escape Room Construction and Renovation: If you are building a new escape room or renovating an existing space, this may be a major capital expenditure. This includes materials, labor, and other costs associated with creating a physical space for the escape room.
- Security Systems and Surveillance Equipment: It's important to ensure the safety and security of your escape room, both for your customers and your business. This may include security cameras, alarms, and other surveillance equipment.
Again, this list will need to be adjusted according to the size and ambitions of your escape room.
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 escape room
The next step in the creation of your financial forecast for your escape room 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 escape room?
Now let's have a look at the main output tables of your escape room's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your escape room is likely to be in the years to come.
For your escape room 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 escape rooms, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.
The projected balance sheet
Your escape room'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 projected cash flow statement
A projected cash flow statement for an escape room 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 escape room'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 escape room 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 escape room's financial forecast?
Using the right tool or solution will make the creation of your escape room's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your escape room'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
Outsourcing the creation of your escape room 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 escape room's financial forecast?
Creating an accurate and error-free escape room 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 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 escape room, 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
- Having a financial forecast enables you to visualise the expected growth, profitability, and cash generation for your business over the next three to five years.
- Tracking actuals vs. forecast and keeping your financial projections up-to-date is the only way to get a view on what your escape room future cash flows may look like.
- Using financial forecasting software is the mordern and easy way to create and maintain your forecasts.
This is the end of our guide on how to build the financial forecast for an escape room, we hope you found it useful. Don't hesitate to contact us if you want to share your feedback or 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
- Example of financial forecast
- How to write an escape room business plan
- How to create a turnover forecast for a business?
- Financial forecast template for a business idea
Know someone who owns or is thinking of starting an escape room? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
