How to create a financial forecast for an online thrift shop?
If you are serious about keeping visibility on your future cash flows, then you need to build and maintain a financial forecast for your online thrift shop.
Putting together an online thrift shop financial forecast may sound complex, but don’t worry, with the right tool, it’s easier than it looks, and The Business Plan Shop is here to guide you.
In this practical guide, we'll cover everything you need to know about building financial projections for your online thrift shop.
We will start by looking at why they are key, what information is needed, what a forecast looks like once completed, and what solutions you can use to create yours.
Let's dive in!
Why create and maintain a financial forecast for an online thrift shop?
The financial projections for your online thrift 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 online thrift 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 solid financial forecast?
The Business Plan Shop does the maths for you. Simply enter your revenues, costs and investments. Click save and our online tool builds a three-way forecast for you instantly.
What information is needed to build an online thrift shop 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 online thrift shop, 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 online thrift shop 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 online thrift shop, 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 online thrift shop's financial forecast.
The sales forecast for an online thrift shop
From experience, it usually makes sense to start your online thrift shop's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your online thrift shop (which can be used as a starting point for existing businesses) and the data collected in your market research (which both new ventures and existing businesses need to project their sales forward).
Your online thrift shop's sales forecast can be broken down into two key estimates:
- The average price
- The number of monthly transactions
To assess these variables accurately, you will need to consider the following factors:
- Competition - As more and more online thrift shops pop up, the competition for customers and inventory increases. Keep an eye on your competitors' prices and selection to stay competitive in the market.
- Trends and Seasonality - The average price and number of transactions may fluctuate based on current fashion trends and seasonal changes. For example, winter coats and holiday-themed items may sell at a higher price during the winter season.
- Quality of Inventory - The quality of the items you have available for sale can greatly impact your average price and number of transactions. High-quality, sought-after items will likely sell at a higher price and attract more customers, while lower-quality items may sit on the shelves for longer.
- Customer Reviews - Positive reviews and word-of-mouth recommendations can greatly influence the success of your online thrift shop. Ensure that you are providing a positive shopping experience and quality products to encourage repeat customers and attract new ones.
- Economic Factors - Economic factors such as inflation, unemployment rates, and consumer confidence can all affect the average price and number of transactions for an online thrift shop. Keep an eye on these indicators and adjust your prices and marketing strategy accordingly.
Once you have a sales forecast in place, the next step will be to work on your overhead budget. Let’s have a look at that now.
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The operating expenses for an online thrift shop
The next step is to estimate the expenses needed to run your online thrift shop 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 online thrift shop's operating expenses should include the following items at a minimum:
- Staff Costs: this includes salaries, wages, benefits, and training for all employees working at the online thrift shop.
- Accountancy Fees: you will need to hire an accountant to manage your bookkeeping, taxes, and financial statements.
- Insurance Costs: to protect your business from potential risks and liabilities, you will need to pay for insurance coverage such as general liability, cyber liability, and business property insurance.
- Software Licences: to run your online thrift shop, you will need to purchase software licenses for e-commerce platforms, accounting software, and other necessary tools.
- Banking Fees: you will incur fees for processing online payments, wire transfers, and international transactions through your business bank account.
- Website Hosting and Maintenance: to keep your online thrift shop running smoothly, you will need to pay for website hosting and maintenance services.
- Marketing and Advertising: to attract customers to your online thrift shop, you will need to invest in marketing and advertising efforts such as social media ads, influencer partnerships, and email marketing.
- Inventory Costs: as an online thrift shop, you will need to purchase inventory or consignment items at a discounted price and then sell them at a markup.
- Shipping and Packaging: you will need to cover the costs of shipping and packaging materials for orders placed through your online thrift shop.
- Utilities: you will need to pay for electricity, internet, and other utilities to keep your online thrift shop running.
- Customer Service: to provide a positive shopping experience for your customers, you may need to hire customer service representatives to handle inquiries, complaints, and returns.
- Professional Services: you may need to hire professionals such as lawyers, web designers, and consultants to help with legal, technical, or strategic matters related to your online thrift shop.
- Credit Card Processing Fees: when customers pay for their purchases with credit cards, you will need to pay a processing fee to the credit card company.
- Telephone and Communication Costs: you will need to pay for a business phone line and other communication tools to stay in touch with customers, suppliers, and employees.
- Office Supplies: you will need to purchase office supplies such as paper, ink, and stationery to keep your online thrift shop running smoothly.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small online thrift shop might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow an online thrift shop?
Creating and expanding an online thrift shop also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for an online thrift shop could include elements such as:
- Website development and maintenance: This includes the initial cost of creating your online thrift shop website, as well as ongoing expenses for website hosting, domain renewal, and any updates or maintenance needed to keep your site running smoothly.
- Inventory management software: As an online thrift shop, you will need a system in place to track your inventory, sales, and expenses. This may include purchasing inventory management software or subscribing to a service that offers these features.
- Shipping and packaging supplies: In order to fulfill orders from your online thrift shop, you will need to invest in shipping and packaging supplies such as boxes, envelopes, tape, and labels. These expenses can add up, especially if you plan on offering free or discounted shipping to customers.
- Photography equipment: High-quality product photos are essential for selling items online. You may need to invest in a camera, lighting equipment, and props to create professional-looking product photos that will attract customers.
- Computer and office equipment: Running an online thrift shop will require a reliable computer and other office equipment such as a printer, scanner, and label maker. These are essential tools for managing your inventory, processing orders, and communicating with customers.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your online thrift shop.
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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 online thrift shop
The next step in the creation of your financial forecast for your online thrift 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 online thrift shop?
Now let's have a look at the main output tables of your online thrift 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 online thrift 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 online thrift shop will look different than for a startup.
The projected balance sheet
Your online thrift shop'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 cash flow projection
The cash flow forecast of your online thrift 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 online thrift 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 online thrift 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 online thrift shop's financial plan.
Need a solid financial forecast?
The Business Plan Shop does the maths for you. Simply enter your revenues, costs and investments. Click save and our online tool builds a three-way forecast for you instantly.
Which tool should you use to create your online thrift shop's financial forecast?
Using the right tool or solution will make the creation of your online thrift shop's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial projection software to build your online thrift 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 online thrift 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 online thrift shop's financial forecast?
Creating an accurate and error-free online thrift 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 online thrift 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 online thrift 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 online thrift shop. Don't hesitate to contact our team if you have any questions or want to share your experience building forecasts!
Need inspiration for your business plan?
The Business Plan Shop has dozens of business plan templates that you can use to get a clear idea of what a complete business plan looks like.
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