How to create a financial forecast for an independent museum?
Developing and maintaining an up-to-date financial forecast for your independent museum 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 independent museum 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 independent museum?
In order to prosper, your business needs to have visibility on what lies ahead and the right financial resources to grow. This is where having a financial forecast for your independent museum becomes handy.
Creating an independent museum financial forecast forces you to take stock of where your business stands and where you want it to go.
Once you have clarity on the destination, you will need to draw up a plan to get there and assess what it means in terms of future profitability and cash flows for your independent museum.
Having this clear plan in place will give you the confidence needed to move forward with your business’s development.
Having an up-to-date financial forecast for an independent museum is also useful if your trading environment worsens, as the forecast enables you to adjust to your new market conditions and anticipate any potential cash shortfall.
Finally, your independent museum's financial projections will also help you secure financing, as banks and investors alike will want to see accurate projections before agreeing to finance your business.
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 needed to build an independent museum 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 independent museum, 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 independent museum 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 independent museum, 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 independent museum's financial forecast.
The sales forecast for an independent museum
The sales forecast, also called topline projection, is normally where you will start when building your independent museum 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 independent museums), and consider the elements below:
- Visitor demographics: The demographics of your visitors can greatly impact the average price of tickets and number of monthly transactions. For example, if your museum caters primarily to families with young children, you may need to offer discounts or reduced prices to attract more visitors. On the other hand, if your museum attracts high-income individuals, you may be able to charge higher admission prices and potentially see an increase in ticket sales.
- Special exhibitions: Hosting special exhibitions can be a major driver for both the average price and number of monthly transactions. The popularity and uniqueness of these exhibitions can greatly impact the number of visitors willing to pay a higher price for admission. Additionally, these exhibitions can attract visitors who may not have otherwise visited your museum, resulting in an increase in overall ticket sales.
- Economic climate: The overall economic climate can also affect the average price and number of monthly transactions for your museum. During times of economic downturn, individuals may be less likely to spend money on leisure activities, resulting in a potential decrease in ticket sales. However, during times of economic prosperity, individuals may be more willing to spend money on experiences such as visiting a museum, potentially resulting in an increase in both ticket prices and sales.
- Seasonal trends: The time of year can also have a significant impact on your museum's average price and number of monthly transactions. For example, if your museum is located in a popular tourist destination, you may see a surge in visitors during peak tourist season, resulting in an increase in ticket sales. However, during off-peak seasons, you may need to adjust your prices or offer promotions to attract visitors.
- Competition: The presence of other museums or similar attractions in your area can also affect your average price and number of monthly transactions. If you are the only independent museum in the area, you may be able to charge higher prices due to limited options for visitors. However, if there are multiple museums or attractions nearby, you may need to adjust your prices or offer unique experiences to stay competitive and attract visitors.
After the sales forecast comes the operating expenses budget, which we will now look into in more detail.
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 independent museum
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your independent museum 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 an independent museum will include some of the following items:
- Staff costs: This includes salaries, benefits, and training for all museum employees.
- Accountancy fees: You will need to hire an accountant to handle your financial reporting and tax preparation.
- Insurance costs: To protect your museum from potential risks and liabilities, you will need to pay for various insurance policies such as general liability, property insurance, and workers' compensation.
- Software licences: You will need to purchase licences for various software programs used in running your museum, such as ticketing systems, accounting software, and collections management software.
- Banking fees: You will incur fees for various banking services, such as wire transfers, merchant services, and overdraft protection.
- Marketing and advertising: To attract visitors and promote your museum, you will need to allocate funds for marketing and advertising efforts, including print materials, digital ads, and social media campaigns.
- Utilities: This includes costs for electricity, water, and heating/cooling for your museum building.
- Maintenance and repairs: You will need to budget for regular maintenance of your museum building and grounds, as well as unexpected repairs.
- Security: To protect your valuable collections and ensure the safety of visitors, you will need to pay for security measures such as alarms, cameras, and security personnel.
- Professional fees: You may need to hire outside professionals for services such as legal advice, exhibit design, or conservation of artifacts.
- Collection expenses: This includes costs for acquiring, cataloguing, and preserving artifacts for your museum's collection.
- Office supplies and equipment: To keep your museum's operations running smoothly, you will need to purchase office supplies and equipment such as computers, printers, and office furniture.
- Travel and conference expenses: You may need to attend conferences and events related to the museum industry, which will require budgeting for travel, accommodation, and registration fees.
- Exhibit expenses: This includes costs for creating and installing temporary and permanent exhibits in your museum.
- Fundraising and development: To secure funding for your museum, you will need to allocate resources for fundraising efforts, such as events, grant writing, and donor management software.
This list will need to be tailored to the specificities of your independent museum, but should offer a good starting point for your budget.
What investments are needed to start or grow an independent museum?
Creating and expanding an independent museum also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for an independent museum could include elements such as:
- Exhibit installations: These may include the construction of new exhibit spaces or the renovation of existing ones. This could also include the purchase of display cases, lighting fixtures, and other necessary equipment.
- Collections acquisitions: Independent museums may need to allocate funds for acquiring new pieces for their collections. This could include purchasing artwork, artifacts, or other historical objects.
- Building maintenance and repairs: As with any building, maintenance and repairs are necessary to keep the museum functioning and in good condition. This could include things like roof repairs, HVAC system upgrades, or pest control.
- Technology upgrades: In today's digital age, museums need to stay current with technology in order to provide visitors with an engaging and interactive experience. This could include purchasing new audio-visual equipment, updating the museum's website, or investing in virtual reality technology.
- Specialized equipment: Depending on the type of exhibits and collections in the museum, there may be a need for specialized equipment such as climate-controlled storage units, conservation tools, or transportation equipment for moving large or delicate pieces.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your independent museum.
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 independent museum
The next step in the creation of your financial forecast for your independent museum 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 independent museum?
Now let's have a look at the main output tables of your independent museum's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your independent museum's expected growth and profitability over the next three to five years.
A financially viable P&L statement for an independent museum 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 independent museum'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 independent museum. 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 independent museum'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 independent museum:
- 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 independent museum'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 independent museum'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 independent museum's financial projections?
Building an independent museum 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 independent museum'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
Enlisting the help of a consultant or accountant is also a good way to obtain a professional independent museum 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 independent museum's financial forecast?
You and your financial partners need numbers you can trust. Unless you have studied finance or accounting, creating a trustworthy and error-free independent museum financial forecast on a spreadsheet is likely to prove challenging.
Financial modelling is very technical by nature and requires a solid grasp of accounting principles to be done without errors. This means that using spreadsheet software like Excel or Google Sheets to create accurate financial forecasts is out of reach for most business owners.
Creating forecasts in Excel is also inefficient nowadays:
- Software has advanced to the point where forecasting can be done much faster and more accurately than manually on a spreadsheet.
- With artificial intelligence, the software is capable of detecting mistakes and helping decision-making.
Spreadsheets are versatile tools but they are not tailor-made for reporting. Importing your independent museum's accounting data in Excel to track actual vs. forecast is incredibly manual and tedious (and so is keeping forecasts up to date). It is much faster to use dedicated financial planning tools like The Business Plan Shop which are built specially 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
- 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 independent museum 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 independent museum, 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 project revenues for a business?
- Financial forecast for a business idea
Know someone who owns or is thinking of starting an independent museum? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
