How to create a financial forecast for a plumbing company?
If you are serious about keeping visibility on your future cash flows, then you need to build and maintain a financial forecast for your plumbing company.
Putting together a plumbing company 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 plumbing company.
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 plumbing company?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your plumbing company and ensure that it can be financially viable in the years to come.
A financial plan for a plumbing company 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 plumbing company 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 plumbing company'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 plumbing company financial forecast?
A plumbing company'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 plumbing company.
If you are creating (or updating) the forecast of an existing plumbing company, 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 plumbing company 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 plumbing company 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 plumbing company's financial forecast.
The sales forecast for a plumbing company
From experience, it usually makes sense to start your plumbing company's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your plumbing company (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 plumbing company'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:
- Seasonal Demand: As a plumbing company, your business may see fluctuations in demand based on the time of year. For example, during the winter months, you may see an increase in demand for services related to frozen pipes and heating systems.
- Competition: The number of competitors in your area may impact your average price and number of monthly transactions. If there are many other plumbing companies in your area, you may need to adjust your prices to remain competitive and attract customers.
- Economic Conditions: Economic factors, such as a recession or a boom in the housing market, can greatly affect the number of monthly transactions for your plumbing business. During a recession, customers may delay or forgo plumbing services, while during a housing boom, there may be an increased demand for new installations and renovations.
- Customer Demographics: The demographics of your target customers can also impact your sales forecast. For example, if you primarily serve residential customers, your average price may be lower compared to a company that focuses on commercial clients.
- Emerging Technologies: Advances in plumbing technology, such as water-efficient fixtures and smart home systems, can also affect your business's sales forecast. Customers may be willing to pay a higher price for these innovative solutions, leading to an increase in your average price and monthly transactions.
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.
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 plumbing company
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your plumbing company 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 plumbing company will include some of the following items:
- Staff Costs: This includes the salaries, benefits, and training costs for your plumbing staff.
- Accountancy Fees: You will need to hire an accountant to manage your financial records and taxes.
- Insurance Costs: As a plumbing company, you will need to have liability insurance to protect your business from any potential lawsuits.
- Software Licenses: You may need to purchase software licenses for accounting, project management, or customer relationship management.
- Banking Fees: You will incur fees for processing credit card transactions, wire transfers, and other banking services.
- Office Rent: If you have a physical office, you will need to pay rent, utilities, and other office-related expenses.
- Vehicle Expenses: Your plumbing trucks and vans will require regular maintenance, fuel, and insurance.
- Inventory Costs: You will need to purchase plumbing supplies and equipment to complete your jobs.
- Marketing Expenses: To attract new customers, you may need to invest in advertising, website development, and other marketing efforts.
- Training and Education: Staying up-to-date with industry standards and technology requires ongoing training and education for you and your staff.
- Rentals and Leases: You may need to rent or lease equipment, such as heavy machinery, for certain jobs.
- Permits and Licenses: You will need to obtain permits and licenses to operate your plumbing business legally.
- Legal Fees: You may need to hire a lawyer for contract reviews, disputes, or other legal matters.
- Travel Expenses: If you provide services outside of your local area, you will need to cover travel expenses for your staff.
- Utilities: In addition to office utilities, you may need to cover expenses for your equipment, such as water, gas, and electricity.
This list will need to be tailored to the specificities of your plumbing company, but should offer a good starting point for your budget.
What investments are needed to start or grow a plumbing company?
Your plumbing company 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 plumbing company, these could include:
- Plumbing Equipment and Tools: This includes items such as drain cleaning machines, pipe cutters, and water jetters. These tools are essential for day-to-day operations and need to be periodically replaced or upgraded to ensure efficient and effective service.
- Vehicles: A plumbing company may need to invest in vehicles such as vans or trucks to transport equipment and materials to job sites. These vehicles also serve as mobile advertisements for the company, so it's important to keep them in good condition.
- Office Equipment: This includes items such as computers, printers, and software necessary for running the administrative side of the business. As technology advances, it's important to regularly update these tools to stay competitive and streamline processes.
- Plumbing Supplies: These are materials used for plumbing services such as pipes, fittings, and fixtures. As a plumbing company, it's important to have a steady supply of these items on hand for jobs, and they may need to be restocked or replenished regularly.
- Building and Renovation: If a plumbing company owns its building or office space, they may need to invest in renovations or repairs to maintain a safe and functional workspace. This can include things like plumbing upgrades, roof repairs, or HVAC system replacements.
Again, this list will need to be adjusted according to the size and ambitions of your plumbing company.
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 plumbing company
The next step in the creation of your financial forecast for your plumbing company 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 plumbing company?
Now let's have a look at the main output tables of your plumbing company's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your plumbing company's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a plumbing company 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 plumbing company'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 plumbing company'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 plumbing company:
- 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 plumbing company'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 plumbing company'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 plumbing company's financial forecast?
Creating your plumbing company'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 plumbing company'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
Enlisting the help of a consultant or accountant is also a good way to obtain a professional plumbing company financial forecast.
The downside of this solution is its cost. From experience, obtaining a simple financial forecast over three years (including a balance sheet, income statement, and cash flow statement) is likely to cost a minimum of £700 or $1,000.
The indicative cost above, is for a small business, and a forecast is done as a one-shot exercise. Using a consultant or accountant to track your actuals vs. forecast and to keep your financial projections up to date on a monthly or quarterly basis will cost a lot more.
If you opt for this solution, make sure your accountant has in-depth knowledge of your industry, so that they may challenge your figures and offer insights (as opposed to just taking your assumptions at face value to create the forecast).
Why not use a spreadsheet such as Excel or Google Sheets to build your plumbing company's financial forecast?
Creating an accurate and error-free plumbing company 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 plumbing company, 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
- 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 plumbing company 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 plumbing company, 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 create a turnover forecast for a business?
- Sample financial forecast for business idea
Know someone who owns or is thinking of starting a plumbing company? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
