How to create a financial forecast for a leather clothes manufacturer?
If you are serious about keeping visibility on your future cash flows, then you need to build and maintain a financial forecast for your leather clothes manufacturing business.
Putting together a leather clothes manufacturing business financial forecast may sound complex, but don’t worry, with the right tool, it’s easier than it looks, and The Business Plan Shop is here to guide you.
In this practical guide, we'll cover everything you need to know about building financial projections for your leather clothes manufacturing business.
We will start by looking at why they are key, what information is needed, what a forecast looks like once completed, and what solutions you can use to create yours.
Let's dive in!
Why create and maintain a financial forecast for a leather clothes manufacturing business?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your leather clothes manufacturing business and ensure that it can be financially viable in the years to come.
A financial plan for a leather clothes 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 leather clothes 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 leather clothes 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 leather clothes manufacturing business financial forecast?
A leather clothes 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 leather clothes manufacturing business.
If you are creating (or updating) the forecast of an existing leather clothes 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 leather clothes 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 leather clothes 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 leather clothes manufacturing business's financial forecast.
The sales forecast for a leather clothes manufacturing business
From experience, it usually makes sense to start your leather clothes manufacturing business's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your leather clothes 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 leather clothes 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:
- Trend in leather prices: As a leather clothes manufacturer, the cost of your raw materials directly affects your product's average price. Keep an eye on the trend of leather prices and adjust your prices accordingly to maintain profitability.
- Fashion trends: The fashion industry is constantly evolving, and as a leather clothes manufacturer, you need to stay on top of the latest trends to ensure that your products remain in demand. Keep an eye on fashion shows, magazines, and social media to anticipate the next big trend and adjust your production accordingly.
- Competition: Your competitors' pricing strategies and product offerings directly impact your own business. Keep an eye on your competitors' prices and offerings to ensure that you remain competitive in the market.
- Economic conditions: Economic conditions, such as a recession or a booming economy, can greatly affect consumer spending on luxury items like leather clothing. Keep an eye on the overall economic climate and adjust your production and pricing strategies accordingly.
- Seasonal demand: Leather clothing is often associated with colder weather, and as a result, your sales may be affected by seasonal demand. Keep track of your sales data to identify patterns and adjust your production and sales forecast accordingly to meet the demand.
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 leather clothes manufacturing business
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your leather clothes manufacturing business on a daily basis.
Expenses normally vary based on how much revenue you anticipate (which is why, from experience, it is always better to start your forecast with the topline projection), and where your business is based.
Operating expenses for a leather clothes manufacturing business will include some of the following items:
- Staff costs: This includes salaries, wages, benefits, and any other compensation for your employees. As a leather clothes manufacturing business, you will need skilled workers such as tailors, designers, and salespeople.
- Raw materials: This refers to the leather, thread, zippers, buttons, and other materials needed to create your products. The cost of these materials will vary depending on the quality and quantity needed.
- Rent: If you are operating from a physical location, you will need to pay rent for your manufacturing facility and any retail space you may have. The cost will depend on the size and location of your business.
- Utilities: This includes electricity, water, heating, and other utilities necessary for your business operations. As a leather clothes manufacturing business, you may also need specialized equipment that consumes more energy.
- Equipment maintenance: To keep your equipment running smoothly, you will need to budget for regular maintenance and repairs. This includes sewing machines, cutting tables, and other tools used in the manufacturing process.
- Marketing and advertising: To attract customers, you will need to invest in marketing and advertising efforts. This includes creating a website, social media ads, and attending trade shows and fashion events.
- Accountancy fees: As a business owner, you will need to keep track of your financial records and file taxes. Hiring an accountant can help ensure accuracy and compliance with tax laws.
- Insurance costs: It is important to protect your business and assets with insurance. This may include liability insurance, property insurance, and worker's compensation insurance.
- Software licenses: To streamline your business operations, you may need to invest in software for inventory management, accounting, and other tasks. These often come with recurring licensing fees.
- Banking fees: You will need a business bank account to manage your finances. This may come with fees for transactions, wire transfers, and other services.
- Shipping and logistics: If you offer online sales or have a retail presence, you will need to budget for shipping costs and logistics. This includes packaging materials, postage, and any third-party shipping services you may use.
- Professional fees: You may need to hire outside help for legal, marketing, or other services. These professionals may charge hourly rates or project-based fees.
- Training and development: To stay competitive in the fashion industry, you may need to invest in training and development for yourself and your employees. This can include workshops, conferences, and online courses.
- Office supplies: From paper and pens to printer ink and packaging materials, there will be ongoing costs for office supplies. These may seem small, but they can add up over time.
- Travel expenses: If you attend trade shows, meet with suppliers, or travel for business purposes, you will need to budget for travel expenses such as airfare, accommodations, and meals.
This list will need to be tailored to the specificities of your leather clothes manufacturing business, but should offer a good starting point for your budget.
What investments are needed to start or grow a leather clothes manufacturing business?
Creating and expanding a leather clothes manufacturing business also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a leather clothes manufacturing business could include elements such as:
- Machinery and Equipment: This includes the cost of purchasing or leasing machinery and equipment necessary for the production of leather clothes, such as cutting machines, sewing machines, and finishing equipment.
- Inventory: As a leather clothes manufacturing business, you will need to invest in raw materials such as leather, lining, zippers, and buttons. These materials will be used to produce the clothes and will need to be replenished regularly.
- Facilities: This includes the cost of renting or purchasing a manufacturing facility, as well as any necessary renovations or upgrades to make the space suitable for producing leather clothes.
- Technology: In today's digital age, technology is an important aspect of any business. For a leather clothes manufacturing business, this may include investing in software for design and pattern-making, as well as hardware such as computers and printers.
- Transportation: If your business involves shipping and delivering products, you will need to consider the cost of transportation. This may include purchasing or leasing delivery vehicles, as well as the cost of fuel and maintenance.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your leather clothes 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 leather clothes manufacturing business
The next step in the creation of your financial forecast for your leather clothes 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 leather clothes manufacturing business?
Now let's have a look at the main output tables of your leather clothes 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 leather clothes 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 leather clothes manufacturing business will look different than for a startup.
The projected balance sheet
Your leather clothes 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 leather clothes 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 leather clothes 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 leather clothes 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 leather clothes manufacturing business's financial projections?
Building a leather clothes 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 leather clothes 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
Outsourcing the creation of your leather clothes manufacturing business financial forecast is another possible solution.
This will cost more than using software as you can expect as your price will have to cover the accountant’s time, software cost, and profit margin.
Price can vary greatly based on the complexity of your business. For a small business, from experience, a simple three-year financial forecast (including a balance sheet, income statement, and cash flow statement) will start at around £700 or $1,000.
Bear in mind that this is for forecasts produced at a single point in time, updating or tracking your forecast against actuals will cost extra.
If you decide to outsource your forecasting:
- Make sure the professional has direct experience in your industry and is able to challenge your assumptions constructively.
- Steer away from consultants using sectorial ratios to build their client’s financial forecasts (these projections are worthless for a small business).
Why not use a spreadsheet such as Excel or Google Sheets to build your leather clothes manufacturing business's financial forecast?
Creating an accurate and error-free leather clothes 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 forecast templates for inspiration
The Business Plan Shop has dozens of financial forecast examples available.
Our templates contain both a financial forecast and a written business plan which presents, in detail, the company, the team, the strategy, and the medium-term objectives.
Our templates are a great source of inspiration, whether you just want to see what a complete business plan looks like, or are looking for concrete examples of how you should model financial elements in your own forecast.
Takeaways
- A financial forecast shows expected growth, profitability, and cash generation metrics for your leather clothes manufacturing business.
- Tracking actuals vs. forecast and having an up-to-date financial forecast is key to maintaining visibility on your future cash flows.
- Using financial forecasting software is the modern way of creating and maintaining financial projections.
We hope that this guide helped you gain a clearer perspective on the steps needed to create the financial forecast for a leather clothes manufacturing business. Don't hesitate to contact us if you 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
- Financial forecast example
- How to create a turnover forecast for a business?
- Sample financial forecast for business idea
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Founder & CEO at The Business Plan Shop Ltd
