How to create a financial forecast for a footwear manufacturer?
Creating a financial forecast for your footwear 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 footwear 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 footwear manufacturing business?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your footwear manufacturing business and ensure that it can be financially viable in the years to come.
A financial plan for a footwear 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 footwear 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 footwear 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.
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 footwear manufacturing business financial forecast?
A footwear 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 footwear 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 footwear 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 footwear 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 footwear manufacturing business's financial forecast.
The sales forecast for a footwear manufacturing business
The sales forecast, also called topline projection, is normally where you will start when building your footwear manufacturing business financial forecast.
Creating a coherent sales projection boils down to estimating two key drivers:
- The average price
- The number of monthly transactions
To do this, you will need to rely on historical data (for an existing business), market research data (for both new and existing footwear manufacturers), and consider the elements below:
- Your production capacity may affect the number of monthly transactions, as you may not be able to keep up with demand if your production capacity is limited.
- The cost of raw materials can impact your average price, as fluctuations in the cost of materials such as leather or rubber can affect the final price of your footwear.
- The popularity of certain styles can affect both your average price and number of monthly transactions. For example, if a particular style becomes a trend, you may be able to charge a higher price and see an increase in demand.
- The introduction of new technology in the footwear industry may affect your average price. For instance, if competitors start using 3D printing to create custom shoes, customers may be willing to pay a higher price for your unique products.
- The state of the economy can have a significant impact on both your average price and number of monthly transactions. During a recession, customers may be more price-sensitive and opt for cheaper footwear, while during economic booms, they may be willing to spend more on luxury items.
After the sales forecast comes the operating expenses budget, which we will now look into in more detail.
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The operating expenses for a footwear manufacturing business
The next step is to estimate the expenses needed to run your footwear 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 footwear manufacturing business's operating expenses should include the following items at a minimum:
- Raw materials: As a footwear manufacturing business, you will need to purchase materials such as leather, rubber, and fabric to produce your products.
- Staff costs: You will need to pay your employees, including factory workers, designers, and administrative staff, to keep your business running smoothly.
- Accountancy fees: It is crucial to have a professional accountant to help you manage your finances and taxes accurately.
- Insurance costs: As a manufacturer, you will need to protect your business from potential risks such as accidents, product defects, and liability claims.
- Rent: If you have a physical factory or office space, you will have to pay rent to your landlord.
- Utilities: Electricity, water, and other utility bills will be necessary to keep your factory or office running.
- Software licenses: You may need to purchase software licenses for design, inventory management, and accounting purposes.
- Marketing and advertising: To promote your brand and products, you will need to invest in marketing and advertising efforts, such as social media ads, influencer collaborations, and trade shows.
- Shipping and logistics: As a manufacturer, you will need to ship your products to retailers or directly to customers, which will incur shipping and logistics costs.
- Packaging materials: You will need to purchase packaging materials, such as boxes, labels, and inserts, to package your products for shipping.
- Contingency fund: It is essential to have a contingency fund to cover unforeseen expenses or emergencies, such as equipment breakdowns or supply chain disruptions.
- Banking fees: You will need to pay fees for bank transactions, such as wire transfers, credit card processing, and foreign exchange.
- Equipment maintenance: To ensure your production process runs smoothly, you will need to maintain and repair your equipment regularly.
- Professional services: You may need to hire external consultants or experts, such as lawyers or designers, to help you with specific aspects of your business.
- Training and development: Investing in your employees' training and development will help improve their skills and productivity, leading to better products and customer satisfaction.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small footwear 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 footwear manufacturing business?
Your footwear manufacturing business financial forecast will also need to include the capital expenditures (aka investments in plain English) and initial working capital items required for the creation or development of your business.
For a footwear manufacturing business, these could include:
- Equipment and Machinery: This includes the cost of purchasing and installing equipment and machinery necessary for the production of footwear, such as cutting machines, sewing machines, and shoe lasts. You may also need to account for maintenance and repair costs for these items.
- Factory Buildings: If you plan on building or purchasing a factory to manufacture your footwear, this would be considered a capital expenditure. This includes the cost of land, construction, and any necessary permits or fees.
- Inventory: As a footwear manufacturing business, you will need to purchase raw materials and components to produce your products. These would be considered capital expenditures as they are essential for the production process.
- Packaging Materials: The cost of packaging materials, such as boxes, bags, and labels, can also be included in your expenditure forecast. These items are necessary for the presentation and protection of your footwear products.
- Warehouse and Distribution Equipment: If you plan on storing and distributing your footwear products, you may need to purchase equipment such as forklifts, pallet racks, and shipping containers. These would also be considered capital expenditures.
Again, this list will need to be adjusted according to the size and ambitions of your footwear 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 footwear manufacturing business
The next step in the creation of your financial forecast for your footwear 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 footwear manufacturing business?
Now let's have a look at the main output tables of your footwear 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 footwear 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 footwear manufacturing business will look different than for a startup.
The projected balance sheet
Your footwear 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 projected cash flow statement
A projected cash flow statement for a footwear manufacturing business 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 footwear manufacturing business'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 footwear manufacturing 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 footwear manufacturing business's financial forecast?
Creating your footwear 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 footwear 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.
Hiring a financial consultant or chartered accountant
Hiring a consultant or chartered accountant is also an efficient way to get a professional footwear manufacturing business 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 footwear manufacturing business's financial forecast?
Creating an accurate and error-free footwear manufacturing business financial forecast with a spreadsheet is very technical and requires a deep knowledge of accounting and an understanding of financial modelling.
Very few business owners are financially savvy enough to be able to build a forecast themselves on Excel without making mistakes.
Lenders and investors know this, which is why forecasts created on Excel by the business owner are often frowned upon.
Having numbers one can trust is key when it comes to financial forecasting and to that end using software is much safer.
Using financial forecasting software is also faster than using a spreadsheet, and, with the rise of artificial intelligence, software is also becoming smarter at helping us analyse the numbers to make smarter decisions.
Finally, like everything with spreadsheets, tracking actuals vs. forecasts and keeping your projections up to date as the year progresses is manual, tedious, and error-prone. Whereas financial projection 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 footwear 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 footwear 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 footwear 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 sales forecast for a business?
- Sample financial forecast for business idea
Know someone who owns or is thinking of starting a footwear manufacturing business? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
