How to create a financial forecast for a carpentry and joinery manufacturer?

Developing and maintaining an up-to-date financial forecast for your carpentry and joinery 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 carpentry and joinery 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 carpentry and joinery manufacturing business?

Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your carpentry and joinery manufacturing business and ensure that it can be financially viable in the years to come.

A financial plan for a carpentry and joinery 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 carpentry and joinery 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 carpentry and joinery 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.

What information is used as input to build a carpentry and joinery manufacturing business financial forecast?

A carpentry and joinery manufacturing business's financial forecast is only as good as the inputs used to build it.  

If you are creating (or updating) the forecast of an existing carpentry and joinery manufacturing business, then you mostly need your accounting information, key historical operating non-financial data, and your team’s input on what to expect for the coming years.

If you are building financial projections for a carpentry and joinery manufacturing business startup, you will need to have done your research and have a clear picture of your competitive environment and go-to-market strategy so that you can forecast sales accurately.

For a new venture, you will also need a precise list of the resources needed to keep the carpentry and joinery manufacturing business running on a day-to-day basis and a list of the equipment and expenditures required to start the business (more on that later). 

Let's now take a closer look at the elements that make up your carpentry and joinery manufacturing business's financial forecast.

The sales forecast for a carpentry and joinery manufacturing business

From experience, it usually makes sense to start your carpentry and joinery manufacturing business's financial projection with the revenues forecast.

The inputs used to forecast your sales will include the historical trading data of your carpentry and joinery manufacturing business (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 carpentry and joinery manufacturing business'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:

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. 

The operating expenses for a carpentry and joinery manufacturing business

Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your carpentry and joinery 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 carpentry and joinery manufacturing business will include some of the following items:

This list will need to be tailored to the specificities of your carpentry and joinery manufacturing business, but should offer a good starting point for your budget.

What investments are needed to start or grow a carpentry and joinery manufacturing business?

Your carpentry and joinery 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 carpentry and joinery manufacturing business, these could include:

Again, this list will need to be adjusted according to the size and ambitions of your carpentry and joinery manufacturing business.

The financing plan of your carpentry and joinery manufacturing business

The next step in the creation of your financial forecast for your carpentry and joinery 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 carpentry and joinery manufacturing business?

Now let's have a look at the main output tables of your carpentry and joinery manufacturing business's financial forecast.

The projected profit & loss statement

The projected profit & loss shows how profitable your carpentry and joinery manufacturing business is likely to be in the years to come.

For your carpentry and joinery manufacturing business to be financially viable, your projected P&L should ideally show:

• Sales growing above inflation (the higher the better)
• Profit margins which are stable or expanding (the higher the better) 
• A net profit at the end of each financial year (the higher the better)

This is for established carpentry and joinery manufacturers, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.

The projected balance sheet

Your carpentry and joinery manufacturing business's projected balance sheet provides a snapshot of your business’s financial position at year-end.

It is composed of three types of elements: assets, liabilities and equity:

• Assets: represent what the business possesses including cash, equipment, and accounts receivable (money owed by clients).
• Liabilities: represent funds advanced to the business by lenders and other creditors. They include accounts payable (money owed to suppliers), taxes payable and loans from banks and financial institutions.
• 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 carpentry and joinery 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 carpentry and joinery 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 carpentry and joinery 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 carpentry and joinery manufacturing business's financial plan. 

Which tool should you use to create your carpentry and joinery manufacturing business's financial forecast?

Creating your carpentry and joinery manufacturing business's financial forecast may sound fairly daunting, but the good news is that there are several ways to go about it.

Using online financial forecasting software to build your carpentry and joinery manufacturing business's projections

The modern and easiest way is to use professional online financial forecasting 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 carpentry and joinery 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 carpentry and joinery manufacturing business'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 carpentry and joinery manufacturing business 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 carpentry and joinery manufacturing business'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.

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

1. 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.
2. Tracking actuals vs. forecast and keeping your financial projections up-to-date is the only way to get a view on what your carpentry and joinery manufacturing business future cash flows may look like.
3. 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 carpentry and joinery 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.

Also on The Business Plan Shop

• Example of financial forecast
• How to create a sales forecast for a business?
• Sample financial forecast for business idea

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