How to create a financial forecast for a paper machinery 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 paper machinery manufacturing business.
Putting together a paper machinery 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 paper machinery 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 paper machinery manufacturing business?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your paper machinery manufacturing business and ensure that it can be financially viable in the years to come.
A financial plan for a paper 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 paper 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 paper 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 needed to build a paper machinery manufacturing business 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 paper machinery manufacturing business, 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 paper machinery manufacturing business 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 paper machinery manufacturing business, 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 paper machinery manufacturing business's financial forecast.
The sales forecast for a paper machinery manufacturing business
The sales forecast, also called topline projection, is normally where you will start when building your paper machinery manufacturing business financial forecast.
Creating a coherent sales projection boils down to estimating two key drivers:
- The average price
- The number of monthly transactions
To do this, you will need to rely on historical data (for an existing business), market research data (for both new and existing paper machinery manufacturers), and consider the elements below:
- Changes in raw material prices: As a paper machinery manufacturer, you rely heavily on raw materials such as steel, aluminum, and rubber for your production. Fluctuations in the prices of these materials can significantly impact your average price and monthly transactions. For example, a sudden increase in steel prices may force you to increase the price of your machinery, leading to a decrease in sales.
- Technological advancements: The paper machinery industry is constantly evolving, with new technologies and innovations being introduced regularly. As a business owner, you need to stay updated with these advancements and incorporate them into your machinery to stay competitive. However, implementing new technologies may increase your average price, making it difficult to attract customers and maintain your monthly transactions.
- Economic conditions: Economic conditions, such as a recession or inflation, can have a significant impact on your business's average price and number of monthly transactions. During a recession, companies may be hesitant to invest in new paper machinery, leading to a decrease in sales. On the other hand, during periods of inflation, your production costs may increase, forcing you to raise your prices and potentially decrease your sales.
- Environmental regulations: As a paper machinery manufacturer, you need to comply with environmental regulations set by the government. These regulations may require you to use eco-friendly materials or implement energy-efficient processes, which can increase your production costs and, in turn, your average price. This may make it challenging to attract customers and maintain your monthly transactions.
- Competition: The paper machinery industry is highly competitive, with many players in the market. Your competitors may offer similar products at lower prices, making it difficult for you to maintain your average price and monthly transactions. To stay ahead of the competition, you may need to invest in marketing and advertising, which can also impact your overall sales forecast.
After the sales forecast comes the operating expenses budget, which we will now look into in more detail.
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 paper machinery manufacturing business
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your paper machinery 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 paper machinery manufacturing business will include some of the following items:
- Staff costs: This includes salaries, benefits, and payroll taxes for all employees in your paper machinery manufacturing business. This may also include bonuses, commissions, and other incentives for your staff.
- Accountancy fees: You will need to hire an accountant or use accounting software to keep track of your business's financial transactions and prepare tax returns. This may also include fees for external audits or financial advice.
- Insurance costs: It is important to have insurance for your paper machinery manufacturing business to protect against potential risks such as accidents, product liability, and property damage. This may include general liability insurance, workers' compensation insurance, and property insurance.
- Software licenses: To operate efficiently, you may need to purchase software licenses for accounting, inventory management, customer relationship management, and other business operations. These licenses may have annual or monthly fees.
- Banking fees: This includes fees for maintaining business bank accounts, wire transfers, and credit card processing fees. Make sure to shop around for the best rates and negotiate with your bank for lower fees.
- Rent or lease: If you do not own your business premises, you will need to pay rent or lease fees. This may also include utilities such as electricity, water, and internet.
- Raw materials: As a paper machinery manufacturing business, you will need to purchase raw materials such as wood pulp, chemicals, and dyes. These costs may vary depending on market prices and your supplier agreements.
- Equipment maintenance: To keep your machinery in good working condition, you will need to budget for regular maintenance and repairs. This may include hiring external contractors or having an in-house maintenance team.
- Marketing and advertising: To attract customers and promote your business, you may need to invest in marketing and advertising efforts such as website development, trade shows, and print or online ads.
- Travel expenses: If your business requires you to travel for sales meetings, supplier visits, or trade shows, you will need to budget for travel expenses such as airfare, lodging, and meals.
- Professional development: As a business owner, it is important to stay updated with industry trends and improve your skills. This may include attending conferences, workshops, or online courses.
- Taxes: You will need to pay various taxes as a business, including income tax, payroll tax, and sales tax. Make sure to consult with a tax professional to ensure you are complying with all tax obligations.
- Legal fees: As a business owner, you may need legal advice or representation for various reasons such as drafting contracts, protecting intellectual property, or handling disputes.
- Office supplies and equipment: To keep your business running smoothly, you will need to purchase office supplies such as paper, printer ink, and pens. You may also need to invest in office equipment like computers, printers, and furniture.
- Training and development: It is important to invest in your employees' skills and knowledge through training and development programs. This can help improve productivity and job satisfaction in your business.
This list will need to be tailored to the specificities of your paper machinery manufacturing business, but should offer a good starting point for your budget.
What investments are needed to start or grow a paper machinery manufacturing business?
Once you have an idea of how much sales you could achieve and what it will cost to run your paper machinery manufacturing business, it is time to look into the equipment required to launch or expand the activity.
For a paper machinery manufacturing business, capital expenditures and initial working capital items could include:
- Machinery and Equipment: This includes the purchase or lease of paper machinery, such as printing presses, cutters, and laminators. These machines are essential for the production of paper products and can be a significant capital expenditure for a paper machinery manufacturing business.
- Facility Renovations: In order to accommodate the production of paper machinery, you may need to renovate or expand your manufacturing facility. This could include installing new electrical or plumbing systems, adding ventilation for fume control, or building additional storage areas.
- Raw Materials: As a paper machinery manufacturing business, you will need to purchase raw materials such as wood pulp, ink, and other supplies to produce your products. These materials can be a significant capital expenditure, especially if you need to purchase them in bulk.
- Transportation and Delivery Vehicles: In order to transport your paper machinery and products to customers, you may need to purchase or lease trucks or other vehicles. These vehicles can be costly but are necessary for the smooth operation of your business.
- Computer Systems and Software: As technology plays a crucial role in the manufacturing process, you may need to invest in computer systems and software to design and program your paper machinery. These systems can be expensive but are essential for the efficiency and accuracy of your operations.
Again, this list will need to be adjusted according to the specificities of your paper 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 paper machinery manufacturing business
The next step in the creation of your financial forecast for your paper 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 paper machinery manufacturing business?
Now let's have a look at the main output tables of your paper machinery manufacturing business's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your paper machinery manufacturing business's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a paper machinery manufacturing business should normally show:
- Sales growing above inflation
- Stable or expanding (ideally) profit margins
- A net profit
This will of course depend on the stage of your business: a new venture might be loss-making until it reaches its breakeven point in year 2 or 3, for example.
The projected balance sheet
Your paper machinery 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 paper machinery 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 paper machinery 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 paper machinery 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 paper machinery manufacturing business's financial forecast?
Using the right tool or solution will make the creation of your paper machinery manufacturing business's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial projection software to build your paper 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 paper 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 paper machinery 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 paper machinery 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 paper machinery 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 paper machinery 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 paper machinery manufacturing business
Takeaways
- Having a financial forecast enables you to visualise the expected growth, profitability, and cash generation for your business over the next three to five years.
- Tracking actuals vs. forecast and keeping your financial projections up-to-date is the only way to get a view on what your paper machinery manufacturing business future cash flows may look like.
- Using financial forecasting software is the mordern and easy way to create and maintain your forecasts.
This is the end of our guide on how to build the financial forecast for a paper machinery manufacturing business, we hope you found it useful. Don't hesitate to contact us if you want to share your feedback or 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
- Example of financial forecast
- How to project revenues for a business?
- Financial forecast template for a business idea
Know someone who owns or is thinking of starting a paper machinery manufacturing business? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
