How to create a financial forecast for a CNC machining workshop?
Developing and maintaining an up-to-date financial forecast for your CNC machining workshop 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 CNC machining workshop 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 CNC machining workshop?
In order to prosper, your business needs to have visibility on what lies ahead and the right financial resources to grow. This is where having a financial forecast for your CNC machining workshop becomes handy.
Creating a CNC machining workshop financial forecast forces you to take stock of where your business stands and where you want it to go.
Once you have clarity on the destination, you will need to draw up a plan to get there and assess what it means in terms of future profitability and cash flows for your CNC machining workshop.
Having this clear plan in place will give you the confidence needed to move forward with your business’s development.
Having an up-to-date financial forecast for a CNC machining workshop is also useful if your trading environment worsens, as the forecast enables you to adjust to your new market conditions and anticipate any potential cash shortfall.
Finally, your CNC machining workshop's financial projections will also help you secure financing, as banks and investors alike will want to see accurate projections before agreeing to finance your 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.
What information is used as input to build a CNC machining workshop financial forecast?
A CNC machining workshop's financial forecast needs to be built on the right foundation: your assumptions.
The data required to create your assumptions will depend on whether you are a new or existing CNC machining workshop.
If you are creating (or updating) the forecast of an existing CNC machining workshop, then your main inputs will be historical accounting data and operating metrics, and your team’s view on what to expect for the next three to five years.
If you are building financial projections for a new CNC machining workshop startup, you will need to rely on market research to form your go-to-market strategy and derive your sales forecast.
For a new venture, you will also need an itemised list of resources needed for the CNC machining workshop to operate, along with a list of equipment required to launch the venture (more on that below).
Now that you understand what is needed, let’s have a look at what elements will make up your CNC machining workshop's financial forecast.
The sales forecast for a CNC machining workshop
From experience, it usually makes sense to start your CNC machining workshop's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your CNC machining workshop (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 CNC machining workshop'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:
- Industry trends: Keep an eye on the latest innovations and advancements in CNC machining, as this can affect the demand for your services and the prices you can charge.
- Economic conditions: Fluctuations in the economy can impact the overall demand for CNC machining services. Keep an eye on factors such as interest rates, inflation, and consumer confidence.
- Competition: The presence of other CNC machining workshops in your area can affect your average price and number of transactions. Keep track of their pricing strategies and offer competitive prices to attract and retain customers.
- Technology changes: As technology continues to advance, new and more efficient CNC machines may become available in the market. This can affect your competition and the prices you can charge for your services.
- Customer demand: The demand for your services can be influenced by factors such as the overall health of the manufacturing industry, the types of industries you serve, and the specific needs of your customers.
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.
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 CNC machining workshop
The next step is to estimate the expenses needed to run your CNC machining workshop 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 CNC machining workshop's operating expenses should include the following items at a minimum:
- Staff Costs: This includes salaries, benefits, and training for all employees working in the CNC machining workshop.
- Accountancy Fees: You will need to hire an accountant to help you manage your business finances, prepare taxes, and maintain accurate records.
- Insurance Costs: This covers liability insurance, property insurance, and workers' compensation insurance to protect your business and employees.
- Software Licences: You will need to purchase licenses for CAD/CAM software and other programs used in the CNC machining process.
- Banking Fees: This includes fees for maintaining a business bank account, wire transfers, and processing credit card payments.
- Rent/Lease: You will need to pay rent or lease for the workshop space, which should be equipped with proper ventilation, lighting, and safety features.
- Utilities: These include electricity, water, and gas bills for running the machines and keeping the workshop environment comfortable.
- Raw Materials: You will need to purchase raw materials such as metal, plastic, and wood for CNC machining projects.
- Tooling and Supplies: This includes tools, cutting bits, lubricants, and other supplies needed for the CNC machines to function properly.
- Marketing and Advertising: You may need to invest in marketing and advertising efforts to attract new clients and promote your services.
- Maintenance and Repairs: Over time, your machines will require maintenance and repairs to keep them in good working condition.
- Shipping and Freight: If you need to ship materials or finished products to clients, you will need to factor in shipping and freight costs.
- Training and Education: It is important to stay updated on the latest CNC machining techniques and technology, so you may need to invest in training and education for yourself and your employees.
- Safety and Compliance: You may need to invest in safety equipment, OSHA compliance training, and other measures to ensure a safe and healthy workplace.
- Professional Memberships and Subscriptions: Joining professional organizations and subscribing to industry publications can help you stay informed and connected with others in the CNC machining industry.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small CNC machining workshop might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow a CNC machining workshop?
Once you have an idea of how much sales you could achieve and what it will cost to run your CNC machining workshop, it is time to look into the equipment required to launch or expand the activity.
For a CNC machining workshop, capital expenditures and initial working capital items could include:
- CNC Machines: These are the primary equipment needed for a CNC machining workshop. CNC machines use computerized controls to cut and shape materials with precision and efficiency. Some examples of CNC machines used in a workshop are lathes, mills, routers, and grinders.
- Tooling and Accessories: In addition to the CNC machines, you will also need various tooling and accessories to operate the machines and perform different types of machining tasks. This may include cutting tools, clamps, fixtures, jigs, and measuring instruments.
- Computer-Aided Design (CAD) and Computer-Aided Manufacturing (CAM) Software: These software programs are essential for creating and programming the designs that will be used by the CNC machines. CAD software is used for designing and creating 3D models, while CAM software is used to generate the toolpaths and G-code needed for the CNC machines to follow.
- Workshop Infrastructure: A CNC machining workshop requires a suitable space with proper infrastructure to operate efficiently. This may include items such as workbenches, shelves, lighting, ventilation, and electrical outlets.
- Safety Equipment: As with any workshop, safety should be a top priority. Therefore, it is essential to invest in safety equipment such as protective gear, first aid kits, fire extinguishers, and safety signage to ensure a safe working environment for you and your employees.
Again, this list will need to be adjusted according to the specificities of your CNC machining workshop.
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 CNC machining workshop
The next step in the creation of your financial forecast for your CNC machining workshop 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 CNC machining workshop?
Now let's have a look at the main output tables of your CNC machining workshop'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 CNC machining workshop'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 CNC machining workshop will look different than for a startup.
The projected balance sheet
The projected balance sheet gives an overview of your CNC machining workshop'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 CNC machining workshop. 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 forecast
Your CNC machining workshop's cash flow forecast shows how much cash your business is expected to consume or generate in the years to come.
It is best practice to organise the cash flow forecast by nature to better explain where cash is used or generated by the CNC machining workshop:
- Operating cash flow: shows how much cash is generated by the operating activities
- Investing cash flow: shows how much will be invested in capital expenditure to maintain or expand the business
- Financing cash flow: shows if the business is raising new capital or repaying financiers (debt repayment, dividends)
Keeping an eye on (and regularly updating) your CNC machining workshop's cash flow forecast is key to ensuring that your business has sufficient liquidity to operate normally and to detect financing requirements as early as possible.
If you are trying to raise capital, you will normally be asked to provide a monthly cash flow forecast in your CNC machining workshop's financial plan - so that banks or investors can assess seasonal variation and ensure your business is appropriately capitalised.
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 CNC machining workshop's financial forecast?
Using the right tool or solution will make the creation of your CNC machining workshop's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial projection software to build your CNC machining workshop'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.
Calling in a financial consultant or chartered accountant
Enlisting the help of a consultant or accountant is also a good way to obtain a professional CNC machining workshop financial forecast.
The downside of this solution is its cost. From experience, obtaining a simple financial forecast over three years (including a balance sheet, income statement, and cash flow statement) is likely to cost a minimum of £700 or $1,000.
The indicative cost above, is for a small business, and a forecast is done as a one-shot exercise. Using a consultant or accountant to track your actuals vs. forecast and to keep your financial projections up to date on a monthly or quarterly basis will cost a lot more.
If you opt for this solution, make sure your accountant has in-depth knowledge of your industry, so that they may challenge your figures and offer insights (as opposed to just taking your assumptions at face value to create the forecast).
Why not use a spreadsheet such as Excel or Google Sheets to build your CNC machining workshop's financial forecast?
Creating an accurate and error-free CNC machining workshop 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 CNC machining workshop, 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
- 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 CNC machining workshop 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 CNC machining workshop, 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 revenues for a business?
- Sample financial forecast for business idea
Know someone who owns or is thinking of starting a CNC machining workshop? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
