How to create a financial forecast for a glue manufacturer?
Creating a financial forecast for your glue 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 glue 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 glue 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 glue manufacturing business becomes handy.
Creating a glue 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 glue 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 glue 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 glue 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 glue manufacturing business financial forecast?
A glue 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 glue manufacturing business.
If you are creating (or updating) the forecast of an existing glue 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 glue 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 glue 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 glue manufacturing business's financial forecast.
The sales forecast for a glue manufacturing business
The sales forecast, also called topline projection, is normally where you will start when building your glue 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 glue manufacturers), and consider the elements below:
- Seasonal demand: The average price and number of transactions for your glue manufacturing business may be affected by seasonal demand. During peak seasons such as the back-to-school period or holidays, there may be an increase in demand for school supplies and DIY projects, leading to higher prices and more transactions for your glue products.
- Raw material costs: The cost of raw materials, such as adhesives and resins, used in your glue production can directly impact your average price. Fluctuations in these costs, due to factors such as supply and demand or changes in oil prices, can influence the final price of your glue products and affect the number of transactions.
- Competition: The presence of competitors in the market can affect your business's average price and number of transactions. If there are several glue manufacturers in your area, you may need to adjust your prices to remain competitive and maintain your customer base. Alternatively, increased competition may lead to more aggressive marketing strategies to attract and retain customers, resulting in a higher number of transactions.
- Innovation and product development: The introduction of new and innovative glue products can drive up your average price and increase the number of transactions. For example, if you develop a new type of glue that offers a stronger hold or is more environmentally friendly, customers may be willing to pay a premium price, leading to higher revenues and more transactions.
- Economic conditions: Economic conditions, such as a recession or economic downturn, can impact the average price and number of transactions for your glue business. During tough economic times, customers may be more price-sensitive and opt for cheaper alternatives, leading to a decrease in average price and transactions. On the other hand, during periods of economic growth, customers may have more disposable income, allowing them to purchase higher-priced glue products, resulting in an increase in average price and transactions.
After the sales forecast comes the operating expenses budget, which we will now look into in more detail.
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 glue manufacturing business
The next step is to estimate the costs you’ll have to incur to operate your glue manufacturing business.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your glue manufacturing business's operating expenses should normally include the following items:
- Staff Costs: This includes salaries, wages, and benefits for employees working in production, packaging, quality control, and administrative roles.
- Raw Materials: These are the materials needed to produce the glue, such as adhesives, solvents, and additives.
- Utilities: This covers the cost of electricity, water, and gas used in the production process.
- Rent: If you have a physical manufacturing facility, you will need to pay rent for the space.
- Equipment Maintenance: This includes regular maintenance and repairs for the production equipment used in the manufacturing process.
- Packaging Materials: This includes the cost of containers, labels, and other materials used for packaging the glue.
- Marketing and Advertising: To promote your glue brand, you may need to invest in marketing and advertising efforts.
- Accountancy Fees: You will need to hire an accountant to handle your financial records and tax filings.
- Insurance Costs: This includes general liability insurance, product liability insurance, and worker's compensation insurance.
- Software Licences: To manage inventory, sales, and other business operations, you may need to purchase software licenses.
- Transportation Costs: This includes the cost of shipping and delivering your glue to wholesalers or retailers.
- Office Supplies: You will need to purchase office supplies, such as paper, pens, and printer ink, for administrative tasks.
- Banking Fees: This includes fees for bank accounts, credit card processing, and loans.
- Legal Fees: You may need to hire a lawyer for legal advice and assistance with contracts and patents.
- Training and Development: To keep your employees updated on industry trends and new technologies, you may need to invest in training and development programs.
This list is not exhaustive by any means, and will need to be tailored to your glue manufacturing business's specific circumstances.
What investments are needed to start or grow a glue manufacturing business?
Creating and expanding a glue manufacturing business also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a glue manufacturing business could include elements such as:
- Machinery and Equipment: This includes the cost of purchasing and installing machines and equipment used in the production of glue, such as mixers, pumps, and packaging machines.
- Facility Renovation: You may need to renovate your facility to accommodate the production of glue, such as installing new flooring, ventilation systems, and storage areas.
- Raw Materials and Supplies: In order to produce glue, you will need to purchase various raw materials and supplies, such as adhesives, chemicals, and packaging materials.
- Transportation Vehicles: If you plan on delivering your products to customers, you may need to invest in transportation vehicles, such as trucks or vans, to ensure timely and efficient delivery.
- Computer Systems and Software: To keep track of inventory, sales, and finances, you may need to purchase computer systems and software specifically designed for manufacturing businesses.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your glue 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 glue manufacturing business
The next step in the creation of your financial forecast for your glue 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 glue manufacturing business?
Now let's have a look at the main output tables of your glue 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 glue 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 glue manufacturing business will look different than for a startup.
The projected balance sheet
The projected balance sheet gives an overview of your glue 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 glue 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 glue 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 glue 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 glue 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 glue 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 glue manufacturing business's financial projections?
Building a glue manufacturing business financial forecast is not difficult provided that you use the right tool for the job. Let’s see what options are available below.
Using online financial forecasting software to build your glue 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
Enlisting the help of a consultant or accountant is also a good way to obtain a professional glue 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 glue manufacturing business's financial forecast?
Creating an accurate and error-free glue 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 glue 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 glue 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 glue 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 sales for a business?
- Financial forecast for a business idea
Know someone who owns or is thinking of starting a glue manufacturing business? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
