How to create a financial forecast for a construction equipment rental firm?
Developing and maintaining an up-to-date financial forecast for your construction equipment rental firm 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 construction equipment rental firm 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 construction equipment rental firm?
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 construction equipment rental firm becomes handy.
Creating a construction equipment rental firm 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 construction equipment rental firm.
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 construction equipment rental firm 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 construction equipment rental firm'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 construction equipment rental firm financial forecast?
A construction equipment rental firm'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 construction equipment rental firm, 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 construction equipment rental firm 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 construction equipment rental firm 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 construction equipment rental firm's financial forecast.
The sales forecast for a construction equipment rental firm
From experience, it is usually best to start creating your construction equipment rental firm financial forecast by your sales forecast.
To create an accurate sales forecast for your construction equipment rental firm, you will have to rely on the data collected in your market research, or if you're running an existing construction equipment rental firm, 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:
- Seasonal Demand: As a construction equipment rental firm, your average price and number of monthly transactions may be affected by seasonal changes in demand. For example, during the winter months, there may be a decrease in demand for equipment rentals as construction projects slow down due to weather conditions.
- Industry Trends: Changes in the construction industry can also impact your business's average price and number of monthly transactions. For instance, if there is a shift towards using more advanced, expensive equipment in construction projects, your average price may increase, but the number of monthly transactions may decrease as these equipment rentals are less in demand.
- Competition: The level of competition in your local market can also affect your average price and number of monthly transactions. If there are many other equipment rental firms in the area, you may have to lower your prices to stay competitive, which could lead to a decrease in your average price. However, if your business has a unique selling point or offers high-quality equipment, you may see an increase in your number of monthly transactions as customers are willing to pay a premium for your services.
- Economic Conditions: Economic factors, such as interest rates and unemployment rates, can also impact your business's average price and number of monthly transactions. During a recession, for example, construction projects may be put on hold, leading to a decrease in demand for equipment rentals and a potential decrease in your average price.
- Equipment Availability: The availability of equipment in your rental inventory can also affect your business's average price and number of monthly transactions. If you have a limited supply of a particular type of equipment, you may be able to charge a higher price for its rental. However, this could also mean a decrease in the number of monthly transactions as customers may choose to go to another rental firm with more options available.
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 construction equipment rental firm
The next step is to estimate the costs you’ll have to incur to operate your construction equipment rental firm.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your construction equipment rental firm's operating expenses should normally include the following items:
- Staff costs: This includes salaries, wages, and benefits for all employees, including rental equipment operators, administrative staff, and management.
- Accountancy fees: You may need to hire an accountant to help with financial record keeping, tax preparation, and other financial tasks.
- Insurance costs: As a construction equipment rental firm, you will need insurance to protect your business and equipment from potential risks and liabilities.
- Software licenses: You will likely need to purchase software licenses for accounting, inventory management, and other business operations.
- Banking fees: This includes fees for checking accounts, credit card processing, and other banking services.
- Rent or lease expenses: You may need to rent or lease office space, storage facilities, and/or equipment yards for your rental equipment.
- Utilities: This includes electricity, water, and other utilities needed to operate your business.
- Marketing and advertising: You may need to budget for marketing and advertising expenses to promote your rental equipment services.
- Maintenance and repairs: Regular maintenance and repairs are necessary to keep your rental equipment in good working condition.
- Fuel and vehicle expenses: If your business involves delivering equipment to job sites, you will need to budget for fuel and vehicle expenses.
- Training and development: It is important to invest in training and development for your employees to ensure they have the skills and knowledge to operate and maintain the rental equipment.
- Legal fees: You may need to consult with a lawyer for legal advice and to help with drafting contracts and other legal documents.
- Office supplies: This includes items such as paper, pens, printer ink, and other office supplies needed for day-to-day operations.
- Vehicle and equipment insurance: In addition to general business insurance, you may also need insurance specifically for your rental equipment and vehicles.
- Taxes and licenses: As a business owner, you will be responsible for paying taxes and obtaining necessary licenses and permits.
This list is not exhaustive by any means, and will need to be tailored to your construction equipment rental firm's specific circumstances.
What investments are needed to start or grow a construction equipment rental firm?
Once you have an idea of how much sales you could achieve and what it will cost to run your construction equipment rental firm, it is time to look into the equipment required to launch or expand the activity.
For a construction equipment rental firm, capital expenditures and initial working capital items could include:
- Construction Equipment: As a construction equipment rental firm, one of your biggest capital expenditures will be the purchase or lease of construction equipment. This includes items such as excavators, bulldozers, cranes, and forklifts. It is important to accurately forecast the cost of acquiring or renting these pieces of equipment, as well as factoring in maintenance and repair costs.
- Transportation Vehicles: In order to transport your construction equipment to and from job sites, you will need to invest in transportation vehicles. This can include trucks, trailers, and other vehicles specifically designed for hauling heavy equipment. Make sure to include the cost of purchasing or leasing these vehicles, as well as insurance and maintenance costs, in your expenditure forecast.
- Storage Facilities: As a construction equipment rental firm, you will need to have adequate storage facilities to house your equipment when it is not in use. This can include warehouse space, storage yards, and even secure parking lots. Consider the cost of renting or purchasing these facilities, as well as any necessary improvements or maintenance.
- Office Space and Technology: In addition to equipment and storage, you will also need to budget for office space and technology. This can include items such as computers, phones, and office furniture, as well as rent or lease payments for your office space. It is important to accurately forecast these costs in order to run your business efficiently and effectively.
- Safety Equipment and Training: As a construction equipment rental firm, it is your responsibility to ensure the safety of your employees and customers. This may require purchasing or leasing safety equipment such as hard hats, vests, and harnesses, as well as providing training for your employees on how to properly use and maintain the equipment. Be sure to include these costs in your expenditure forecast to ensure the safety and success of your business.
Again, this list will need to be adjusted according to the specificities of your construction equipment rental firm.
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 construction equipment rental firm
The next step in the creation of your financial forecast for your construction equipment rental firm 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 construction equipment rental firm?
Now let's have a look at the main output tables of your construction equipment rental firm'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 construction equipment rental firm'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 construction equipment rental firm will look different than for a startup.
The projected balance sheet
Your construction equipment rental firm'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 projected cash flow statement
A projected cash flow statement for a construction equipment rental firm is used to show how much cash the business is generating or consuming.
The cash flow forecast is usually organised by nature to show three key metrics:
- The operating cash flow: do the core business activities generate or consume cash?
- The investing cash flow: how much is the business investing in long-term assets (this is usually compared to the level of fixed assets on the balance sheet to assess whether the business is regularly maintaining and renewing its equipment)?
- The financing cash flow: is the business raising new financing or repaying financiers (debt repayment, dividends)?
Cash is king and keeping an eye on future cash flows is imperative for running a successful business. Therefore, you should pay close attention to your construction equipment rental firm's cash flow forecast.
If you are trying to secure financing, note that it is customary to provide both yearly and monthly cash flow forecasts in a financial plan - so that the reader can analyze seasonal variation and ensure the construction equipment rental firm 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 construction equipment rental firm's financial projections?
Building a construction equipment rental firm financial forecast is not difficult provided that you use the right tool for the job. Let’s see what options are available below.
Using online financial forecasting software to build your construction equipment rental firm's projections
The modern and easiest way is to use an online financial forecasting tool 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 projection 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 construction equipment rental firm 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 construction equipment rental firm'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 construction equipment rental firm 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 construction equipment rental firm'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 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 construction equipment rental firm, 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
- 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 construction equipment rental firm.
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 construction equipment rental firm. 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 create a sales forecast for a business?
- Financial forecast for a business idea
Know someone who runs or wants to start a construction equipment rental firm? Share our financial projection guide with them!
Founder & CEO at The Business Plan Shop Ltd
