How to create a financial forecast for a parquet floor manufacturer?
Creating a financial forecast for your parquet floor 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 parquet floor 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 parquet floor manufacturing business?
The financial projections for your parquet floor manufacturing business act as a financial blueprint to guide its growth with confidence and ensure its long-term financial viability.
To create them, you will need to look at your business in detail - from sales to operating costs and investments - to assess how much profit it can generate in the years to come and what will be the associated cash flows.
During challenging market conditions, maintaining an up-to-date financial forecast enables early detection of potential financial shortfalls, allowing for timely adjustments or securing financing before facing a cash crisis.
Your parquet floor manufacturing business's financial forecast will also prove invaluable when seeking financing. Banks and investors will undoubtedly request a thorough examination of your financial figures, making precision and presentation essential.
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 parquet floor manufacturing business financial forecast?
A parquet floor 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 parquet floor manufacturing business.
If you are creating (or updating) the forecast of an existing parquet floor 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 parquet floor 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 parquet floor 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 parquet floor manufacturing business's financial forecast.
The sales forecast for a parquet floor manufacturing business
From experience, it usually makes sense to start your parquet floor manufacturing business's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your parquet floor 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 parquet floor 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:
- Economic Conditions: Changes in the economy can affect the demand for parquet floors. In times of economic downturn, customers may be less likely to invest in expensive flooring options, resulting in a decrease in average price and number of transactions for your business.
- Competition: The presence of competitors in the market can impact your business's average price and number of transactions. If there are many competitors offering similar products at lower prices, you may have to lower your prices to remain competitive, resulting in a decrease in average price. Similarly, if a new competitor enters the market, it may lead to a decrease in your business's number of transactions.
- Housing Market Trends: The housing market has a direct impact on the demand for parquet floors. If there is a surge in the construction of new homes, it can lead to an increase in the number of transactions for your business. On the other hand, a decline in the housing market can result in a decrease in both average price and number of transactions.
- Raw Material Costs: Changes in the cost of raw materials, such as wood and adhesives, can affect the average price of your parquet floors. If the cost of raw materials increases, you may need to raise your prices to maintain profitability, resulting in a decrease in the number of transactions as customers may seek more affordable options.
- Technology Advancements: Technological advancements in the manufacturing process can impact the average price of your parquet floors. If you invest in new equipment or techniques that improve efficiency and reduce production costs, you may be able to offer your products at a lower price, resulting in an increase in the number of transactions for your business.
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 parquet floor manufacturing business
The next step is to estimate the costs you’ll have to incur to operate your parquet floor manufacturing business.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your parquet floor manufacturing business's operating expenses should normally include the following items:
- Staff Costs: This includes salaries, wages, bonuses, and benefits for all employees working in your parquet floor manufacturing business. This can also include any training or development costs for your staff.
- Accountancy Fees: You may need to hire an accountant to handle your business finances, prepare tax returns, and provide financial advice. These fees can vary depending on the complexity of your business.
- Insurance Costs: As a parquet floor manufacturing business, you will need to have insurance coverage for your premises, equipment, and employees. This can include general liability insurance, property insurance, and workers' compensation insurance.
- Software Licences: To efficiently run your business, you may need to invest in software for accounting, inventory management, and production planning. These software licences can come at a cost, but they are necessary for your operations.
- Banking Fees: Your business may incur fees for bank transactions, such as wire transfers, check processing, and credit card payments. These fees can add up over time, so it's important to keep track of them.
- Raw Materials: As a parquet floor manufacturer, you will need to purchase raw materials, such as wood, adhesives, and finishes, to create your products. These costs can fluctuate depending on market prices.
- Equipment Maintenance: Your production equipment, such as saws and sanders, will need regular maintenance to ensure they are functioning properly. This can include routine service visits, replacement parts, and repairs.
- Rent or Mortgage: If you don't own your manufacturing facility, you will need to pay rent or a mortgage for your business space. This cost can also include utilities, such as electricity and water.
- Marketing and Advertising: To attract customers and promote your business, you may need to invest in marketing and advertising efforts, such as creating a website, attending trade shows, and running social media campaigns.
- Shipping and Freight: If you ship your products to customers or receive materials from suppliers, you will incur costs for shipping and freight. These costs can vary depending on the weight and distance of the shipment.
- Taxes and Licences: Your business will need to pay taxes, such as income tax and sales tax, as well as any necessary business licences or permits. These costs are necessary to legally operate your business.
- Office Supplies: Your business may need to purchase office supplies, such as paper, printer ink, and pens, to keep your administrative tasks running smoothly.
- Legal Fees: It's important to have legal support for your business, whether it's for drafting contracts, handling disputes, or protecting your intellectual property. These fees can vary depending on your business needs.
- Repairs and Maintenance: Aside from equipment maintenance, your business may also incur costs for repairing or maintaining your building, such as fixing plumbing or replacing light bulbs.
- Travel Expenses: If you need to travel for business purposes, you will need to cover expenses such as transportation, lodging, and meals. These costs can add up, so it's important to budget for them.
This list is not exhaustive by any means, and will need to be tailored to your parquet floor manufacturing business's specific circumstances.
What investments are needed to start or grow a parquet floor manufacturing business?
Your parquet floor 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 parquet floor manufacturing business, these could include:
- Parquet flooring production equipment, such as saws, sanders, and presses
- Trucks or vans for transportation of materials and finished products
- Warehouse or storage facility for storing raw materials and finished products
- Computer software and hardware for design and manufacturing processes
- Office equipment, such as desks, chairs, and computers
Again, this list will need to be adjusted according to the size and ambitions of your parquet floor 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 parquet floor manufacturing business
The next step in the creation of your financial forecast for your parquet floor 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 parquet floor manufacturing business?
Now let's have a look at the main output tables of your parquet floor manufacturing business's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your parquet floor manufacturing business is likely to be in the years to come.
For your parquet floor 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 parquet floor 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 parquet floor 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 parquet floor 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 parquet floor 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 parquet floor 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 parquet floor manufacturing business's financial forecast?
Creating your parquet floor 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 parquet floor manufacturing business'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 parquet floor 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 parquet floor manufacturing business's financial forecast?
Creating an accurate and error-free parquet floor 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 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 parquet floor manufacturing business, 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 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 parquet floor 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 parquet floor 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 turnover forecast for a business?
- Financial forecast template for a business idea
Know someone who runs or wants to start a parquet floor manufacturing business? Share our financial projection guide with them!
Founder & CEO at The Business Plan Shop Ltd
