How to create a financial forecast for a heater and boiler manufacturer?
Creating a financial forecast for your heater and boiler 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 heater and boiler 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 heater and boiler manufacturing business?
The financial projections for your heater and boiler manufacturing business act as a financial blueprint to guide its growth with confidence and ensure its long-term financial viability.
To create them, you will need to look at your business in detail - from sales to operating costs and investments - to assess how much profit it can generate in the years to come and what will be the associated cash flows.
During challenging market conditions, maintaining an up-to-date financial forecast enables early detection of potential financial shortfalls, allowing for timely adjustments or securing financing before facing a cash crisis.
Your heater and boiler manufacturing business's financial forecast will also prove invaluable when seeking financing. Banks and investors will undoubtedly request a thorough examination of your financial figures, making precision and presentation essential.
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 needed to build a heater and boiler 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 heater and boiler 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 heater and boiler 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 heater and boiler 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 heater and boiler manufacturing business's financial forecast.
The sales forecast for a heater and boiler manufacturing business
The sales forecast, also called topline projection, is normally where you will start when building your heater and boiler 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 heater and boiler manufacturers), and consider the elements below:
- Changes in raw material costs - As a heater and boiler manufacturing business, you rely heavily on materials such as steel, copper, and aluminum to produce your products. Fluctuations in the price of these materials can significantly impact your average price, as well as your monthly transactions, as you may need to adjust your prices to account for the increased costs.
- Competition from foreign markets - With the rise of globalization, it is becoming increasingly common for foreign companies to enter the heater and boiler manufacturing market. This can create price pressure, as these companies may be able to offer similar products at a lower cost due to factors such as lower labor costs or government subsidies.
- Technological advancements - As new technologies emerge, they may impact the demand for your products. For example, the rising popularity of smart home systems may lead to a decrease in demand for traditional heating and boiler systems, causing a decrease in both average price and monthly transactions.
- Energy efficiency regulations - Governments around the world are implementing stricter regulations on energy efficiency, which can affect the demand for your products. If your heaters and boilers do not meet these regulations, it may result in a decrease in sales or the need to lower your average price to remain competitive.
- Seasonal fluctuations - As a heater and boiler manufacturing business, you may experience seasonal fluctuations in demand. For example, during the summer months, demand for your products may decrease, leading to a decrease in monthly transactions. This can also affect your average price, as you may need to offer discounts to stimulate sales during slower periods.
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 heater and boiler manufacturing business
The next step is to estimate the costs you’ll have to incur to operate your heater and boiler manufacturing business.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your heater and boiler manufacturing business's operating expenses should normally include the following items:
- Staff Costs: This includes salaries, benefits, and training costs for your employees, such as engineers, technicians, and production workers.
- Accountancy Fees: You may need to hire an accountant or accounting firm to help manage your finances, prepare tax returns, and provide financial advice.
- Insurance Costs: As a manufacturer, you will need to have insurance to protect your business from potential risks, such as liability claims or property damage.
- Software Licences: You may need to purchase software licences for design, inventory management, and other business operations.
- Banking Fees: This includes fees for maintaining business bank accounts, processing transactions, and using financial services.
- Raw Materials: These are the materials used to manufacture your heaters and boilers, such as metal, plastic, and electronic components.
- Packaging Materials: You will need to purchase packaging materials, such as boxes, labels, and shipping supplies, to package and ship your products.
- Energy Costs: As a manufacturer, you will have high energy costs for running your production equipment and heating/cooling your facility.
- Marketing Expenses: This includes advertising, trade show participation, and other promotional activities to market your heaters and boilers to potential customers.
- Maintenance and Repair: You will need to maintain and repair your production equipment, as well as your facility, to ensure smooth operations.
- Rent/Lease: If you do not own your manufacturing facility, you will need to pay rent or lease fees to use the space.
- Shipping and Freight: This includes the costs of shipping your products to customers or receiving raw materials from suppliers.
- Taxes and Permits: You will need to pay taxes on your business income and obtain necessary permits to operate your manufacturing business.
- Travel and Entertainment: You may need to travel to meet with clients, attend trade shows, or entertain potential customers, which can incur expenses.
- Professional Services: You may need to hire consultants or other professionals to provide expertise or services, such as legal or HR consulting.
This list is not exhaustive by any means, and will need to be tailored to your heater and boiler manufacturing business's specific circumstances.
What investments are needed to start or grow a heater and boiler manufacturing business?
Creating and expanding a heater and boiler manufacturing business also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a heater and boiler manufacturing business could include elements such as:
- Machinery and Equipment: This includes the purchase of specialized machinery and equipment such as industrial boilers, furnaces, heat exchangers, and other manufacturing equipment necessary for the production of heaters and boilers.
- Factory or Production Facility: The construction or purchase of a factory or production facility is a significant capital expenditure for a heater and boiler manufacturing business. This includes the cost of land, building, and necessary renovations or modifications to suit the needs of the business.
- Raw Materials and Inventory: As a heater and boiler manufacturing business, you will need to purchase raw materials and maintain inventory to meet the demands of your customers. This includes the cost of purchasing raw materials, storing them, and managing inventory levels.
- Research and Development: In order to stay competitive and innovative in the market, a heater and boiler manufacturing business must invest in research and development. This includes the cost of hiring research and development personnel, conducting experiments and tests, and acquiring necessary patents and licenses.
- Technology and Software: As technology continues to advance, it is important for a heater and boiler manufacturing business to stay up-to-date with the latest software and technology. This may include investing in new software for design and engineering, as well as upgrading existing technology for production and inventory management.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your heater and boiler 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 heater and boiler manufacturing business
The next step in the creation of your financial forecast for your heater and boiler 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 heater and boiler manufacturing business?
Now let's have a look at the main output tables of your heater and boiler manufacturing business's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your heater and boiler manufacturing business's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a heater and boiler manufacturing business should normally show:
- Sales growing above inflation
- Stable or expanding (ideally) profit margins
- A net profit
This will of course depend on the stage of your business: a new venture might be loss-making until it reaches its breakeven point in year 2 or 3, for example.
The projected balance sheet
Your heater and boiler manufacturing business's forecasted balance sheet enables you to assess your financial structure and working capital requirements.
It is composed of three types of elements: assets, liabilities and equity:
- Assets: represent what the business owns and uses to produce cash flows. It includes resources such as cash, equipment, and accounts receivable (money owed by clients).
- Liabilities: represent funds advanced to the business by lenders and other creditors. It includes items such as accounts payable (money owed to suppliers), taxes due and loans.
- 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 forecast
Your heater and boiler 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 heater and boiler 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 heater and boiler 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 heater and boiler 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 heater and boiler manufacturing business's financial forecast?
Using the right tool or solution will make the creation of your heater and boiler manufacturing business's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your heater and boiler manufacturing business's projections
The modern and easiest way is to use an online financial forecasting tool 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 projection 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 heater and boiler 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 heater and boiler manufacturing business's financial forecast?
Creating an accurate and error-free heater and boiler 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 heater and boiler 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
- A financial projection shows expected growth, profitability, and cash generation for your business over the next three to five years.
- Tracking actuals vs. forecast and keeping your financial forecast up-to-date is the only way to maintain visibility on future cash flows.
- Using financial forecasting software makes it easy to create and maintain up-to-date projections for your heater and boiler manufacturing business.
You have reached the end of our guide. We hope you now have a better understanding of how to create a financial forecast for a heater and boiler manufacturing business. Don't hesitate to contact our team if you have any questions or want to share your experience building forecasts!
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 projections
- How to project revenues for a business?
- Financial forecast for a business idea
Know someone who runs or wants to start a heater and boiler manufacturing business? Share our financial projection guide with them!
Founder & CEO at The Business Plan Shop Ltd
