How to create a financial forecast for a saddle and harness 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 saddle and harness manufacturing business.
Putting together a saddle and harness 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 saddle and harness 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 saddle and harness manufacturing business?
The financial projections for your saddle and harness 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 saddle and harness 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 needed to build a saddle and harness 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 saddle and harness 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 saddle and harness 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 saddle and harness 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 saddle and harness manufacturing business's financial forecast.
The sales forecast for a saddle and harness manufacturing business
From experience, it usually makes sense to start your saddle and harness manufacturing business's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your saddle and harness 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 saddle and harness 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:
- Changes in raw material prices: As a saddle and harness manufacturing business, the prices of raw materials such as leather, buckles, and hardware can directly impact your average price. If the cost of these materials increases, you may need to adjust your prices to maintain profitability.
- Economic conditions: Economic conditions, such as a recession or inflation, can affect the spending power of your customers. In a downturn, customers may be less likely to purchase luxury items like saddles and harnesses, resulting in a decrease in your average number of monthly transactions.
- Competition: The presence of competitors in the market can also impact your business's sales forecast. If there are other saddle and harness manufacturers offering similar products at lower prices, you may need to adjust your average price or offer promotions to remain competitive and maintain your number of monthly transactions.
- Seasonal demand: Saddle and harness manufacturing may experience seasonal fluctuations in demand. For example, there may be a higher demand for riding equipment during the summer months, resulting in an increase in your average number of monthly transactions during that time.
- Changes in fashion trends: As with any type of fashion-related product, saddle and harness designs and styles can go in and out of fashion. Keeping up with current trends and offering products that appeal to your target market can positively impact your average price and number of 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 saddle and harness manufacturing business
The next step is to estimate the costs you’ll have to incur to operate your saddle and harness manufacturing business.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your saddle and harness manufacturing business's operating expenses should normally include the following items:
- Staff costs: This includes all expenses related to your employees, such as salaries, benefits, training, and payroll taxes.
- Raw materials: These are the materials you need to make your saddles and harnesses, such as leather, hardware, and thread.
- Rent and utilities: This includes the cost of renting your manufacturing facility as well as electricity, water, and other utility bills.
- Machinery and equipment maintenance: This includes the cost of repairs and maintenance for any machinery or equipment used in the manufacturing process.
- Accountancy fees: You may need to hire an accountant to help you with financial management, tax preparation, and other financial tasks.
- Insurance costs: This includes all types of insurance you may need for your business, such as liability insurance, workers' compensation, and property insurance.
- Transportation and shipping: If you need to transport your finished products to customers, you may need to budget for transportation and shipping costs.
- Marketing and advertising: To promote your business and attract customers, you may need to invest in marketing and advertising efforts.
- Software licenses: You may need to purchase licenses for software programs used in your business, such as graphic design software or inventory management software.
- Banking fees: This includes any fees associated with your business bank account, such as transaction fees or account maintenance fees.
- Packaging materials: To package and ship your products, you may need to purchase packaging materials such as boxes, tape, and labels.
- Professional services: You may need to hire outside professionals, such as lawyers or consultants, for certain tasks related to your business.
- Training and development: To keep your employees up-to-date with the latest techniques and technologies, you may need to budget for training and development programs.
- Office supplies: This includes all the necessary supplies for your office, such as paper, pens, and printer ink.
- Taxes and licenses: You may need to pay taxes and obtain various licenses and permits to operate your saddle and harness manufacturing business.
This list is not exhaustive by any means, and will need to be tailored to your saddle and harness manufacturing business's specific circumstances.
What investments are needed to start or grow a saddle and harness manufacturing business?
Your saddle and harness 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 saddle and harness manufacturing business, these could include:
- Machinery and equipment: This includes the machinery and equipment necessary for the production of saddles and harnesses, such as sewing machines, leather cutters, and rivet machines.
- Inventory: As a saddle and harness manufacturing business, you will need to purchase raw materials and supplies such as leather, buckles, and hardware to make your products. This will be a significant capital expenditure, especially if you plan on producing a large volume of products.
- Factory or workshop space: In order to operate your business, you will need a dedicated space for manufacturing saddles and harnesses. This could include purchasing or renting a warehouse, workshop, or factory space.
- Furniture and fixtures: To make your workspace functional, you will need to invest in furniture and fixtures such as workbenches, storage shelves, and display racks for your products.
- Vehicles: If you plan on distributing your products to retail stores or attending trade shows, you may need to purchase a vehicle to transport your products. This could include a van or truck for larger items or a trailer for smaller items.
Again, this list will need to be adjusted according to the size and ambitions of your saddle and harness 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 saddle and harness manufacturing business
The next step in the creation of your financial forecast for your saddle and harness 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 saddle and harness manufacturing business?
Now let's have a look at the main output tables of your saddle and harness manufacturing business's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your saddle and harness manufacturing business's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a saddle and harness 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 saddle and harness 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.
The cash flow forecast
Your saddle and harness manufacturing business'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 saddle and harness 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 saddle and harness 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 saddle and harness manufacturing business'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 saddle and harness manufacturing business's financial forecast?
Creating your saddle and harness 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 saddle and harness 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.
Calling in a financial consultant or chartered accountant
Outsourcing the creation of your saddle and harness manufacturing business 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 saddle and harness manufacturing business's financial forecast?
Creating an accurate and error-free saddle and harness 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 saddle and harness 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 forecast shows expected growth, profitability, and cash generation metrics for your saddle and harness 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 saddle and harness 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.
Also on The Business Plan Shop
- Financial forecast example
- How to project revenues for a business?
- Example of financial forecast for business idea
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Founder & CEO at The Business Plan Shop Ltd
