How to create a financial forecast for a car manufacturer?
Developing and maintaining an up-to-date financial forecast for your car manufacturing business is key in order to maintain visibility on your business’s future cash flows.
If you feel overwhelmed at the thought of putting together a car manufacturing business 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 a car manufacturing business?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your car manufacturing business and ensure that it can be financially viable in the years to come.
A financial plan for a car manufacturing business enables you to look at your business in detail - from income to operating costs and investments - to evaluate its expected profitability and future cash flows.
This gives you the visibility needed to plan future investments and expansion with confidence.
And, when your trading environment gets tougher, having an up to date car manufacturing business forecast enables you to detect potential upcoming financing shortfalls in advance, enabling you to make adjustments or secure financing before you run out of cash.
It’s also important to remember that your car manufacturing business's financial forecast will be essential when looking for financing. You can be 100% certain that banks and investors will ask to see your numbers, so make sure they’re set out accurately and attractively.
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 a car manufacturing business 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 a car manufacturing business, 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 car manufacturing business 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 car manufacturing business, 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 car manufacturing business's financial forecast.
The sales forecast for a car manufacturing business
From experience, it is usually best to start creating your car manufacturing business financial forecast by your sales forecast.
To create an accurate sales forecast for your car manufacturing business, you will have to rely on the data collected in your market research, or if you're running an existing car manufacturing business, 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:
- Economy: The state of the economy can greatly impact the average price and number of monthly transactions for your car manufacturing business. During an economic downturn, consumers may be less willing to spend money on large purchases like cars, leading to a decrease in both average price and transactions. On the other hand, during a strong economy, consumers may have more disposable income and be more likely to purchase higher-priced vehicles, resulting in an increase in both metrics.
- Consumer Preferences: Changes in consumer preferences can also have a significant impact on your business's sales forecast. For example, if there is a shift towards electric or hybrid vehicles, you may need to adjust your pricing strategy and production to meet this demand. This could lead to a change in average price and number of transactions for your business.
- Competition: The level of competition in the car manufacturing industry can also affect your sales forecast. If there is increased competition from other manufacturers offering similar vehicles at lower prices, you may need to adjust your pricing strategy to remain competitive. This could result in a decrease in average price and possibly an increase in transactions as consumers are drawn to your lower-priced vehicles.
- Technological Advancements: Advancements in technology can also impact your business's sales forecast. For example, if there is a new technology that significantly improves the fuel efficiency of vehicles, consumers may be willing to pay a higher price for these more efficient cars. On the other hand, if your competitors are able to produce vehicles with more advanced features at a lower cost, you may need to adjust your prices to remain competitive.
- Supply and Demand: The laws of supply and demand can also play a role in your sales forecast. If there is a high demand for your vehicles but a limited supply, you may be able to increase your prices and still maintain a high number of transactions. However, if there is an oversupply of vehicles in the market, you may need to lower your prices to attract buyers, resulting in a decrease in average price.
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 a car manufacturing business
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your car manufacturing business 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 a car manufacturing business will include some of the following items:
- Staff Costs: Includes salaries, benefits, and other personnel expenses for your production team, sales team, and administrative staff.
- Raw Materials: The cost of purchasing materials such as steel, plastic, and rubber for production of cars.
- Energy Costs: The cost of electricity, gas, and other utilities needed to power your manufacturing facilities.
- Rent/Lease: The cost of renting or leasing your manufacturing facilities and office spaces.
- Maintenance and Repairs: The cost of maintaining and repairing equipment, machinery, and facilities used in production.
- Accountancy Fees: The cost of hiring an accountant or accounting firm to handle your financial records and taxes.
- Insurance Costs: The cost of insuring your manufacturing facilities, equipment, and employees against potential risks and liabilities.
- Marketing and Advertising: The cost of promoting your car manufacturing business through advertising, events, and other marketing efforts.
- Software Licences: The cost of purchasing and renewing licenses for software used in production, accounting, and other business operations.
- Shipping and Logistics: The cost of transporting raw materials and finished cars to and from your manufacturing facilities.
- Banking Fees: The cost of maintaining business bank accounts and making transactions, such as wire transfers and credit card fees.
- Legal Fees: The cost of hiring a lawyer or law firm for legal advice, contract drafting, and other legal services.
- Taxes: The cost of paying corporate taxes, sales tax, and other applicable taxes for your car manufacturing business.
- Training and Development: The cost of training and developing your employees to improve their skills and knowledge for production and other business operations.
- Office Supplies: The cost of purchasing office supplies, such as stationery, printer ink, and computer equipment for your administrative staff.
This list will need to be tailored to the specificities of your car manufacturing business, but should offer a good starting point for your budget.
What investments are needed to start or grow a car manufacturing business?
Your car manufacturing business 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 a car manufacturing business, these could include:
- Factory Equipment: This includes machinery and tools used in the manufacturing process, such as assembly line equipment, welding machines, and specialized tools for car production.
- Facility Upgrades: As a car manufacturing business, you will need a large facility to house your production line. This may require upgrades such as installing new lighting, improving ventilation systems, or constructing additional storage space for materials.
- Vehicle Parts: In order to produce cars, you will need to purchase various parts such as engines, tires, and electronics. These parts can be costly and will need to be factored into your expenditure forecast.
- Research and Development: As technology and consumer demands constantly evolve, it is important for a car manufacturing business to invest in research and development to stay competitive. This may include expenses for testing new materials, improving designs, and developing new technologies for your vehicles.
- Maintenance and Repairs: Just like any other machinery, the equipment and vehicles used in your car manufacturing business will require regular maintenance and repairs. These expenses should be included in your expenditure forecast to ensure smooth operations and avoid unexpected costs.
Again, this list will need to be adjusted according to the size and ambitions of your car manufacturing 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.
The financing plan of your car manufacturing business
The next step in the creation of your financial forecast for your car manufacturing business 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 a car manufacturing business?
Now let's have a look at the main output tables of your car manufacturing business's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your car manufacturing business's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a car manufacturing business 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 car manufacturing business'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 car manufacturing business. 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 projection
The cash flow forecast of your car manufacturing business 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 car manufacturing business'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 car manufacturing business 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 car manufacturing business's financial plan.
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 car manufacturing business's financial forecast?
Using the right tool or solution will make the creation of your car manufacturing business's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial projection software to build your car manufacturing business'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 car manufacturing business 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 car manufacturing business's financial forecast?
Creating an accurate and error-free car manufacturing business 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 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 car manufacturing business 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 a car manufacturing business, 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 sales for a business?
- Financial forecast for a business idea
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Founder & CEO at The Business Plan Shop Ltd
