How to create a financial forecast for a knitted fabric manufacturer?
Developing and maintaining an up-to-date financial forecast for your knitted fabric 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 knitted fabric 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 knitted fabric manufacturing business?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your knitted fabric manufacturing business and ensure that it can be financially viable in the years to come.
A financial plan for a knitted fabric 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 knitted fabric 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 knitted fabric 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 knitted fabric manufacturing business financial forecast?
A knitted fabric 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 knitted fabric manufacturing business.
If you are creating (or updating) the forecast of an existing knitted fabric 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 knitted fabric 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 knitted fabric 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 knitted fabric manufacturing business's financial forecast.
The sales forecast for a knitted fabric manufacturing business
The sales forecast, also called topline projection, is normally where you will start when building your knitted fabric 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 knitted fabric manufacturers), and consider the elements below:
- Demand for knitted fabrics: The overall demand for knitted fabrics in the market can greatly impact your average price and number of monthly transactions. An increase in demand can lead to higher prices and more transactions, while a decrease in demand can result in lower prices and fewer transactions.
- Competition: The level of competition in the knitted fabric manufacturing industry can also affect your average price and number of monthly transactions. If there are many competitors offering similar products, you may need to lower your prices in order to stay competitive and attract more customers.
- Cost of raw materials: The cost of raw materials, such as yarn and dyes, can have a direct impact on your average price. If the cost of these materials increases, you may need to increase your prices in order to maintain your profit margin. This, in turn, can affect the number of monthly transactions as customers may be less likely to purchase at a higher price.
- Seasonal trends: The seasonality of the knitted fabric industry can also affect your average price and number of monthly transactions. For example, in colder months, there may be a higher demand for knitted fabrics, leading to higher prices and more transactions. In warmer months, the demand may decrease, resulting in lower prices and fewer transactions.
- Technological advancements: Advancements in technology, such as new machinery or software, can impact your average price and number of monthly transactions. Investing in new technology can improve the efficiency and quality of your products, allowing you to charge higher prices and attract more customers. On the other hand, not keeping up with technological advancements may lead to lower prices and fewer transactions as customers seek more innovative products.
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 knitted fabric manufacturing business
The next step is to estimate the costs you’ll have to incur to operate your knitted fabric manufacturing business.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your knitted fabric manufacturing business's operating expenses should normally include the following items:
- Staff Costs: This includes salaries, benefits, and training expenses for your employees. You will need skilled workers to operate the knitting machines, as well as administrative staff to handle orders and customer service.
- Accountancy Fees: To ensure accurate financial records, you will need to hire an accountant or bookkeeper to handle your business's finances. They will also help with tax planning and filing.
- Insurance Costs: As with any business, there are certain risks involved in operating a knitted fabric manufacturing business. You will need to purchase insurance to protect your business and employees in case of accidents, property damage, or lawsuits.
- Raw Materials: Knitted fabrics require various raw materials, such as yarns, dyes, and chemicals. These costs can fluctuate depending on market prices and availability.
- Machinery Maintenance: Your knitting machines will require regular maintenance and repairs to ensure they are functioning properly. This may include hiring a technician or purchasing spare parts.
- Utilities: Your business will need electricity, water, and possibly gas to operate. These costs can vary depending on your location and usage.
- Rent/Lease: If you do not own a building, you will need to rent or lease a space to house your knitting machines and other equipment.
- Marketing and Advertising: To attract customers, you will need to invest in marketing and advertising efforts. This may include creating a website, attending trade shows, or running social media campaigns.
- Packaging and Shipping: You will need to purchase packaging materials and cover shipping costs to send out your finished knitted fabrics to customers.
- Software Licenses: To keep track of inventory, orders, and finances, you may need to invest in specialized software for your business.
- Banking Fees: You will need to open a business bank account to handle transactions and may be subject to fees for services such as wire transfers and check processing.
- Taxes: As a business owner, you are responsible for paying various taxes, such as income tax, sales tax, and payroll taxes.
- Legal Fees: It is important to consult with a lawyer to ensure your business is compliant with all laws and regulations. You may also need legal services for drafting contracts and handling any legal issues that may arise.
- Office Supplies: Your business will require basic office supplies such as paper, printer ink, and pens. These costs may seem small, but they can add up over time.
- Training and Development: To stay competitive, you may need to invest in ongoing training and development for yourself and your employees to improve skills and keep up with industry advancements.
This list is not exhaustive by any means, and will need to be tailored to your knitted fabric manufacturing business's specific circumstances.
What investments are needed to start or grow a knitted fabric manufacturing business?
Your knitted fabric 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 knitted fabric manufacturing business, these could include:
- Knitting machines: These machines are essential for the production of knitted fabrics. They come in various types and sizes, with different capabilities and features to suit different production needs. The cost of knitting machines can range from a few thousand dollars to tens of thousands of dollars, depending on the type and quality.
- Dyeing and finishing equipment: Knitted fabrics often require dyeing or finishing processes to achieve the desired color and texture. This equipment includes dyeing machines, finishing machines, and other related tools and materials. The cost of these equipment can vary depending on the size, capacity, and quality.
- Inventory: A knitted fabric manufacturing business requires a significant amount of raw materials, such as yarns, dyes, chemicals, and packaging materials. These materials are used in the production process and are considered as fixed assets. The cost of inventory can be significant, especially for businesses with high production volume.
- Factory or warehouse space: A suitable facility is necessary for a knitted fabric manufacturing business. This includes a factory or warehouse space for production and storage of finished products. The cost of leasing or purchasing a space will depend on the location, size, and condition of the property.
- Transportation and delivery vehicles: Depending on the size of the business, transportation and delivery vehicles may be needed to transport raw materials and finished products. These vehicles can range from small vans to large trucks, and their cost will depend on the type, size, and condition.
Again, this list will need to be adjusted according to the size and ambitions of your knitted fabric 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 knitted fabric manufacturing business
The next step in the creation of your financial forecast for your knitted fabric 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 knitted fabric manufacturing business?
Now let's have a look at the main output tables of your knitted fabric manufacturing business's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your knitted fabric manufacturing business is likely to be in the years to come.
For your knitted fabric 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 knitted fabric manufacturers, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.
The projected balance sheet
Your knitted fabric 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 projected cash flow statement
A projected cash flow statement for a knitted fabric 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 knitted fabric 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 knitted fabric 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 knitted fabric manufacturing business's financial projections?
Building a knitted fabric 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 knitted fabric 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.
Hiring a financial consultant or chartered accountant
Hiring a consultant or chartered accountant is also an efficient way to get a professional knitted fabric 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 knitted fabric manufacturing business's financial forecast?
You and your financial partners need numbers you can trust. Unless you have studied finance or accounting, creating a trustworthy and error-free knitted fabric manufacturing business financial forecast on a spreadsheet is likely to prove challenging.
Financial modelling is very technical by nature and requires a solid grasp of accounting principles to be done without errors. This means that using spreadsheet software like Excel or Google Sheets to create accurate financial forecasts is out of reach for most business owners.
Creating forecasts in Excel is also inefficient nowadays:
- Software has advanced to the point where forecasting can be done much faster and more accurately than manually on a spreadsheet.
- With artificial intelligence, the software is capable of detecting mistakes and helping decision-making.
Spreadsheets are versatile tools but they are not tailor-made for reporting. Importing your knitted fabric manufacturing business's accounting data in Excel to track actual vs. forecast is incredibly manual and tedious (and so is keeping forecasts up to date). It is much faster to use dedicated financial planning tools like The Business Plan Shop which are built specially 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 forecast templates available.
Our examples contain a complete business plan with a financial forecast and a written presentation of the company, the team, the strategy, and the medium-term objectives.
Whether you are just starting out or already have your own knitted fabric manufacturing business, looking at our financial forecast template is a good way to:
- Understand what a complete business plan should look like
- Understand how you should model financial items for your knitted fabric manufacturing business
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 knitted fabric 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 knitted fabric 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?
- Financial forecast for a business idea
Know someone who owns or is thinking of starting a knitted fabric manufacturing business? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
