Report name: Sample Forecast
Cost of Goods Sold and Gross Profit Forecast
A successful profit and cashflow forecast starts with a successful gross profit. That’s why you need a gross profit margin that can deliver that success.
A successful profit and cashflow forecast starts with a successful gross profit. That’s why you need a gross profit margin that can deliver that success.
forecast for year beginning the 1st. | May 2017 | May 2018 | May 2019 |
Trade sales | 1,500,000 | 1,650,000 | 2,200,000 |
add: Delivery / Service Charges | 37,500 | 41,250 | 55,000 |
Total Sales | 1,537,500 | 1,691,250 | 2,255,000 |
Stock / Inventory Bfwd | 35,000 | 125,000 | 150,000 |
add: Purchases - Domestic | 780,000 | 599,100 | 527,200 |
add: Purchases - Imports | 195,000 | 399,400 | 790,800 |
less: Stock / Inventory Cfwd | 125,000 | 150,000 | 170,000 |
Cost of Goods Sold | 885,000 | 973,500 | 1,298,000 |
Gross Profit Cfwd | 652,500 | 717,750 | 957,000 |
Gross Profit Margin | 42.4% | 42.4% | 42.4% |
Gross profit is where a business plan’s successful net profit, liquidity and cashflow forecasts begins. The gross profit margin is key for all of these.
Your plan must be credible though which is why when creating financial forecasts using Figurewizard, everything that follows will depend on that margin being readily achievable.
A reduced .gross profit margin would be seriously damaging, whereas an increase would be enormously beneficial to profit and loss, liquidity and cashflow forecasts - For example:
In this working example, gross profit margin on trade sales at 41% plus 2.5% of extra sales volume from delivery or service charges is returning 42.4% gross margin on total sales of 1,573,500.
Using the What-If Calculator / Planner the table below shows how falls of 1% and 2% respectively of gross profit margin will affect pre-tax profits, liquidity, operating cash flow and the bank.
Trade Sales GP% Year 1 | Net Pre-Tax Profit | Working Capital (Liquidity) | Operating Cash Flow | Bank: Year-End |
41% | 94,381 | 63,022 | 12,208 | -35,439 |
40% | 78,795 | 75,606 | -2,387 | -50,720 |
39% | 62,964 | 37,575 | -16,982 | -84,461 |
The sample forecast bank overdraft limit is £50,000.
Again using the What-If Calcualtor / Planner and assuming this time higher selling prices can be achieved or lower purchase prices from suppliers resulting in increases by degrees of 1%, gross trading margin dramatically improves those figures.
Trade Sales GP% Year 1 | Net Pre-Tax Profit | Working Capital (Liquidity) | Operating Cash Flow | Bank: Year-End |
41% | 94,381 | 63,022 | 12,208 | -35,439 |
42% | 109,916 | 75,606 | 26,803 | -20,309 |
43% | 125,330 | 88,091 | 41,398 | -5300 |
All of the Figurewizard forecasts and calculators are interactive working examples including the What-If Calculator and Planner.
This makes it possible for visitors to make their own changes (without any prior obligation) to gross profit margin and a lot more besides. That is the ideal way to see for yourself how Figurewizard can work for your business,
Delivery / service charges calculated as a % of sales are added to gross profit but exceptional profits arising from the sale of fixed assets or income from investments not connected to core trading are not. These are only added after operating profit has been calculated in the Profit and Loss Forecast.
Everything associated with getting merchandise onto the shelf is charged to cost of goods sold.
That includes inward freight charges, import clearance; import duty plus materials and labour costs associated with added value such as repackaging, labelling or assembly.
Money in the bank beats money on the shelf, which is why efficient stock control will also greatly benefit Cash Flow as is shown in the example below.
Again using the What-If calculator this time to reduce forecast year end stock value by increments of 10% forecast cash flow and the bank improve as follows.
% Reduction of Stock / Inventory | Stock / Inventory Year 1 | Net Pre-Tax Profit | Working Capital (Liquidity) | Operating Cash Flow | Bank Year-End |
0% | 125,000 | 94,381 | 63,022 | 12,208 | -35439 |
10% | 112,500 | 94,827 | 63,384 | 24,371 | -22,830 |
20% | 100,000 | 95,245 | 63,722 | 36,533 | -10,250 |
If it is possible put an improved gross profit margin together with reduced year-end stock levels, the subsequent improvements in liquidity and cashflows would be enormous.
All costs associated with getting goods to the point of sale must be included when calculating the gross profit margin.
These will include additions or other work such as repackaging, labelling, assembly and so on plus the cost (if any) of transporting goods from your suppliers into your premises (i.e. carriage inwards). If imported, all shipping costs including insurance, cutoms clearance and import duty have to be included too.
When importing goods from overseas by sea freight, the prices you will have been quoted will be qualified by the sellers terms concerning the delivery of your orders.
These are known as "Incoterms" and their job is to define how much of the costs involved in shipping will be covered by the seller and by you. They can be a significant cost factor, depending of their weight / cubic capacity to cost.
For example shipping costs should be a lot lower for a consignment of watches than for mattresses (weight) or suitcases (Cubic capacity). The most common terms are as follows:
EXW | Ex Works: You are responsible for shipment from the seller's premises. |
FAS | Free Alongside Ship: Seller delivers to the port of despatch. You are responsible for everything else. |
FOB | Free on board: As FAS plus the seller is responsible for your goods to be loaded on board. |
CFR | Cost and freight: As C & F plus the seller is responsible for all shipping charges to your home port. |
CIF | Cost Insurance and Freight: As CFR plus the seller undertakes to insure your order to your home port. |
Note that if your goods are subject to import duty, that will be calculated on the cost of the goods plus all of the shipment charges incurred from the seller to your home port. That will include the cost of unloading the shipment for which you will be responsible.
Auditors have a duty to ensure that the assets listed in the balance sheet represent true and fair valuations.
Stock / inventory will therefore be measured by auditors at cost or current fair market value; whichever is the lowest. This matters a great deal because together with accounts receivable the value of goods for resale on the shelf represents a key cash convertible asset.
For that reason auditors are required to write down the values of slow moving items or in the case of perceived redundancy, write them off altogether in order to preserve the credibility of the audit. It is always a good idea to do whatever it takes to dispose of slow moving stock items well before the end of your financial year.
Written down stock is a direct charge to profits, liquidity and cash flow. When forecasting it is therefore just as important to ensure that its projected year-end value is realistic. If it isn't your forecasts will not be realistic either.