How to create a financial forecast for a roofing company?
Creating a financial forecast for your roofing company, 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 roofing company 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 roofing company?
The financial projections for your roofing company 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 roofing company'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 needed to build a roofing company 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 roofing company, 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 roofing company 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 roofing company, 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 roofing company's financial forecast.
The sales forecast for a roofing company
The sales forecast, also called topline projection, is normally where you will start when building your roofing company 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 roofing companies), and consider the elements below:
- Seasonal demand: As a roofing company, your business may experience fluctuations in demand depending on the season. For example, during the colder months, there may be less demand for roof repairs or replacements, which could result in a decrease in average price or number of monthly transactions.
- Weather conditions: Extreme weather conditions such as hurricanes, heavy rain, or snowstorms can impact the average price and number of monthly transactions for your roofing business. These conditions can lead to an increase in demand for roof repairs or replacements, resulting in higher prices and more transactions.
- Competition: The level of competition in your local market can also affect your average price and number of monthly transactions. If there are many other roofing companies in your area, you may need to lower your prices to stay competitive, which could result in a decrease in average price. On the other hand, if you have a unique offering or are the only roofing company in the area, you may be able to command higher prices and increase your number of monthly transactions.
- Economic conditions: Economic factors such as interest rates, unemployment rates, and consumer confidence can impact the average price and number of monthly transactions for your roofing business. During times of economic downturn, consumers may be more hesitant to invest in roof repairs or replacements, resulting in a decrease in both average price and number of transactions.
- Material costs: The cost of materials for roofing projects can also affect your business's average price and number of monthly transactions. If there is a shortage of materials or an increase in prices, you may need to adjust your prices accordingly, which could impact your number of transactions. Alternatively, if there is a decrease in material costs, you may be able to offer lower prices or increase your profit margin, resulting in changes in average price and number of transactions.
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 roofing company
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your roofing 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 roofing company will include some of the following items:
- Staff Costs: This includes salaries, wages, benefits, and training for your roofing crew, office staff, and management team.
- Materials and Supplies: This expense covers the cost of purchasing roofing materials such as shingles, flashing, and adhesives, as well as any necessary tools and equipment.
- Vehicle Expenses: As a roofing company, you will need to invest in a fleet of vehicles to transport your crew and materials to job sites. This expense includes fuel, maintenance, and insurance for your vehicles.
- Rent/Lease: If you do not own the building where your office is located, you will need to pay rent. This expense also covers any lease payments for vehicles or equipment.
- Utilities: This includes electricity, water, internet, and phone services for your office and any other facilities you may have.
- Marketing and Advertising: To attract new customers, you will need to invest in marketing and advertising efforts such as creating a website, printing business cards, and running ads.
- Accountancy Fees: As a business owner, you will need to hire an accountant to manage your company's finances, prepare tax returns, and provide financial advice.
- Insurance Costs: To protect your business from potential risks, you will need to purchase insurance coverage for your company, employees, and vehicles.
- Software Licenses: This expense covers the cost of any software programs or subscriptions you need to run your business efficiently, such as accounting software or project management tools.
- Banking Fees: To manage your company's finances, you will need to open a business bank account and pay fees for services such as wire transfers, check processing, and monthly account maintenance.
- Legal Fees: As a roofing company, you may encounter legal issues such as contracts, permits, or disputes, so you will need to budget for legal fees.
- Training and Certifications: To provide quality services to your clients, your roofing crew will need to undergo training and obtain certifications, which will incur costs.
- Office Supplies: This expense covers the cost of purchasing essential office supplies such as paper, pens, printer ink, and other supplies.
- Professional Memberships: To stay updated on industry trends and network with other professionals, you may need to join professional organizations, which often require membership fees.
- Taxes: As a business owner, you will need to pay various taxes, such as income tax, payroll tax, and sales tax, which will impact your company's cash flow.
This list will need to be tailored to the specificities of your roofing company, but should offer a good starting point for your budget.
What investments are needed to start or grow a roofing company?
Your roofing 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 roofing company, these could include:
- Roofing Equipment: This includes all the necessary tools and equipment needed for installing, repairing, and maintaining roofs such as ladders, scaffolding, safety gear, and power tools.
- Roofing Vehicles: A roofing company may need to invest in trucks or vans to transport equipment and materials to job sites. These vehicles can also serve as a mobile advertisement for the business.
- Roofing Materials: This includes all the materials needed for roofing projects such as shingles, underlayment, flashing, and sealants. These materials are typically purchased in bulk and can be a significant expense for a roofing company.
- Office Equipment: While not directly related to roofing projects, a roofing company may need to purchase office equipment such as computers, printers, and software to manage administrative tasks and keep track of financial records.
- Warehouse/Storage Space: Depending on the size of the roofing company, they may need to rent or purchase a warehouse or storage space to store equipment, materials, and vehicles. This can be a significant long-term investment for a roofing company.
Again, this list will need to be adjusted according to the size and ambitions of your roofing 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 roofing company
The next step in the creation of your financial forecast for your roofing 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 roofing company?
Now let's have a look at the main output tables of your roofing company's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your roofing company is likely to be in the years to come.
For your roofing company 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 roofing companies, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.
The projected balance sheet
Your roofing 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 roofing 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 roofing 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 roofing 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 roofing 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 roofing company's financial projections?
Building a roofing company 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 projection software to build your roofing 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
Outsourcing the creation of your roofing company 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 roofing company'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 roofing company 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 roofing company'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 forecast templates for inspiration
The Business Plan Shop has dozens of financial forecast examples available.
Our templates contain both a financial forecast and a written business plan which presents, in detail, the company, the team, the strategy, and the medium-term objectives.
Our templates are a great source of inspiration, whether you just want to see what a complete business plan looks like, or are looking for concrete examples of how you should model financial elements in your own forecast.
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 roofing 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 roofing 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 roofing company? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
