How to create a financial forecast for a paint manufacturer?
Creating a financial forecast for your paint manufacturing business, 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 paint manufacturing business 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 paint manufacturing business?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your paint manufacturing business and ensure that it can be financially viable in the years to come.
A financial plan for a paint 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 paint 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 paint 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 paint manufacturing business financial forecast?
A paint 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 paint manufacturing business.
If you are creating (or updating) the forecast of an existing paint 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 paint 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 paint 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 paint manufacturing business's financial forecast.
The sales forecast for a paint manufacturing business
From experience, it is usually best to start creating your paint manufacturing business financial forecast by your sales forecast.
To create an accurate sales forecast for your paint manufacturing business, you will have to rely on the data collected in your market research, or if you're running an existing paint 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:
- Seasonal demand: As a paint manufacturing business, you may experience fluctuations in demand based on the season. For example, during the summer months, there may be a higher demand for outdoor paints, while during the winter, there may be a higher demand for interior paints.
- Economic conditions: Economic factors such as inflation, interest rates, and consumer spending can impact the average price and number of monthly transactions for your paint business. During an economic downturn, consumers may be more price-sensitive and purchase less paint, while during a strong economy, they may be more likely to spend on home renovations and increase demand for paint.
- Raw material costs: The cost of raw materials, such as pigments, solvents, and additives, can greatly impact the average price of your paint. Fluctuations in these costs can also affect the number of monthly transactions, as higher material costs may result in higher prices for customers.
- Competition: The level of competition in the paint manufacturing industry can also affect your business's pricing and transactions. If there are many competitors offering similar products at lower prices, you may need to adjust your prices to remain competitive and attract customers.
- Technology advancements: The development of new technology in the paint manufacturing industry can impact your business's average price and number of monthly transactions. For example, if a new, more efficient method of production is introduced, it could result in lower costs and potentially lower prices for customers, leading to an increase in transactions.
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 paint manufacturing business
The next step is to estimate the expenses needed to run your paint manufacturing business on a day-to-day basis.
These will vary based on the level of sales expected, and the location and size of your business.
But your paint manufacturing business's operating expenses should include the following items at a minimum:
- Raw materials: As a paint manufacturing business, you will need to purchase raw materials such as pigments, resins, and solvents to produce your paint products.
- Labor costs: Your employees, including production workers, chemists, and administrative staff, will be a major operating expense for your business.
- Utilities: Running a manufacturing facility requires a significant amount of electricity, water, and other utilities, which will contribute to your operating expenses.
- Equipment maintenance: To ensure the smooth operation of your production process, you will need to regularly maintain and repair your equipment, which can be a significant expense.
- Packaging materials: In addition to raw materials for your paint, you will also need to purchase packaging materials such as cans, lids, and labels to package and market your products.
- Transportation costs: Getting your paint products to your customers will incur transportation costs, whether you use your own delivery vehicles or outsource to a third-party logistics company.
- Marketing and advertising: To promote your paint products and attract customers, you will need to invest in marketing and advertising efforts, such as creating ads, attending trade shows, and sponsoring events.
- Accounting and bookkeeping fees: As a business owner, you will need to hire an accountant or bookkeeper to manage your financial records and ensure compliance with tax laws.
- Insurance: Protecting your business from potential risks and liabilities, such as property damage and product recalls, will require you to purchase insurance policies.
- Software licenses: In today's digital age, most businesses rely on various software programs for tasks such as inventory management, accounting, and customer relationship management, which come with licensing fees.
- Rent or mortgage: If you do not own the building where your manufacturing facility is located, you will need to pay rent. Alternatively, if you have taken out a mortgage to purchase the property, you will have to make monthly mortgage payments.
- Legal fees: As a business owner, you may need to seek legal advice or assistance from lawyers for tasks such as drafting contracts, protecting your intellectual property, or handling disputes.
- Banking fees: Maintaining a business bank account and processing transactions, such as paying your suppliers and receiving payments from customers, will incur banking fees.
- Employee benefits: Apart from salaries, you will also need to provide benefits such as healthcare, retirement plans, and paid time off to attract and retain talented employees.
- Office supplies: Running an office to manage your business operations will require you to purchase supplies such as pens, paper, and printer ink, which may seem small but can add up over time.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small paint manufacturing business might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow a paint manufacturing business?
Your paint 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 paint manufacturing business, these could include:
- Factory equipment (e.g. mixers, dispensers, filling machines)
- Raw material storage tanks
- Packaging machinery (e.g. labeling machines, capping machines)
- Laboratory equipment (e.g. color matching system, viscosity tester)
- Transportation vehicles (e.g. delivery trucks, forklifts)
Again, this list will need to be adjusted according to the size and ambitions of your paint 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 paint manufacturing business
The next step in the creation of your financial forecast for your paint 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 paint manufacturing business?
Now let's have a look at the main output tables of your paint manufacturing business's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your paint manufacturing business is likely to be in the years to come.
For your paint 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 paint 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 paint manufacturing business's projected balance sheet provides a snapshot of your business’s financial position at year-end.
It is composed of three types of elements: assets, liabilities and equity:
- Assets: represent what the business possesses including cash, equipment, and accounts receivable (money owed by clients).
- Liabilities: represent funds advanced to the business by lenders and other creditors. They include accounts payable (money owed to suppliers), taxes payable and loans from banks and financial institutions.
- 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 cash flow forecast
Your paint manufacturing business'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 paint manufacturing business:
- 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 paint manufacturing business'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 paint manufacturing business'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 paint manufacturing business's financial forecast?
Using the right tool or solution will make the creation of your paint manufacturing business's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial projection software to build your paint 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.
Calling in a financial consultant or chartered accountant
Outsourcing the creation of your paint 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 paint 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 paint 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 paint 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 paint 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 paint manufacturing business
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 paint 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 paint 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 project revenues for a business?
- Example of financial forecast for business idea
Know someone who runs or wants to start a paint manufacturing business? Share our financial projection guide with them!
Founder & CEO at The Business Plan Shop Ltd
