How to create a financial forecast for a hydropower equipment manufacturer?
Creating a financial forecast for your hydropower equipment 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 hydropower equipment 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 hydropower equipment 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 hydropower equipment manufacturing business becomes handy.
Creating a hydropower equipment 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 hydropower equipment 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 hydropower equipment 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 hydropower equipment 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 hydropower equipment manufacturing business financial forecast?
A hydropower equipment 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 hydropower equipment 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 hydropower equipment 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 hydropower equipment 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 hydropower equipment manufacturing business's financial forecast.
The sales forecast for a hydropower equipment manufacturing business
From experience, it usually makes sense to start your hydropower equipment manufacturing business's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your hydropower equipment manufacturing business (which can be used as a starting point for existing businesses) and the data collected in your market research (which both new ventures and existing businesses need to project their sales forward).
Your hydropower equipment manufacturing business's sales forecast can be broken down into two key estimates:
- The average price
- The number of monthly transactions
To assess these variables accurately, you will need to consider the following factors:
- Changes in Government Policies: You may experience fluctuations in the average price of your hydropower equipment due to changes in government policies, such as tax incentives for renewable energy or regulations on hydropower development. These policies can affect the demand for your products and ultimately impact your sales forecast.
- Natural Disasters: As a hydropower equipment manufacturer, your business may be affected by natural disasters like floods or droughts. This can lead to disruptions in production and supply chain, which can impact the average price of your products and the number of monthly transactions.
- Technological Advancements: With advancements in technology, there may be changes in the design and features of hydropower equipment. This can affect your average price, as newer and more advanced equipment may command a higher price. It can also impact the number of monthly transactions, as customers may be more inclined to purchase the latest technology.
- Competition: The presence of competitors in the market can affect your average price and number of monthly transactions. If there is intense competition, you may have to reduce your prices to remain competitive, which can impact your forecasted sales. Additionally, competition can also lead to changes in customer preferences and buying behavior.
- Global Economic Conditions: Changes in global economic conditions can have a significant impact on your business. For example, a recession can lead to a decrease in demand for hydropower equipment, resulting in a decrease in average price and number of monthly transactions. On the other hand, a growing economy may lead to an increase in demand and, consequently, an increase in your forecasted sales.
Once you have a sales forecast in place, the next step will be to work on your overhead budget. Let’s have a look at that now.
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 hydropower equipment manufacturing business
The next step is to estimate the expenses needed to run your hydropower equipment 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 hydropower equipment manufacturing business's operating expenses should include the following items at a minimum:
- Staff costs: This includes salaries, wages, benefits, and training expenses for all employees involved in the manufacturing process, such as engineers, technicians, and production workers.
- Accountancy fees: You will need to hire an accountant or accounting firm to manage your financial records, prepare tax returns, and provide financial advice for your business.
- Insurance costs: Hydropower equipment manufacturing involves potential risks such as accidents, property damage, and product liability. You will need to purchase insurance to protect your business from these risks.
- Software licenses: To design and manufacture hydropower equipment, you will need to use specialized software. This includes CAD software for designing, CAM software for manufacturing, and ERP software for managing your business operations.
- Banking fees: As a manufacturing business, you will have regular banking transactions such as depositing checks, making wire transfers, and paying bills. These transactions will incur fees from your bank.
- Raw materials: This includes the cost of purchasing raw materials such as steel, aluminum, and copper to manufacture your hydropower equipment.
- Utilities: Running a manufacturing facility requires a significant amount of electricity and water. You will need to budget for these utility expenses.
- Rent or mortgage: If you don't own the building where you will manufacture your equipment, you will have to pay rent. If you own the building, you will have a mortgage payment to make.
- Marketing and advertising: To attract customers and promote your business, you will need to invest in marketing and advertising activities such as creating a website, attending trade shows, and running social media campaigns.
- Maintenance and repairs: Your equipment and machinery will require regular maintenance and occasional repairs. You will need to budget for these expenses to keep your operations running smoothly.
- Shipping and logistics: Once your hydropower equipment is ready, you will need to ship it to your customers. This will incur shipping and logistics expenses, such as freight charges, packaging materials, and warehousing fees.
- Professional fees: In addition to accountancy fees, you may also need to hire lawyers, consultants, or engineers for specific projects or tasks related to your business.
- Taxes: As a business owner, you will have to pay various taxes, such as income tax, sales tax, and property tax. You will need to budget for these expenses.
- Travel expenses: If you need to travel for business purposes, you will have expenses such as airfare, hotel stays, and meals. These expenses should be included in your operating budget.
- Training and development: It's essential to keep your employees' skills and knowledge up-to-date. You may need to budget for training and development programs for your employees.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small hydropower equipment 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 hydropower equipment manufacturing business?
Creating and expanding a hydropower equipment manufacturing business also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a hydropower equipment manufacturing business could include elements such as:
- Hydropower Turbines: These are the main equipment used in a hydropower plant to convert the kinetic energy of water into electricity. This can be a significant capital expenditure for a hydropower equipment manufacturing business as the turbines need to be durable and efficient.
- Generators: Generators are essential for converting the mechanical energy produced by the turbines into electrical energy. These can be costly but are necessary for the functioning of a hydropower plant.
- Control Systems: A hydropower plant requires advanced control systems to regulate the flow of water and manage the generation of electricity. These systems can be expensive but are crucial for the efficient operation of the plant.
- Transmission Lines: Once electricity is generated, it needs to be transmitted to the grid for distribution. This requires the installation of transmission lines, which can be a significant capital expenditure for a hydropower equipment manufacturing business.
- Dams and Reservoirs: In some cases, a hydropower plant may require the construction of dams and reservoirs to store water and regulate the flow for consistent electricity production. These can be major capital expenditures for a hydropower equipment manufacturing business.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your hydropower equipment 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 hydropower equipment manufacturing business
The next step in the creation of your financial forecast for your hydropower equipment 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 hydropower equipment manufacturing business?
Now let's have a look at the main output tables of your hydropower equipment manufacturing business's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your hydropower equipment manufacturing business is likely to be in the years to come.
For your hydropower equipment manufacturing business to be financially viable, your projected P&L should ideally show:
- Sales growing above inflation (the higher the better)
- Profit margins which are stable or expanding (the higher the better)
- A net profit at the end of each financial year (the higher the better)
This is for established hydropower equipment manufactures, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.
The projected balance sheet
Your hydropower equipment 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 hydropower equipment 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 hydropower equipment 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 hydropower equipment 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 hydropower equipment 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 hydropower equipment manufacturing business's financial projections?
Building a hydropower equipment 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 projection software to build your hydropower equipment 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 hydropower equipment 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 hydropower equipment manufacturing business's financial forecast?
Creating an accurate and error-free hydropower equipment 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 hydropower equipment 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 hydropower equipment 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 hydropower equipment 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 sales for a business?
- Financial forecast template for a business idea
Know someone who runs or wants to start a hydropower equipment manufacturing business? Share our financial projection guide with them!
Founder & CEO at The Business Plan Shop Ltd
