How to create a financial forecast for a bike manufacturer?
Creating a financial forecast for your bike manufacturing business, 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 bike manufacturing business 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 bike manufacturing business?
The financial projections for your bike manufacturing business 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 bike manufacturing business'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 bike manufacturing business financial forecast?
A bike 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 bike 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 bike 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 bike 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 bike manufacturing business's financial forecast.
The sales forecast for a bike manufacturing business
From experience, it is usually best to start creating your bike manufacturing business financial forecast by your sales forecast.
To create an accurate sales forecast for your bike manufacturing business, you will have to rely on the data collected in your market research, or if you're running an existing bike 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:
- Economic conditions: Economic conditions can have a significant impact on the average price and number of monthly transactions for your bike manufacturing business. For example, during a recession, consumers may have less disposable income and be less likely to purchase expensive bikes, resulting in a decrease in both price and transactions. On the other hand, during a period of economic growth, consumers may have more disposable income and be more willing to invest in higher-priced bikes, leading to an increase in both price and transactions.
- Competition: The level of competition in the bike manufacturing industry can also affect your average price and number of monthly transactions. If there are many competitors offering similar products at lower prices, you may need to lower your prices to remain competitive, resulting in a decrease in average price. This may also lead to a decrease in transactions if customers choose to purchase from your competitors instead.
- Consumer preferences: Changes in consumer preferences can also impact your average price and number of monthly transactions. For example, if there is a shift towards electric bikes, you may need to adjust your pricing to reflect the higher cost of producing these bikes. This could result in an increase in average price but potentially a decrease in transactions if customers are not willing to pay the higher price.
- Raw material costs: The cost of raw materials, such as steel and aluminum, can also affect your average price and number of monthly transactions. If the cost of these materials increases, you may need to raise your prices to maintain your profit margins, resulting in an increase in average price. This could also lead to a decrease in transactions if customers are not willing to pay the higher prices.
- Technological advancements: Advancements in technology can also affect your business's average price and number of monthly transactions. For example, if new manufacturing processes are developed that allow you to produce bikes at a lower cost, you may be able to offer lower prices to customers, resulting in a decrease in average price. However, this could also lead to an increase in transactions as customers may be drawn to the lower prices.
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 bike manufacturing business
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your bike 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 bike manufacturing business will include some of the following items:
- Staff costs: Salaries and wages for employees involved in the manufacturing process, such as assembly workers, quality control inspectors, and maintenance technicians.
- Raw materials: Expenses for the materials needed to produce the bikes, such as metal frames, rubber tires, and plastic components.
- Rent: The cost of leasing a facility to use as a production plant for the bikes.
- Utilities: Expenses for electricity, water, and gas used in the production process.
- Accountancy fees: Fees for hiring an accountant to manage your financial records and tax filings.
- Insurance costs: Premiums for insuring the manufacturing facility, equipment, and inventory against potential risks.
- Marketing expenses: Costs associated with promoting and advertising the bikes to potential customers.
- Software licences: Fees for using computer software programs to manage inventory, track sales, and handle other business operations.
- Shipping and logistics: Expenses for transporting the bikes from the manufacturing facility to distribution centers and retail locations.
- Maintenance and repairs: Costs for maintaining and repairing production equipment and machinery.
- Packaging materials: Expenses for the materials used to package and protect the bikes during shipping and storage.
- Banking fees: Charges for using banking services, such as wire transfers and credit card processing, to manage financial transactions.
- Training and development: Costs for training employees on new manufacturing techniques and processes.
- Taxes and licenses: Fees for obtaining necessary licenses and permits to operate a bike manufacturing business.
- Research and development: Expenses for conducting research and developing new bike designs and features.
This list will need to be tailored to the specificities of your bike manufacturing business, but should offer a good starting point for your budget.
What investments are needed to start or grow a bike manufacturing business?
Your bike 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 bike manufacturing business, these could include:
- Machinery and Equipment: This includes items such as welding machines, metal cutting tools, and assembly line equipment that are necessary for the manufacturing process of bikes.
- Facility Renovation: As a bike manufacturing business, you may need to renovate your facility to accommodate the production of bikes. This could include installing bike racks, storage units, or building a new production area.
- Inventory: In order to manufacture and sell bikes, you will need to purchase raw materials and components, such as frames, gears, and tires, to create your products. This will be a significant capital expenditure for your business.
- Software and Technology: As technology continues to advance, it is important for your bike manufacturing business to stay up-to-date. This may include purchasing software for inventory management, production planning, and other business processes.
- Transportation Vehicles: In order to transport your bikes to retailers or customers, you may need to invest in transportation vehicles, such as trucks or vans. This will allow you to efficiently distribute your products and meet customer demand.
Again, this list will need to be adjusted according to the size and ambitions of your bike 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 bike manufacturing business
The next step in the creation of your financial forecast for your bike 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 bike manufacturing business?
Now let's have a look at the main output tables of your bike manufacturing business's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your bike manufacturing business is likely to be in the years to come.
For your bike 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 bike 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 bike 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 bike 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 bike 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 bike 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 bike 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 bike manufacturing business's financial forecast?
Using the right tool or solution will make the creation of your bike manufacturing business's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your bike 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.
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 bike manufacturing business 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 bike 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 bike 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 bike 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.
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 forecast templates available.
Our examples contain a complete business plan with a financial forecast and a written presentation of the company, the team, the strategy, and the medium-term objectives.
Whether you are just starting out or already have your own bike manufacturing business, looking at our financial forecast template is a good way to:
- Understand what a complete business plan should look like
- Understand how you should model financial items for your bike manufacturing business
Takeaways
- A financial projection shows expected growth, profitability, and cash generation for your business over the next three to five years.
- Tracking actuals vs. forecast and keeping your financial forecast up-to-date is the only way to maintain visibility on future cash flows.
- Using financial forecasting software makes it easy to create and maintain up-to-date projections for your bike manufacturing business.
You have reached the end of our guide. We hope you now have a better understanding of how to create a financial forecast for a bike manufacturing business. Don't hesitate to contact our team if you have any questions or want to share your experience building forecasts!
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 projections
- How to project revenues for a business?
- Financial forecast for a business idea
Know someone who runs or wants to start a bike manufacturing business? Share our financial projection guide with them!
Founder & CEO at The Business Plan Shop Ltd
