How to create a financial forecast for a communication equipment producer?
Creating a financial forecast for your communication equipment producing company, and ensuring it stays up to date, is the only way to maintain visibility on future cash flows.
This might sound complex, but with the right guidance and tools, creating an accurate financial forecast for your communication equipment producing company is not that hard.
In this guide, we'll cover everything from the main goal of a financial projection, the data you need as input, to the tables that compose it, and the tools that can help you build a forecast efficiently.
Without further ado, let us begin!
Why create and maintain a financial forecast for a communication equipment producing company?
The financial projections for your communication equipment producing company act as a financial blueprint to guide its growth with confidence and ensure its long-term financial viability.
To create them, you will need to look at your business in detail - from sales to operating costs and investments - to assess how much profit it can generate in the years to come and what will be the associated cash flows.
During challenging market conditions, maintaining an up-to-date financial forecast enables early detection of potential financial shortfalls, allowing for timely adjustments or securing financing before facing a cash crisis.
Your communication equipment producing company's financial forecast will also prove invaluable when seeking financing. Banks and investors will undoubtedly request a thorough examination of your financial figures, making precision and presentation essential.
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 communication equipment producing company financial forecast?
A communication equipment producing company'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 communication equipment producing company.
If you are creating (or updating) the forecast of an existing communication equipment producing company, 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 communication equipment producing company 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 communication equipment producing company 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 communication equipment producing company's financial forecast.
The sales forecast for a communication equipment producing company
From experience, it usually makes sense to start your communication equipment producing company's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your communication equipment producing company (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 communication equipment producing company'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:
- Rising demand for 5G technology: As the demand for faster and more efficient communication increases, your company may see an increase in sales of 5G communication equipment, leading to a rise in average price per unit sold.
- Introduction of new competitors: With new companies entering the market, there may be increased competition for your communication equipment. This could lead to a decrease in average price per unit as you may need to lower prices to remain competitive.
- Economic downturn: During times of economic recession, businesses and consumers may cut back on their spending, which could result in a decrease in the number of monthly transactions for your communication equipment.
- Advancements in technology: As technology continues to evolve, your company may need to invest in newer and more advanced equipment in order to stay relevant in the market. This could lead to an increase in average price per unit as the cost of production and development increases.
- Government regulations: Changes in government regulations, such as import or export tariffs, can greatly impact the cost of production and ultimately affect your company's average price per unit. Stay informed and adapt accordingly to mitigate any potential financial impact.
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.
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The operating expenses for a communication equipment producing company
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your communication equipment producing company 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 communication equipment producing company will include some of the following items:
- Staff Salaries: As a communication equipment producing company, your biggest operating expense will likely be staff salaries. This includes wages, bonuses, benefits, and any other compensation for your employees.
- Accountancy Fees: Keeping track of your finances and ensuring compliance with tax regulations is crucial for any business. As such, you will need to budget for accountancy fees to hire a professional to handle your financial records and tax filings.
- Insurance Costs: Protecting your business from potential risks and liabilities is important. You will need to budget for insurance costs, such as liability insurance, property insurance, and workers' compensation insurance.
- Software Licenses: In order to design, develop, and produce communication equipment, you will need to invest in software licenses. This includes licenses for design software, project management tools, and other necessary software for your business operations.
- Banking Fees: As a business, you will have regular banking needs, such as depositing checks, making transfers, and paying bills. It is important to factor in banking fees, such as transaction fees and monthly account fees, into your operating expenses.
- Marketing and Advertising: In order to promote your communication equipment and reach potential customers, you will need to budget for marketing and advertising expenses. This can include online ads, print ads, trade show participation, and other promotional activities.
- Rent or Lease: If you are not able to purchase a facility for your business, you will need to budget for rent or lease expenses for your office and production space.
- Utilities: Running a business requires resources such as electricity, water, and gas. Be sure to factor in these utility costs into your operating expenses.
- Raw Materials: As a communication equipment producing company, you will need to purchase raw materials, such as electronic components, to produce your products. Be sure to budget for these expenses.
- Shipping and Freight Costs: If you are shipping your products to customers or receiving materials from suppliers, you will need to budget for shipping and freight costs.
- Travel Expenses: If your business involves traveling for client meetings, trade shows, or other business purposes, be sure to budget for travel expenses, such as airfare, accommodations, and meals.
- Legal Fees: As a business, you may need legal advice and representation for various matters. Be sure to budget for legal fees, such as consultation fees and representation fees.
- Training and Development: In order to stay competitive in the communication equipment industry, you will need to invest in ongoing training and development for your employees. Be sure to budget for these expenses.
- Office Supplies: Running a business also requires purchasing office supplies, such as paper, ink, and other necessary items. Be sure to budget for these expenses.
- Maintenance and Repairs: In order to keep your production equipment and office space in good working condition, you will need to budget for maintenance and repairs expenses.
This list will need to be tailored to the specificities of your communication equipment producing company, but should offer a good starting point for your budget.
What investments are needed to start or grow a communication equipment producing company?
Your communication equipment producing company 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 communication equipment producing company, these could include:
- Equipment purchases: This includes any new or replacement equipment that is necessary for the production of communication equipment. This can range from machinery and tools to computers and software.
- Facility upgrades: As a communication equipment producing company, it is important to have a modern and efficient facility. This may require upgrades such as installing new wiring for better connectivity, improving ventilation systems, or expanding the facility to accommodate increased production.
- Research and development: As technology advances, it is important for a communication equipment producing company to stay updated and innovative. This may require investments in research and development to create new and improved products.
- Inventory management systems: In order to keep track of inventory and ensure efficient production, a communication equipment producing company may need to invest in inventory management software or systems.
- Transportation equipment: In order to transport communication equipment to customers or suppliers, a company may need to invest in vehicles or other transportation equipment. This can also include investing in a fleet management system to track and maintain company vehicles.
Again, this list will need to be adjusted according to the size and ambitions of your communication equipment producing company.
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 communication equipment producing company
The next step in the creation of your financial forecast for your communication equipment producing company 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 communication equipment producing company?
Now let's have a look at the main output tables of your communication equipment producing company's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your communication equipment producing company is likely to be in the years to come.
For your communication equipment producing company 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 communication equipment producers, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.
The projected balance sheet
Your communication equipment producing company's forecasted balance sheet enables you to assess your financial structure and working capital requirements.
It is composed of three types of elements: assets, liabilities and equity:
- Assets: represent what the business owns and uses to produce cash flows. It includes resources such as cash, equipment, and accounts receivable (money owed by clients).
- Liabilities: represent funds advanced to the business by lenders and other creditors. It includes items such as accounts payable (money owed to suppliers), taxes due and loans.
- 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 communication equipment producing company 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 communication equipment producing company'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 communication equipment producing company 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 communication equipment producing company'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 communication equipment producing company's financial forecast?
Creating your communication equipment producing company's financial forecast may sound fairly daunting, but the good news is that there are several ways to go about it.
Using online financial projection software to build your communication equipment producing company'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 communication equipment producing company 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 communication equipment producing company's financial forecast?
Creating an accurate and error-free communication equipment producing company financial forecast with a spreadsheet is very technical and requires a deep knowledge of accounting and an understanding of financial modelling.
Very few business owners are financially savvy enough to be able to build a forecast themselves on Excel without making mistakes.
Lenders and investors know this, which is why forecasts created on Excel by the business owner are often frowned upon.
Having numbers one can trust is key when it comes to financial forecasting and to that end using software is much safer.
Using financial forecasting software is also faster than using a spreadsheet, and, with the rise of artificial intelligence, software is also becoming smarter at helping us analyse the numbers to make smarter decisions.
Finally, like everything with spreadsheets, tracking actuals vs. forecasts and keeping your projections up to date as the year progresses is manual, tedious, and error-prone. Whereas financial projection 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 communication equipment producing company 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 communication equipment producing company, 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?
- Sample financial forecast for business idea
Know someone who owns or is thinking of starting a communication equipment producing company? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
