How to create a financial forecast for a motorcycle parts manufacturer?
Developing and maintaining an up-to-date financial forecast for your motorcycle parts 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 motorcycle parts 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 motorcycle parts 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 motorcycle parts manufacturing business becomes handy.
Creating a motorcycle parts 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 motorcycle parts 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 motorcycle parts 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 motorcycle parts 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 motorcycle parts manufacturing business financial forecast?
A motorcycle parts 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 motorcycle parts 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 motorcycle parts 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 motorcycle parts 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 motorcycle parts manufacturing business's financial forecast.
The sales forecast for a motorcycle parts manufacturing business
From experience, it is usually best to start creating your motorcycle parts manufacturing business financial forecast by your sales forecast.
To create an accurate sales forecast for your motorcycle parts manufacturing business, you will have to rely on the data collected in your market research, or if you're running an existing motorcycle parts manufacturing business, the historical data of the business, to estimate two key variables:
- The average price
- The number of monthly transactions
To get there, you will need to consider the following factors:
- Changes in demand for specific motorcycle parts: As a motorcycle parts manufacturer, you are heavily dependent on the demand for specific parts used in different types of motorcycles. Changes in the popularity of certain motorcycle models or types may affect the demand for specific parts, ultimately impacting your average price and number of monthly transactions.
- Competitor pricing: Your competitors' pricing strategies can also have a significant impact on your average price and number of monthly transactions. If your competitors reduce their prices, you may need to adjust your prices accordingly to remain competitive, which could potentially affect your average price. Alternatively, if your competitors increase their prices, you may see an increase in your average price, but it could also lead to a decrease in the number of monthly transactions as customers may opt for cheaper alternatives.
- Economic conditions: Economic conditions, such as a recession or economic boom, can significantly impact the motorcycle industry and, in turn, your business. During a recession, customers may be more price-sensitive and opt for cheaper alternatives, leading to a decrease in your average price and number of monthly transactions. However, during an economic boom, customers may be willing to spend more on their motorcycles, leading to an increase in your average price and number of monthly transactions.
- Changes in consumer preferences and trends: As a motorcycle parts manufacturer, you must stay updated on the latest consumer preferences and trends in the motorcycle industry. Changes in consumer preferences and trends can affect the demand for specific parts, ultimately impacting your average price and number of monthly transactions. For example, if there is a shift towards more environmentally-friendly motorcycles, the demand for electric motorcycle parts may increase, while the demand for traditional gasoline-powered motorcycle parts may decrease.
- Supply chain disruptions: Any disruptions in your supply chain, such as delays in receiving raw materials or parts, can affect your production capacity and, in turn, your ability to fulfill customer orders. This could potentially lead to a decrease in the number of monthly transactions if customers are unable to purchase your products due to a lack of availability, ultimately impacting your revenue and average price.
Once you have an idea of what your future sales will look like, it will be time to work on your overhead budget. Let’s see what this entails.
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 motorcycle parts manufacturing business
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your motorcycle parts 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 motorcycle parts manufacturing business will include some of the following items:
- Staff Costs: This includes salaries, wages, benefits, and other related expenses for your employees such as training and development costs.
- Accountancy Fees: As a motorcycle parts manufacturing business, you will need to hire an accountant to help you with financial management, tax preparation, and other accounting services.
- Insurance Costs: This includes general liability insurance, property insurance, and workers' compensation insurance to protect your business and employees from potential risks and accidents.
- Software Licenses: You will need various software programs for accounting, inventory management, and other business operations, which may require annual or monthly license fees.
- Banking Fees: This includes fees for business bank accounts, transactions, and other related services.
- Raw Materials: As a motorcycle parts manufacturer, you will incur costs for purchasing raw materials such as metal, plastics, and other materials used in production.
- Utilities: This includes expenses for electricity, water, and other utilities necessary for running your manufacturing facility.
- Rent/Lease: If you do not own the manufacturing facility, you will need to pay rent or lease fees for the space you use.
- Marketing and Advertising: To promote your products and reach potential customers, you will need to invest in marketing and advertising efforts such as print ads, online ads, and trade shows.
- Packaging and Shipping: The cost of packaging materials and shipping fees for delivering your products to customers must also be considered in your operating expenses.
- Maintenance and Repairs: Regular maintenance and unexpected repairs for your manufacturing equipment and machinery can be a significant expense for your business.
- Taxes and Licenses: As a business, you will need to pay various taxes and obtain necessary licenses to operate legally.
- Professional Services: You may need to hire outside consultants or lawyers for legal advice, product design, or other professional services.
- Office Supplies: This includes expenses for office supplies, stationery, and other materials needed for administrative tasks.
- Employee Benefits: In addition to salaries, you may also offer employee benefits such as health insurance, retirement plans, and paid time off, which will add to your operating expenses.
This list will need to be tailored to the specificities of your motorcycle parts manufacturing business, but should offer a good starting point for your budget.
What investments are needed to start or grow a motorcycle parts manufacturing business?
Creating and expanding a motorcycle parts manufacturing business also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a motorcycle parts manufacturing business could include elements such as:
- Machinery and Equipment: This includes the purchase or lease of machinery and equipment used in the manufacturing process, such as lathes, drills, presses, and welding machines.
- Facility Improvements: This includes any necessary renovations or upgrades to the manufacturing facility, such as installing new flooring, upgrading electrical systems, or adding ventilation systems.
- Inventory: This includes the cost of purchasing raw materials and components needed to produce motorcycle parts. This can include items such as steel, rubber, and plastic.
- Tooling: This includes the purchase or creation of specialized tools and molds used in the manufacturing process, such as jigs, dies, and molds for casting parts.
- Packaging and Shipping Materials: This includes the cost of materials used to package and ship finished motorcycle parts, such as boxes, tape, and pallets.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your motorcycle parts 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 motorcycle parts manufacturing business
The next step in the creation of your financial forecast for your motorcycle parts 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 motorcycle parts manufacturing business?
Now let's have a look at the main output tables of your motorcycle parts manufacturing business's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your motorcycle parts manufacturing business is likely to be in the years to come.
For your motorcycle parts 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 motorcycle parts 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 motorcycle parts 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 motorcycle parts 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 projected cash flow statement
A projected cash flow statement for a motorcycle parts 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 motorcycle parts 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 motorcycle parts 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 motorcycle parts manufacturing business's financial forecast?
Creating your motorcycle parts 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 forecasting software to build your motorcycle parts 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 motorcycle parts 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 motorcycle parts 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 motorcycle parts 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 motorcycle parts 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 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 motorcycle parts 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 motorcycle parts 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 project revenues for a business?
- Example of financial forecast for business idea
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Founder & CEO at The Business Plan Shop Ltd
