How to create a financial forecast for a consumer electronics manufacturer?
Developing and maintaining an up-to-date financial forecast for your consumer electronics 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 consumer electronics 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 consumer electronics manufacturing business?
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 consumer electronics manufacturing business becomes handy.
Creating a consumer electronics manufacturing business 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 consumer electronics manufacturing business.
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 consumer electronics manufacturing business 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 consumer electronics manufacturing business'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 consumer electronics manufacturing business financial forecast?
A consumer electronics 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 consumer electronics 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 consumer electronics 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 consumer electronics 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 consumer electronics manufacturing business's financial forecast.
The sales forecast for a consumer electronics manufacturing business
From experience, it is usually best to start creating your consumer electronics manufacturing business financial forecast by your sales forecast.
To create an accurate sales forecast for your consumer electronics manufacturing business, you will have to rely on the data collected in your market research, or if you're running an existing consumer electronics 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:
- Competition: The level of competition in the consumer electronics market can greatly impact 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 stay competitive and maintain your market share. This could result in a decrease in your average price and an increase in the number of monthly transactions as customers are more likely to purchase from you.
- Technological advancements: As technology continues to advance, the demand for newer and more advanced consumer electronics increases. This could lead to an increase in your average price as customers are willing to pay more for the latest technology. However, it may also result in a decrease in the number of monthly transactions as customers may delay their purchases until newer models are released.
- Economic conditions: Economic conditions, such as a recession or inflation, can greatly impact consumer purchasing behavior. During a recession, customers may be more price-sensitive and opt for cheaper alternatives, resulting in a decrease in your average price and number of monthly transactions. On the other hand, during times of economic growth, customers may be more willing to spend on higher-priced consumer electronics, leading to an increase in both your average price and number of monthly transactions.
- Product lifecycle: The stage of your product's lifecycle can also affect your sales forecast. In the introductory stage, when your product is new to the market, you may have a higher average price due to the novelty of the product. However, as your product reaches the maturity stage, the competition may increase and you may need to lower your prices to stay competitive, resulting in a decrease in your average price and potentially an increase in the number of monthly transactions.
- Consumer preferences: Changes in consumer preferences can also have an impact on your sales forecast. For example, if there is a shift towards more environmentally-friendly products, you may need to invest in new technologies and materials to meet this demand. This could result in an increase in your average price as these products may be more expensive to produce, but it may also attract a new segment of customers and lead to an increase in the number of monthly transactions.
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 consumer electronics manufacturing business
The next step is to estimate the expenses needed to run your consumer electronics manufacturing business 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 consumer electronics manufacturing business's operating expenses should include the following items at a minimum:
- Staff Costs: This includes salaries, wages, benefits, and training for your employees, including engineers, technicians, and assembly line workers.
- Accountancy Fees: You will need to hire an accountant or accounting firm to help you manage your financial records, taxes, and other financial matters.
- Insurance Costs: Your business will need insurance coverage for liability, property damage, and other risks associated with manufacturing consumer electronics.
- Raw Materials: From circuit boards to microchips, you will need to purchase raw materials to manufacture your products.
- Equipment Maintenance: To keep your manufacturing equipment running smoothly, you will need to budget for regular maintenance and repairs.
- Utilities: Your business will have ongoing expenses for electricity, water, and other utilities needed for manufacturing.
- Rent/Lease: If you do not own your manufacturing facility, you will need to budget for rent or lease payments.
- Packaging and Shipping: As a consumer electronics manufacturer, you will need to budget for the cost of packaging materials and shipping products to customers.
- Marketing and Advertising: To promote your products and reach potential customers, you will need to allocate funds for marketing and advertising efforts.
- Research and Development: As technology evolves, you will need to continually invest in research and development to stay competitive in the consumer electronics market.
- Software Licenses: Your business will need to purchase software licenses for design, manufacturing, and other business operations.
- Banking Fees: You will have ongoing expenses for banking fees, such as transaction fees, wire transfer fees, and account maintenance fees.
- Taxes: As a business owner, you will need to pay taxes, including income tax, sales tax, and payroll tax.
- Legal Fees: To protect your business and ensure compliance with laws and regulations, you may need to hire a lawyer for legal advice and services.
- Employee Benefits: In addition to salaries and wages, you may also offer benefits to your employees, such as health insurance, retirement plans, and paid time off.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small consumer electronics manufacturing business might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow a consumer electronics manufacturing business?
Once you have an idea of how much sales you could achieve and what it will cost to run your consumer electronics manufacturing business, it is time to look into the equipment required to launch or expand the activity.
For a consumer electronics manufacturing business, capital expenditures and initial working capital items could include:
- Manufacturing Equipment: This includes machines and tools used in the production of consumer electronics, such as circuit board assembly machines, soldering equipment, and testing machines.
- Research and Development: As a consumer electronics manufacturing business, it is important to constantly innovate and improve your products. This may involve investing in research and development equipment, such as 3D printers, prototyping tools, and software licenses.
- Facility Upgrades: In order to produce high-quality consumer electronics, you may need to invest in facility upgrades, such as installing clean rooms, upgrading electrical systems, or purchasing specialized ventilation systems.
- Inventory: As a manufacturing business, you will need to keep a stock of raw materials and components on hand to ensure smooth production. This may include purchasing items such as microchips, screens, and other electronic components.
- Transportation and Shipping: Once your products are manufactured, they will need to be transported to your customers. This may require purchasing delivery trucks, forklifts, or other transportation equipment.
Again, this list will need to be adjusted according to the specificities of your consumer electronics 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 consumer electronics manufacturing business
The next step in the creation of your financial forecast for your consumer electronics 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 consumer electronics manufacturing business?
Now let's have a look at the main output tables of your consumer electronics manufacturing business'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 consumer electronics manufacturing business'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 consumer electronics manufacturing business will look different than for a startup.
The projected balance sheet
Your consumer electronics 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 consumer electronics 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 consumer electronics 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 consumer electronics 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 consumer electronics 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 consumer electronics manufacturing business's financial forecast?
Creating your consumer electronics 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 consumer electronics 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
Outsourcing the creation of your consumer electronics manufacturing business financial forecast is another possible solution.
This will cost more than using software as you can expect as your price will have to cover the accountant’s time, software cost, and profit margin.
Price can vary greatly based on the complexity of your business. For a small business, from experience, a simple three-year financial forecast (including a balance sheet, income statement, and cash flow statement) will start at around £700 or $1,000.
Bear in mind that this is for forecasts produced at a single point in time, updating or tracking your forecast against actuals will cost extra.
If you decide to outsource your forecasting:
- Make sure the professional has direct experience in your industry and is able to challenge your assumptions constructively.
- Steer away from consultants using sectorial ratios to build their client’s financial forecasts (these projections are worthless for a small business).
Why not use a spreadsheet such as Excel or Google Sheets to build your consumer electronics 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 consumer electronics 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 consumer electronics 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 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 consumer electronics manufacturing business, 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 consumer electronics 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 consumer electronics 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 sales for a business?
- Financial forecast for a business idea
Know someone who runs or wants to start a consumer electronics manufacturing business? Share our financial projection guide with them!
Founder & CEO at The Business Plan Shop Ltd
