A Shopify store reports monthly sales of $30,000. The store owner is raising funding to increase his product stock, but the sales figures don’t indicate whether the business will have enough cash to pay suppliers and service loan repayments.
The historical sales information can then be used to create a financial forecast for future periods. This should set out the assumptions used to create the forecast, describe costs for future periods, and create a cash flow forecast for the business. It should set out the cash received from customers and the cash required to pay suppliers, employees, taxes, etc.
Start With Sales Data You Can Actually Verify
Before using the $30,000 in Shopify sales to project future growth, the retailer needs to confirm what those figures represent. Accurate historical records provide the foundation for estimating future revenue, expenses, and cash flow. Those projections also become important when preparing a business plan for external funding.
According to small business management platform Wave a thorough business plan is typically a requirement when seeking outside funding, as lenders and investors require detailed financial projections and a clear operational model before committing capital.
For this retailer, preparing reliable projections begins with verifiable financial information. Shopify reports show order totals, discounts, and refunds, while Stripe records help explain payment-processing fees and payout timing. Bank statements also confirm when money actually arrived.
Even if Shopify reports $30,000 in sales, refunds and sales taxes must be accounted for when calculating revenue. Payment processing fees should also be reconciled, as they can reduce the amount deposited into the business’s bank account.
Differences between financial reports can also expose back-office problems, especially as order volumes increase. Reconciling sales and payment records provides a more dependable foundation for financial forecasting.
Turn Historical Sales Into Realistic Financial Projections
You can use historical sales information in conjunction with other factors in your business such as the volume of orders and average order value to project future revenue. This could include information around seasonal demand and the amount of inventory you have.
Forecast for expected order volume: Suppose the retailer anticipates 260 orders for the month at an average order value of $125. His projected sales before refunds would be $32,500. Note, however, that expected order volume must be supported by past sales history, by marketing plans, and by the retailer’s purchasing capacity. More inventory does not automatically equal more customers.
Build the Forecast From Measurable Assumptions
Organize your financial projections using Google Sheets or Microsoft Excel. The forecast can include sales, direct costs, operating expenses, and cash flow. You don’t need complicated software as long as you calculate the numbers correctly and clearly explain the assumptions.
A practical forecasting process involves four steps:
- Estimate future sales. Review previous orders and average transaction values to establish a starting point. Adjust your estimates based on seasonal demand, planned marketing activities, and possible price changes.
- Calculate expected expenses. Include the cost of goods sold, packaging, shipping, and payment processing fees. Account for operating expenses such as wages, rent, and software subscriptions.
- Forecast cash flow. Estimate when customer payments will arrive and when suppliers, employees, and taxes must be paid. Inventory purchases often require payment before you sell products, creating a gap between cash outflows and incoming revenue.
- Test different scenarios. Adjust your projections to reflect lower sales, rising supplier costs, or delayed customer payments. Check whether the business would still have enough cash to cover operating expenses and loan repayments.
When forecasting, distinguish between revenue, profit, and cash. Buying inventory creates an immediate cash outflow, but its cost is generally recognized as an expense when the products are sold.
Make the Financial Forecast Support the Funding Request
It is very important to explain how you intend to use the $25,000 you are requesting in your forecast. A retail business might use $18,000 of the requested funds to buy more inventory, $4,000 for storage and facility improvements to better fulfill orders, and $3,000 for working capital.
To support the requested funding numbers, a business plan must outline the timeline for receiving new inventory and how soon it will be sold to customers and paid for.
SCORE provides a financial projections template that includes sales forecasts, operating expenses, cash flow statements, and balance sheets. It also helps business owners evaluate different financial scenarios and understand the assumptions behind their projections, which can be particularly useful when preparing information for potential lenders or investors.
For a loan application, it is also important to set out the proposed cash flow and calculate the amount to be repaid. You can test a ‘slower growth’ scenario to see if your business can meet its normal operating expenses and proposed repayments should sales fall below forecast.
It does not have to project explosive growth. The goal is to develop a credible forecast of past performance, reasonable future assumptions, and required funding, using numbers you can verify and explain. Update a good forecast regularly with actual past sales results to support the best possible financial decisions.
