How to create a financial forecast for a metallurgy machinery manufacturer?
Developing and maintaining an up-to-date financial forecast for your metallurgy machinery 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 metallurgy machinery 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 metallurgy machinery manufacturing business?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your metallurgy machinery manufacturing business and ensure that it can be financially viable in the years to come.
A financial plan for a metallurgy machinery 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 metallurgy machinery 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 metallurgy machinery 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 metallurgy machinery manufacturing business financial forecast?
A metallurgy machinery 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 metallurgy machinery 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 metallurgy machinery 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 metallurgy machinery 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 metallurgy machinery manufacturing business's financial forecast.
The sales forecast for a metallurgy machinery manufacturing business
From experience, it usually makes sense to start your metallurgy machinery manufacturing business's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your metallurgy machinery 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 metallurgy machinery 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:
- Fluctuations in metal prices: As a metallurgy machinery manufacturing business, the cost of raw materials is a significant factor in determining the average price of your products. Changes in metal prices, particularly for steel and aluminum, can impact your production costs and, therefore, the final price of your machinery.
- Technological advancements: The metallurgy industry is constantly evolving, and new technologies and processes are being developed to improve efficiency and productivity. As a result, your business may need to invest in new equipment or upgrade existing machinery to stay competitive, which can affect the average price of your products.
- International trade policies: Your business may be affected by changes in international trade policies, such as tariffs and quotas, which can impact the cost of importing or exporting raw materials and finished products. These changes can also affect the demand for your machinery in different markets, which can impact your number of monthly transactions.
- Labor costs: The cost of labor is a significant factor in the production of metallurgy machinery. Changes in labor costs, such as minimum wage increases or labor shortages, can affect your production costs and, therefore, the average price of your products. This can also impact your number of monthly transactions as higher labor costs may lead to an increase in product prices.
- Environmental regulations: As a manufacturer of heavy machinery, your business may be subject to environmental regulations that can impact your production processes and costs. Compliance with these regulations can result in additional expenses, which can affect the average price of your products.
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 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 metallurgy machinery manufacturing business
The next step is to estimate the costs you’ll have to incur to operate your metallurgy machinery manufacturing business.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your metallurgy machinery manufacturing business's operating expenses should normally include the following items:
- Staff Costs: This includes salaries, wages, benefits, and training expenses for all employees, including engineers, technicians, and administrative staff.
- Accountancy Fees: You will need to hire an accountant to handle financial reporting, tax payments, and other financial matters related to your metallurgy machinery manufacturing business.
- Insurance Costs: You will need to purchase insurance policies to protect your business from potential risks such as accidents, equipment breakdowns, and liability claims.
- Software Licences: To operate efficiently, you will need to invest in software licenses for design, production, inventory management, and other essential functions.
- Banking Fees: Your business will incur various banking fees for services such as account maintenance, wire transfers, and foreign currency transactions.
- Raw Materials: As a metallurgy machinery manufacturer, you will need to purchase raw materials such as steel, aluminum, and other metals to produce your products.
- Utilities: This includes expenses for electricity, water, and gas to power your manufacturing equipment and facilities.
- Rent or Mortgage: If you do not own the building where your business is located, you will need to pay rent. If you have taken out a loan to purchase the building, you will have mortgage payments to make.
- Marketing and Advertising: To attract customers and promote your products, you will need to invest in marketing and advertising efforts such as online ads, trade show exhibitions, and print materials.
- Maintenance and Repairs: Your machinery and equipment will require regular maintenance and occasional repairs, which will incur expenses.
- Shipping and Freight: If you sell your products internationally, you will need to cover shipping and freight costs to deliver them to customers.
- Taxes and Licenses: Your business will need to pay various taxes, such as income tax, property tax, and sales tax. You will also need to obtain licenses and permits to operate your business.
- Travel Expenses: If your business requires you to travel for meetings, conferences, or site visits, you will incur travel expenses such as airfare, accommodations, and meals.
- Legal Fees: You may need to hire a lawyer to handle legal matters related to your business, such as contracts, patents, and lawsuits.
- Office Supplies: You will need to purchase office supplies such as paper, ink, and stationery to keep your business running smoothly.
This list is not exhaustive by any means, and will need to be tailored to your metallurgy machinery manufacturing business's specific circumstances.
What investments are needed to start or grow a metallurgy machinery manufacturing business?
Once you have an idea of how much sales you could achieve and what it will cost to run your metallurgy machinery manufacturing business, it is time to look into the equipment required to launch or expand the activity.
For a metallurgy machinery manufacturing business, capital expenditures and initial working capital items could include:
- Machinery and Equipment: This includes the purchase of specialized machinery and equipment used in the manufacturing process, such as furnaces, casting machines, and forging presses. These are essential fixed assets for a metallurgy machinery manufacturing business.
- Factory Building: The construction or purchase of a factory building is a major capital expenditure for a metallurgy machinery manufacturing business. This building will house the production line and provide space for storage and other operations.
- Raw Materials: Raw materials such as steel, iron, and other metals will need to be purchased in large quantities to produce the machinery. These materials are considered fixed assets as they are used in the production process and will not be sold as finished products.
- Tools and Dies: Specialized tools and dies are necessary for the production of high-quality metallurgy machinery. These items are considered fixed assets as they are essential for production and will not be sold as finished products.
- Computer Software: In today's digital age, a metallurgy machinery manufacturing business will require specialized software for designing, analyzing, and managing the production process. This software is considered a fixed asset and will be used for the business's operations for a long period of time.
Again, this list will need to be adjusted according to the specificities of your metallurgy machinery 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 metallurgy machinery manufacturing business
The next step in the creation of your financial forecast for your metallurgy machinery 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 metallurgy machinery manufacturing business?
Now let's have a look at the main output tables of your metallurgy machinery manufacturing business's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your metallurgy machinery manufacturing business is likely to be in the years to come.
For your metallurgy machinery 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 metallurgy machinery manufacturers, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.
The projected balance sheet
The projected balance sheet gives an overview of your metallurgy machinery manufacturing business'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 metallurgy machinery manufacturing business. 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 projection
The cash flow forecast of your metallurgy machinery manufacturing business will show how much cash the business is expected to generate or consume over the next three to five years.
There are multiple ways of presenting a cash flow forecast but from experience, it is better to organise it by nature in order to clearly show these elements:
- Operating cash flow: how much cash is generated by the metallurgy machinery manufacturing business's operations
- Investing cash flow: what is the business investing to expand or maintain its equipment
- Financing cash flow: is the business raising additional funds or repaying financiers (debt repayment, dividends)
Your cash flow forecast is the most important element of your overall financial projection and that’s where you should focus your attention to ensure that your metallurgy machinery manufacturing business is adequately funded.
Note: if you are preparing a financial forecast in order to try to secure funding, you will need to include both a yearly and monthly cash flow forecast in your metallurgy machinery manufacturing business's financial plan.
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 metallurgy machinery manufacturing business's financial forecast?
Creating your metallurgy machinery manufacturing business's financial forecast may sound fairly daunting, but the good news is that there are several ways to go about it.
Using online financial projection software to build your metallurgy machinery 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 metallurgy machinery 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 metallurgy machinery manufacturing business's financial forecast?
Creating an accurate and error-free metallurgy machinery 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 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 metallurgy machinery 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 metallurgy machinery 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 create a sales forecast for a business?
- Financial forecast for a business idea
Know someone who runs or wants to start a metallurgy machinery manufacturing business? Share our financial projection guide with them!
Founder & CEO at The Business Plan Shop Ltd
