How to create a financial forecast for a fastener and screw manufacturer?

Developing and maintaining an up-to-date financial forecast for your fastener and screw 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 fastener and screw 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 fastener and screw manufacturing business?

Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your fastener and screw manufacturing business and ensure that it can be financially viable in the years to come.

A financial plan for a fastener and screw manufacturing business enables you to look at your business in detail - from income to operating costs and investments - to evaluate its expected profitability and future cash flows.

This gives you the visibility needed to plan future investments and expansion with confidence. 

And, when your trading environment gets tougher, having an up to date fastener and screw manufacturing business forecast enables you to detect potential upcoming financing shortfalls in advance, enabling you to make adjustments or secure financing before you run out of cash.

It’s also important to remember that your fastener and screw manufacturing business's financial forecast will be essential when looking for financing. You can be 100% certain that banks and investors will ask to see your numbers, so make sure they’re set out accurately and attractively.

What information is needed to build a fastener and screw manufacturing business financial forecast?

The quality of your inputs is key when it comes to financial modelling: no matter how good the model is, if your inputs are off, so will the forecast.

If you are building a financial plan to start a fastener and screw manufacturing business, you will need to have done your market research and have a clear picture of your sales and marketing strategies so that you can project revenues with confidence.

You will also need to have a clear idea of what resources will be required to operate the fastener and screw manufacturing business on a daily basis, and to have done your research with regard to the equipment needed to launch your venture (see further down this guide). 

If you are creating a financial forecast of an existing fastener and screw manufacturing business, things are usually simpler as you will be able to use your historical accounting data as a budgeting base, and complement that with your team’s view on what lies ahead for the years to come.

Let's now zoom in on what will go in your fastener and screw manufacturing business's financial forecast.

The sales forecast for a fastener and screw manufacturing business

From experience, it is usually best to start creating your fastener and screw manufacturing business financial forecast by your sales forecast.

To create an accurate sales forecast for your fastener and screw manufacturing business, you will have to rely on the data collected in your market research, or if you're running an existing fastener and screw 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:

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.

The operating expenses for a fastener and screw manufacturing business

The next step is to estimate the expenses needed to run your fastener and screw 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 fastener and screw manufacturing business's operating expenses should include the following items at a minimum:

This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small fastener and screw 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 fastener and screw manufacturing business?

Creating and expanding a fastener and screw manufacturing business also requires investments which you need to factor into your financial forecast.

Capital expenditures and initial working capital items for a fastener and screw manufacturing business could include elements such as:

Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your fastener and screw manufacturing business.

The financing plan of your fastener and screw manufacturing business

The next step in the creation of your financial forecast for your fastener and screw 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 fastener and screw manufacturing business?

Now let's have a look at the main output tables of your fastener and screw 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 fastener and screw 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 fastener and screw manufacturing business will look different than for a startup.

The projected balance sheet

Your fastener and screw 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 fastener and screw 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 fastener and screw 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 fastener and screw 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 fastener and screw manufacturing business's financial plan. 

Which tool should you use to create your fastener and screw manufacturing business's financial forecast?

Using the right tool or solution will make the creation of your fastener and screw manufacturing business's financial forecast much easier than it sounds. Let’s explore the main options.

Using online financial forecasting software to build your fastener and screw 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 fastener and screw 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 fastener and screw manufacturing business's financial forecast?

Creating an accurate and error-free fastener and screw 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.

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 fastener and screw 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

1. A financial forecast shows expected growth, profitability, and cash generation metrics for your fastener and screw manufacturing business.
2. Tracking actuals vs. forecast and having an up-to-date financial forecast is key to maintaining visibility on your future cash flows.
3. Using financial forecasting software is the modern way of creating and maintaining financial projections.

We hope that this guide helped you gain a clearer perspective on the steps needed to create the financial forecast for a fastener and screw manufacturing business. Don't hesitate to contact us if you have any questions!

Also on The Business Plan Shop

• Financial forecast example
• How to project sales for a business?
• Financial forecast for a business idea

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