How to create a financial forecast for a metal wholesaler?
Creating a financial forecast for your metal wholesaler, 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 metal wholesaler 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 metal wholesaler?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your metal wholesaler and ensure that it can be financially viable in the years to come.
A financial plan for a metal wholesaler 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 metal wholesaler 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 metal wholesaler'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 needed to build a metal wholesaler 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 metal wholesaler, 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 metal wholesaler 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 metal wholesaler, 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 metal wholesaler's financial forecast.
The sales forecast for a metal wholesaler
From experience, it usually makes sense to start your metal wholesaler's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your metal wholesaler (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 metal wholesaler'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:
- The fluctuation of metal prices in the global market can greatly impact your average price and number of monthly transactions. For example, if the demand for a certain type of metal increases, the price will likely go up, and you may see an increase in transactions as customers rush to purchase the metal before the price increases even further.
- The state of the economy can also affect your business's average price and number of monthly transactions. During an economic downturn, customers may be more hesitant to purchase expensive metals, resulting in a decrease in both average price and transactions. On the other hand, during a period of economic growth, customers may have more disposable income and be more willing to make larger purchases, leading to an increase in average price and transactions.
- The cost of raw materials needed to produce metal can also impact your average price and number of monthly transactions. If the cost of raw materials increases, you may need to raise your prices in order to maintain profitability, which could lead to a decrease in transactions as customers may look for cheaper alternatives. Similarly, if the cost of raw materials decreases, you may be able to lower your prices and potentially attract more customers, resulting in an increase in transactions.
- The availability of certain types of metal can also affect your business's average price and number of monthly transactions. If a specific type of metal is in high demand and limited supply, you may be able to charge a higher price and see an increase in transactions as customers are willing to pay a premium for the metal. Conversely, if a type of metal is readily available, you may need to lower your prices in order to compete with other wholesalers, which could result in a decrease in transactions.
- The development of new technologies and processes in the metal industry can also impact your average price and number of monthly transactions. For example, if a new technology is developed that allows for the production of a certain type of metal at a lower cost, you may be able to lower your prices and attract more customers, resulting in an increase in transactions. On the other hand, if a new technology is developed that allows for the production of a higher quality metal, you may be able to charge a higher price and see an increase in transactions as customers are willing to pay more for the superior product.
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.
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The operating expenses for a metal wholesaler
The next step is to estimate the costs you’ll have to incur to operate your metal wholesaler.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your metal wholesaler's operating expenses should normally include the following items:
- Staff Costs: This includes the salaries and benefits for your employees, including sales representatives, warehouse workers, and administrative staff.
- Accountancy Fees: You will need to hire an accountant to manage your financial records, prepare tax returns, and provide financial advice.
- Insurance Costs: As a metal wholesaler, you will need to have insurance coverage for your business, including general liability, property, and workers' compensation insurance.
- Software Licences: You will need to purchase software licenses for programs such as accounting software, inventory management, and customer relationship management (CRM) software.
- Banking Fees: You will have various banking fees associated with managing your business accounts, such as transaction fees, wire transfer fees, and account maintenance fees.
- Rent/Lease: If you do not own your office or warehouse space, you will have to pay rent or lease payments each month.
- Utilities: This includes the cost of electricity, water, and other utilities necessary to run your business operations.
- Inventory Costs: As a metal wholesaler, you will need to purchase inventory to sell to your customers, and this will be one of your major expenses.
- Marketing/Advertising: You will need to allocate funds for marketing and advertising to promote your business and attract new customers.
- Travel Expenses: If you have sales representatives who travel to meet with clients or attend trade shows, you will need to cover their travel expenses, such as flights, hotels, and meals.
- Office Supplies/Equipment: This includes the cost of purchasing and maintaining office supplies and equipment, such as computers, printers, and furniture.
- Professional Memberships: You may need to join professional organizations related to the metal industry, which may require membership fees.
- Taxes: As a business, you will have to pay various taxes, such as income tax, sales tax, and property tax.
- Legal Fees: You may need to hire a lawyer for legal advice or assistance with contracts and other legal matters.
- Freight/Shipping Costs: To transport your inventory to your warehouse or to ship orders to customers, you will need to pay for freight or shipping costs.
This list is not exhaustive by any means, and will need to be tailored to your metal wholesaler's specific circumstances.
What investments are needed to start or grow a metal wholesaler?
Once you have an idea of how much sales you could achieve and what it will cost to run your metal wholesaler, it is time to look into the equipment required to launch or expand the activity.
For a metal wholesaler, capital expenditures and initial working capital items could include:
- New Warehouse Facility: As a metal wholesaler, you may need to invest in a new warehouse facility to store your inventory. This could include the cost of purchasing or leasing the property, as well as any renovations or construction needed to make it suitable for your business needs.
- Forklifts and Other Material Handling Equipment: In order to move and transport your metal products, you will likely need to invest in forklifts and other material handling equipment. This can be a significant capital expenditure, but it is necessary for the efficient operation of your business.
- Delivery Trucks: If you offer delivery services to your customers, you will need to purchase or lease delivery trucks. These vehicles will be used to transport your products from your warehouse to your customers' locations.
- Computer Systems and Software: In today's digital age, having up-to-date computer systems and software is essential for running a successful metal wholesaling business. This could include investing in new computers, servers, and specialized software for inventory management and accounting.
- Metal Processing Machinery: Depending on the type of metal products you sell, you may need to invest in specialized machinery for processing or cutting the metal. This could include machines such as shears, saws, or plasma cutters.
Again, this list will need to be adjusted according to the specificities of your metal wholesaler.
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 metal wholesaler
The next step in the creation of your financial forecast for your metal wholesaler 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 metal wholesaler?
Now let's have a look at the main output tables of your metal wholesaler'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 metal wholesaler'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 metal wholesaler will look different than for a startup.
The projected balance sheet
The projected balance sheet gives an overview of your metal wholesaler'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 metal wholesaler. 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 metal wholesaler'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 metal wholesaler:
- 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 metal wholesaler'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 metal wholesaler'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 metal wholesaler's financial projections?
Building a metal wholesaler 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 metal wholesaler'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 metal wholesaler 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 metal wholesaler's financial forecast?
Creating an accurate and error-free metal wholesaler financial forecast with a spreadsheet is very technical and requires a deep knowledge of accounting and an understanding of financial modelling.
Very few business owners are financially savvy enough to be able to build a forecast themselves on Excel without making mistakes.
Lenders and investors know this, which is why forecasts created on Excel by the business owner are often frowned upon.
Having numbers one can trust is key when it comes to financial forecasting and to that end using software is much safer.
Using financial forecasting software is also faster than using a spreadsheet, and, with the rise of artificial intelligence, software is also becoming smarter at helping us analyse the numbers to make smarter decisions.
Finally, like everything with spreadsheets, tracking actuals vs. forecasts and keeping your projections up to date as the year progresses is manual, tedious, and error-prone. Whereas financial projection 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 metal wholesaler, 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 forecast shows expected growth, profitability, and cash generation metrics for your metal wholesaler.
- 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 metal wholesaler. 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 sales forecast for a business?
- Financial forecast for a business idea
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Founder & CEO at The Business Plan Shop Ltd
