How to create a financial forecast for a dental products manufacturer?
If you are serious about keeping visibility on your future cash flows, then you need to build and maintain a financial forecast for your dental products manufacturing business.
Putting together a dental products manufacturing business financial forecast may sound complex, but don’t worry, with the right tool, it’s easier than it looks, and The Business Plan Shop is here to guide you.
In this practical guide, we'll cover everything you need to know about building financial projections for your dental products manufacturing business.
We will start by looking at why they are key, what information is needed, what a forecast looks like once completed, and what solutions you can use to create yours.
Let's dive in!
Why create and maintain a financial forecast for a dental products 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 products manufacturing business becomes handy.
Creating a dental products 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 products 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 products 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 products 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 products manufacturing business financial forecast?
A dental products manufacturing business'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 dental products manufacturing business.
If you are creating (or updating) the forecast of an existing dental products manufacturing business, 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 dental products manufacturing business 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 dental products manufacturing business 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 dental products manufacturing business's financial forecast.
The sales forecast for a dental products manufacturing business
From experience, it is usually best to start creating your dental products manufacturing business financial forecast by your sales forecast.
To create an accurate sales forecast for your dental products manufacturing business, you will have to rely on the data collected in your market research, or if you're running an existing dental products 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:
- Changing consumer preferences: As consumer preferences for dental products evolve, your average price and number of monthly transactions may be affected. For example, if there is a shift towards more eco-friendly and natural products, you may need to invest in new manufacturing processes and materials, which could increase your average price. On the other hand, if consumers are demanding more convenient and affordable options, you may need to adjust your pricing strategy to remain competitive.
- Technological advancements: New technologies in the dental industry could impact your average price and number of monthly transactions. For instance, the development of advanced equipment and tools may allow you to produce higher quality products, leading to an increase in price. Additionally, if new technology makes it easier and faster for dentists to perform certain procedures, they may require fewer products, thus decreasing your monthly transactions.
- Economic conditions: Economic conditions, such as inflation or recession, can have a significant impact on your business. Inflation may increase the cost of raw materials and production, leading to a higher average price for your products. Conversely, during a recession, consumers may cut back on non-essential expenses, resulting in a decrease in your monthly transactions.
- Changes in regulations: Changes in regulations related to dental products, such as safety standards or import/export laws, can also affect your business. Compliance with new regulations may require you to invest in new equipment or processes, which could increase your average price. Similarly, if regulations restrict the use of certain materials, you may need to find alternatives, potentially impacting your production costs and, in turn, your average price.
- Competition: The level of competition in the dental products market can impact your pricing and sales. If there is a new entrant offering similar products at a lower price, you may need to adjust your prices to remain competitive. On the other hand, if your competitors are struggling, you may be able to increase your market share and, subsequently, your 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 dental products manufacturing business
The next step is to estimate the expenses needed to run your dental products 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 dental products manufacturing business's operating expenses should include the following items at a minimum:
- Staff costs: This includes salaries, wages, benefits, and any other related expenses for your employees. In a dental products manufacturing business, you may have a team of production workers, sales representatives, and administrative staff.
- Accountancy fees: You may need to hire an accountant or outsource accounting services to manage your financial records, prepare tax returns, and provide advice on financial matters.
- Insurance costs: As a manufacturing business, you may require various types of insurance, such as general liability insurance, product liability insurance, and property insurance, to protect your business from potential risks and liabilities.
- Software licenses: You may need to purchase software licenses for specialized programs used in the manufacturing process, such as CAD software for designing dental products.
- Banking fees: Your business may incur fees for maintaining a business bank account, making transactions, and using other banking services.
- Raw materials: This includes the cost of purchasing materials used in the manufacturing process, such as plastics, metals, and chemicals.
- Packaging materials: You may need to purchase packaging materials, such as boxes, labels, and inserts, to package and ship your dental products.
- Utilities: Your business will have ongoing expenses for utilities, such as electricity, water, and gas, to power your manufacturing equipment and facilities.
- Rent: If you do not own your manufacturing facility, you will have to pay rent or lease payments for the space you use.
- Marketing and advertising: To promote your dental products and attract customers, you may need to invest in marketing and advertising activities, such as creating a website, attending trade shows, and running social media campaigns.
- Shipping and logistics: This includes the cost of shipping your products to customers or distributors, as well as any fees associated with warehousing and distribution.
- Repairs and maintenance: Your manufacturing equipment and facilities will require regular maintenance and occasional repairs, which will incur expenses.
- Professional fees: You may need to hire lawyers, consultants, or other professionals for specific projects or advice.
- Taxes: Your business will be subject to various taxes, such as income tax, sales tax, and payroll tax.
- Training and development: To ensure that your employees are knowledgeable and skilled in their roles, you may need to invest in training and development programs.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small dental products 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 dental products manufacturing business?
Once you have an idea of how much sales you could achieve and what it will cost to run your dental products manufacturing business, it is time to look into the equipment required to launch or expand the activity.
For a dental products manufacturing business, capital expenditures and initial working capital items could include:
- Manufacturing Equipment: This includes items such as dental drills, x-ray machines, and sterilization equipment. These are essential tools for producing dental products and can be a significant expense for your business.
- Facility Upgrades: As your business grows, you may need to upgrade your facility to accommodate increased production. This could include expanding the space, renovating existing areas, or purchasing additional storage equipment.
- Research and Development: In order to stay competitive in the dental products market, you may need to invest in research and development to continually improve your products. This could include hiring specialized researchers and purchasing necessary equipment.
- Packaging and Labeling: Proper packaging and labeling are essential for dental products to comply with regulations and attract customers. This can include purchasing packaging materials, label printers, and label design software.
- IT Infrastructure: As technology plays a larger role in the dental industry, investing in IT infrastructure becomes more important. This could include purchasing computers, software, and servers to support your business operations.
Again, this list will need to be adjusted according to the specificities of your dental products 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 products manufacturing business
The next step in the creation of your financial forecast for your dental products 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 products manufacturing business?
Now let's have a look at the main output tables of your dental products 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 dental products 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 dental products manufacturing business will look different than for a startup.
The projected balance sheet
The projected balance sheet gives an overview of your dental products 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 products 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 forecast
Your dental products manufacturing business's cash flow forecast shows how much cash your business is expected to consume or generate in the years to come.
It is best practice to organise the cash flow forecast by nature to better explain where cash is used or generated by the dental products manufacturing business:
- Operating cash flow: shows how much cash is generated by the operating activities
- Investing cash flow: shows how much will be invested in capital expenditure to maintain or expand the business
- Financing cash flow: shows if the business is raising new capital or repaying financiers (debt repayment, dividends)
Keeping an eye on (and regularly updating) your dental products manufacturing business's cash flow forecast is key to ensuring that your business has sufficient liquidity to operate normally and to detect financing requirements as early as possible.
If you are trying to raise capital, you will normally be asked to provide a monthly cash flow forecast in your dental products manufacturing business's financial plan - so that banks or investors can assess seasonal variation and ensure your business 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 dental products manufacturing business's financial forecast?
Creating your dental products 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 products 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 products 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 products manufacturing business's financial forecast?
Creating an accurate and error-free dental products 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 products 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 products 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 products 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 create a turnover forecast for a business?
- Example of financial forecast for business idea
Know someone who owns or is thinking of starting a dental products manufacturing business? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
