How to create a financial forecast for a dental instrument manufacturer?
Creating a financial forecast for your dental instrument 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 dental instrument 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 dental instrument 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 dental instrument manufacturing business becomes handy.
Creating a dental instrument 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 dental instrument 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 dental instrument 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 dental instrument 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 dental instrument manufacturing business financial forecast?
A dental instrument 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 dental instrument 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 dental instrument 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 dental instrument 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 dental instrument manufacturing business's financial forecast.
The sales forecast for a dental instrument manufacturing business
From experience, it usually makes sense to start your dental instrument manufacturing business's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your dental instrument manufacturing business (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 dental instrument manufacturing business'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:
- Changes in technology: As new and advanced technologies are introduced in the dental industry, the demand for innovative and high-quality dental instruments may increase, leading to a higher average price for your products.
- Dental industry trends: Keeping up with industry trends can significantly impact your average price and monthly transactions. For example, if there is a shift towards more minimally invasive procedures, the demand for specialized instruments may increase, resulting in a higher average price.
- Competition: The presence of competitors offering similar products at lower prices may affect your average price and monthly transactions. You may need to adjust your prices to stay competitive in the market.
- Regulatory changes: Changes in regulations related to dental instruments and equipment can impact your business. For instance, if new regulations require more stringent safety standards, the cost of producing your instruments may increase, resulting in a higher average price.
- Economic conditions: Economic factors such as inflation, interest rates, and consumer spending can affect the purchasing power of your target market. In a weak economy, consumers may be more price-sensitive, leading to a decrease in your average price and monthly transactions.
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 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 dental instrument manufacturing business
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your dental instrument 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 dental instrument manufacturing business will include some of the following items:
- Staff costs: This includes salaries, benefits, and any other compensation for your employees. As a dental instrument manufacturing business, you will need skilled workers to design, produce, and assemble your products.
- Accountancy fees: You will need to hire an accountant or use accounting software to keep track of your financial records and ensure compliance with tax laws and regulations.
- Insurance costs: As with any business, it is important to have insurance to protect your company from potential risks and liabilities. This may include general liability insurance, product liability insurance, and workers' compensation insurance.
- Software licenses: In order to design and produce dental instruments, you may need to purchase software licenses for CAD/CAM programs, product design software, and other specialized tools.
- Banking fees: Your business will incur fees for banking services such as checking accounts, credit card processing, and wire transfers.
- Rent: If you do not own your manufacturing facility, you will need to budget for rent payments.
- Utilities: Running a manufacturing operation requires a significant amount of electricity, water, and other utilities. These costs should be factored into your expenses.
- Raw materials: As a dental instrument manufacturer, you will need to purchase raw materials such as metals, plastics, and other components to produce your products.
- Packaging and shipping: Once your products are ready, you will need to package them and ship them to your customers. This will incur costs for materials, labor, and shipping fees.
- Marketing and advertising: In order to attract customers and promote your brand, you will need to invest in marketing and advertising efforts such as website development, print materials, and online ads.
- Maintenance and repairs: Your manufacturing equipment will require regular maintenance and occasional repairs, which should be accounted for in your budget.
- Professional fees: You may need to hire consultants, lawyers, or other professionals to help with specific aspects of your business, such as legal advice or market research.
- Travel expenses: If you attend trade shows or conferences, you will need to budget for travel expenses such as airfare, lodging, and meals.
- Office supplies: Your office will require supplies such as paper, ink, and other materials. These costs may seem small, but they can add up over time.
- Taxes and licenses: As a business, you will need to pay various taxes and obtain necessary licenses to operate legally. These costs should be factored into your expenses.
This list will need to be tailored to the specificities of your dental instrument manufacturing business, but should offer a good starting point for your budget.
What investments are needed to start or grow a dental instrument manufacturing business?
Once you have an idea of how much sales you could achieve and what it will cost to run your dental instrument manufacturing business, it is time to look into the equipment required to launch or expand the activity.
For a dental instrument manufacturing business, capital expenditures and initial working capital items could include:
- Dental equipment: This includes items such as dental chairs, X-ray machines, and dental drills. These are essential tools for a dental instrument manufacturing business and are considered fixed assets as they are not expected to be consumed or sold within a year.
- Machinery and tools: A dental instrument manufacturing business may require specialized machinery and tools to create and assemble dental instruments. Examples include injection molding machines, polishing machines, and small hand tools. These are considered fixed assets as they are used in the production process and are expected to have a useful life of more than a year.
- Office furniture and fixtures: As your business grows, you may need to invest in office furniture and fixtures such as desks, chairs, and shelves to provide a comfortable and organized workspace for your employees. These are considered fixed assets as they are not expected to be consumed within a year and have a useful life of more than a year.
- Building renovations: If you plan on purchasing or leasing a building for your dental instrument manufacturing business, you may need to make renovations to accommodate your production needs. This can include installing specialized electrical or plumbing systems, adding ventilation and exhaust systems, and creating a clean room for assembly. These are considered fixed assets as they are expected to have a useful life of more than a year.
- Computer hardware and software: In today's digital age, it is essential for a dental instrument manufacturing business to have reliable computer hardware and software for designing, testing, and managing production processes. These are considered fixed assets as they are not expected to be consumed or replaced within a year and have a useful life of more than a year.
Again, this list will need to be adjusted according to the specificities of your dental instrument 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 dental instrument manufacturing business
The next step in the creation of your financial forecast for your dental instrument 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 dental instrument manufacturing business?
Now let's have a look at the main output tables of your dental instrument manufacturing business's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your dental instrument manufacturing business is likely to be in the years to come.
For your dental instrument 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 dental instrument manufacturers, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.
The projected balance sheet
The projected balance sheet gives an overview of your dental instrument manufacturing business'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 dental instrument manufacturing business. 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 projection
The cash flow forecast of your dental instrument 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 dental instrument 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 dental instrument 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 dental instrument 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 dental instrument manufacturing business's financial forecast?
Creating your dental instrument 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 projection software to build your dental instrument manufacturing business'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 dental instrument 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 dental instrument manufacturing business's financial forecast?
Creating an accurate and error-free dental instrument manufacturing business 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 dental instrument 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
- 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 dental instrument manufacturing business 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 dental instrument manufacturing business, 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?
- Example of financial forecast for business idea
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Founder & CEO at The Business Plan Shop Ltd
