How to create a financial forecast for a power distribution system maker?

power distribution system manufacturing business financial projections

If you are serious about keeping visibility on your future cash flows, then you need to build and maintain a financial forecast for your power distribution system manufacturing business.

Putting together a power distribution system 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 power distribution system 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 power distribution system manufacturing business?

Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your power distribution system manufacturing business and ensure that it can be financially viable in the years to come.

A financial plan for a power distribution system 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 power distribution system 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 power distribution system 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.

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What information is used as input to build a power distribution system manufacturing business financial forecast?

A power distribution system 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 power distribution system 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 power distribution system 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 power distribution system 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 power distribution system manufacturing business's financial forecast.

The sales forecast for a power distribution system manufacturing business

From experience, it is usually best to start creating your power distribution system manufacturing business financial forecast by your sales forecast.

To create an accurate sales forecast for your power distribution system manufacturing business, you will have to rely on the data collected in your market research, or if you're running an existing power distribution system 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:

You can expect a decrease in average price and number of monthly transactions if there is an increase in competition from other power distribution system manufacturers. This may be due to new entrants in the market or existing companies expanding their product lines.
An increase in raw material costs can also lead to an increase in average price as well as a decrease in number of monthly transactions. This is because the higher cost of production may result in higher prices for your products, making them less affordable for customers.
Changes in government regulations, such as stricter environmental standards, can increase the cost of production and therefore lead to an increase in average price. This may also affect the number of monthly transactions if customers are hesitant to purchase products that do not meet these regulations.
Fluctuations in the economy, such as a recession or inflation, can also impact your average price and number of monthly transactions. In times of economic downturn, customers may be more price-sensitive and less willing to make large purchases, resulting in a decrease in both average price and number of transactions.
The introduction of new technology or advancements in existing technology can also affect your average price and number of monthly transactions. If your competitors are able to offer more advanced products at a lower price, you may see a decrease in both average price and number of transactions as customers switch to these alternatives.

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.

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The operating expenses for a power distribution system manufacturing business

Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your power distribution system 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 power distribution system manufacturing business will include some of the following items:

1. Staff costs - This includes wages, salaries, bonuses, benefits, and payroll taxes for all employees, including production workers, engineers, and administrative staff. 2. Accountancy fees - You will need to hire an accountant to keep track of your financial records, prepare tax returns, and provide financial advice for your power distribution system manufacturing business. 3. Insurance costs - As a manufacturer, you will need to have insurance coverage for your business, including liability insurance, property insurance, and worker's compensation insurance. 4. Software licenses - You will need to purchase software licenses for various programs, such as design software, supply chain management software, and accounting software, to run your business efficiently. 5. Banking fees - You will incur fees for various banking services, such as checking and savings accounts, wire transfers, and credit card processing. 6. Rent or lease expenses - If you do not own your manufacturing facility, you will need to pay rent or lease payments for your production space. 7. Utility costs - Running a manufacturing business requires a significant amount of electricity, water, and other utilities, which will result in monthly expenses. 8. Raw materials and supplies - You will need to purchase raw materials, such as metal, plastic, and electronic components, to manufacture your power distribution systems. 9. Packaging and shipping costs - Your products will need to be packaged and shipped to customers, resulting in expenses for materials and shipping services. 10. Marketing and advertising expenses - To attract new customers and promote your business, you will need to spend money on marketing and advertising campaigns. 11. Travel and entertainment costs - As a manufacturer, you may need to travel to meet with clients, attend trade shows, or conduct research, resulting in travel and entertainment expenses. 12. Maintenance and repair costs - To keep your production equipment in good working condition, you will need to spend money on maintenance and repair services. 13. Training and development expenses - You may need to provide training for your employees to learn new skills or keep up with industry advancements, resulting in training and development expenses. 14. Legal fees - As a business owner, you may need to seek legal advice or hire a lawyer to help with contracts, patents, or other legal matters, resulting in legal fees. 15. Office supplies and equipment - You will need to purchase office supplies, such as paper, ink, and toner, and office equipment, such as computers and printers, to keep your business running smoothly.

This list will need to be tailored to the specificities of your power distribution system manufacturing business, but should offer a good starting point for your budget.

What investments are needed to start or grow a power distribution system manufacturing business?

Creating and expanding a power distribution system manufacturing business also requires investments which you need to factor into your financial forecast.

Capital expenditures and initial working capital items for a power distribution system manufacturing business could include elements such as:

Machinery and Equipment: This includes the purchase of equipment and machinery used in the manufacturing process, such as transformers, switchgear, and control panels.
Factory Buildings: This refers to the cost of constructing or purchasing a facility to house the manufacturing process, including the installation of electrical systems and infrastructure.
Raw Materials and Inventory: These are the materials and components needed to produce the power distribution systems, such as copper wire, steel, and electronic components.
Research and Development: This includes the costs associated with developing and testing new products and improving existing ones, such as prototypes, lab equipment, and salaries for R&D personnel.
Transportation and Delivery: This includes the cost of shipping and delivering the finished products to customers, as well as the cost of transportation for raw materials and inventory.

Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your power distribution system manufacturing business.

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The financing plan of your power distribution system manufacturing business

The next step in the creation of your financial forecast for your power distribution system 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 power distribution system manufacturing business?

Now let's have a look at the main output tables of your power distribution system manufacturing business's financial forecast.

The projected profit & loss statement

The projected profit & loss shows how profitable your power distribution system manufacturing business is likely to be in the years to come.

power distribution system manufacturing business profit and loss forecast

For your power distribution system 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 power distribution system makers, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.

The projected balance sheet

Your power distribution system 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.

financial projections: power distribution system manufacturing business balance sheet example

The cash flow forecast

Your power distribution system manufacturing business's cash flow forecast shows how much cash your business is expected to consume or generate in the years to come.

power distribution system manufacturing business cash flow forecast

It is best practice to organise the cash flow forecast by nature to better explain where cash is used or generated by the power distribution system 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 power distribution system 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 power distribution system manufacturing business's financial plan - so that banks or investors can assess seasonal variation and ensure your business is appropriately capitalised.

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Which tool should you use to create your power distribution system manufacturing business's financial projections?

Building a power distribution system manufacturing business financial forecast is not difficult provided that you use the right tool for the job. Let’s see what options are available below.

Using online financial forecasting software to build your power distribution system 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.

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 power distribution system manufacturing business 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 power distribution system manufacturing business's financial forecast?

Creating an accurate and error-free power distribution system 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.

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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 power distribution system 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.

The Business Plan Shop's financial projection templates

Takeaways

A financial forecast shows expected growth, profitability, and cash generation metrics for your power distribution system 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 power distribution system 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.

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Guillaume Le Brouster

Founder & CEO at The Business Plan Shop Ltd

Guillaume Le Brouster is a seasoned entrepreneur and financier.

Guillaume has been an entrepreneur for more than a decade and has first-hand experience of starting, running, and growing a successful business.

Prior to being a business owner, Guillaume worked in investment banking and private equity, where he spent most of his time creating complex financial forecasts, writing business plans, and analysing financial statements to make financing and investment decisions.

Guillaume holds a Master's Degree in Finance from ESCP Business School and a Bachelor of Science in Business & Management from Paris Dauphine University.