How to create a financial forecast for a shipyard?
Creating a financial forecast for your shipyard, 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 shipyard 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 shipyard?
In order to prosper, your business needs to have visibility on what lies ahead and the right financial resources to grow. This is where having a financial forecast for your shipyard becomes handy.
Creating a shipyard financial forecast forces you to take stock of where your business stands and where you want it to go.
Once you have clarity on the destination, you will need to draw up a plan to get there and assess what it means in terms of future profitability and cash flows for your shipyard.
Having this clear plan in place will give you the confidence needed to move forward with your business’s development.
Having an up-to-date financial forecast for a shipyard is also useful if your trading environment worsens, as the forecast enables you to adjust to your new market conditions and anticipate any potential cash shortfall.
Finally, your shipyard's financial projections will also help you secure financing, as banks and investors alike will want to see accurate projections before agreeing to finance your 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.
What information is used as input to build a shipyard financial forecast?
A shipyard'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 shipyard.
If you are creating (or updating) the forecast of an existing shipyard, 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 shipyard 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 shipyard 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 shipyard's financial forecast.
The sales forecast for a shipyard
The sales forecast, also called topline projection, is normally where you will start when building your shipyard 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 shipyards), and consider the elements below:
- You, as a shipyard owner, should consider the fluctuation of global oil prices as a driver that may affect your business's average price. As ships are heavily dependent on fuel, any significant increase in oil prices may result in higher costs for ships, which could lead to a decrease in demand and a decrease in the average price of your shipyard's products.
- The introduction of new regulations and standards by the International Maritime Organization (IMO) can also impact your shipyard's average price. For example, the implementation of stricter environmental regulations may require ship designs to incorporate more expensive technologies, leading to an increase in the average price of your shipyard's products.
- The state of the global economy can also affect your shipyard's average price. During an economic downturn, there may be a decrease in demand for new ships, resulting in lower prices to attract customers. On the other hand, during a period of economic growth, there may be an increase in demand for new ships, leading to higher prices.
- The availability of skilled labor in the shipbuilding industry can also impact your shipyard's average price. If there is a shortage of skilled labor, your shipyard may have to pay higher wages to attract and retain workers, which could result in an increase in the average price of your products.
- Changes in technology can also affect your shipyard's average price. For instance, the development and adoption of new shipbuilding technologies can lead to higher costs for your shipyard, which may result in an increase in the average price of your products. On the other hand, investing in new technologies can also improve efficiency and lead to cost savings, which can lower your average price.
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 shipyard
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your shipyard 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 shipyard will include some of the following items:
- Staff costs: This includes salaries, wages, and benefits for all employees at the shipyard, including shipbuilders, engineers, and administrative staff.
- Accountancy fees: You will need to hire an accountant to handle your financial records, tax filings, and other financial matters related to your shipyard.
- Insurance costs: As a shipyard, you will need to have insurance coverage for your facilities, equipment, and employees to protect against any potential risks.
- Software licences: To operate efficiently, you will need to purchase software licences for various programs such as accounting, project management, and design software.
- Banking fees: You will incur fees for various banking services such as wire transfers, check processing, and merchant services.
- Utilities: This includes expenses for electricity, water, gas, and other utilities needed to power and operate your shipyard.
- Maintenance and repairs: Regular maintenance and repairs for your equipment, machinery, and facilities are necessary to keep your shipyard running smoothly.
- Raw materials: You will need to purchase raw materials, such as steel and other metals, to build and repair ships at your shipyard.
- Fuel and oil: As a shipyard, you will need to purchase fuel and oil for your ships and other vessels that come in for repairs.
- Marketing and advertising: You may need to invest in marketing and advertising efforts to attract clients and promote your shipyard's services.
- Training and development: Ongoing training and development for your employees is essential to keep up with industry advancements and maintain a skilled workforce.
- Safety and security: Ensuring the safety and security of your shipyard and employees may require investments in security systems, safety equipment, and training programs.
- Legal fees: You may need to seek legal advice and services for various matters related to your shipyard, such as contracts, permits, and compliance issues.
- Office supplies: This includes expenses for office supplies such as paper, ink, pens, and other necessary items for administrative tasks.
- Rent or mortgage: If you do not own your shipyard facility, you will need to pay rent or mortgage payments on the property.
This list will need to be tailored to the specificities of your shipyard, but should offer a good starting point for your budget.
What investments are needed to start or grow a shipyard?
Your shipyard 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 shipyard, these could include:
- Shipyard Equipment: This includes machinery, tools, and other equipment necessary for shipbuilding and repair. Examples include cranes, forklifts, welding equipment, and sandblasting machines.
- Dock and Pier Construction: As a shipyard, you will need a dock and pier to accommodate ships for repairs and construction. This may include costs for materials, labor, and permits.
- Facility Upgrades and Maintenance: Regular maintenance and upgrades are necessary to keep your shipyard running efficiently. This may include costs for repairs, renovations, and upgrades to buildings, roads, and other infrastructure.
- Dry Dock Construction: A dry dock is a structure used to lift ships out of the water for maintenance and repairs. Building a dry dock is a significant capital expenditure for a shipyard.
- Shipyard Software and Technology: As technology advances, shipyards are increasingly relying on software and technology to improve efficiency and productivity. This may include costs for purchasing and implementing software for project management, inventory management, and other shipyard operations.
Again, this list will need to be adjusted according to the size and ambitions of your shipyard.
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 shipyard
The next step in the creation of your financial forecast for your shipyard 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 shipyard?
Now let's have a look at the main output tables of your shipyard's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your shipyard is likely to be in the years to come.
For your shipyard 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 shipyards, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.
The projected balance sheet
The projected balance sheet gives an overview of your shipyard's financial structure at the end of the financial year.
It is composed of three categories of items: assets, liabilities and equity:
- Assets: are what the business possesses and uses to produce cash flows. It includes resources such as cash, buildings, equipment, and accounts receivable (money owed by clients).
- Liabilities: are the debts of your shipyard. They include accounts payable (money owed to suppliers), taxes due and bank loans.
- Equity: is the combination of what has been invested by the business owners and the cumulative profits 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 projection
The cash flow forecast of your shipyard will show how much cash the business is expected to generate or consume over the next three to five years.
There are multiple ways of presenting a cash flow forecast but from experience, it is better to organise it by nature in order to clearly show these elements:
- Operating cash flow: how much cash is generated by the shipyard's operations
- Investing cash flow: what is the business investing to expand or maintain its equipment
- Financing cash flow: is the business raising additional funds or repaying financiers (debt repayment, dividends)
Your cash flow forecast is the most important element of your overall financial projection and that’s where you should focus your attention to ensure that your shipyard is adequately funded.
Note: if you are preparing a financial forecast in order to try to secure funding, you will need to include both a yearly and monthly cash flow forecast in your shipyard's financial plan.
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 shipyard's financial projections?
Building a shipyard 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 shipyard'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
Outsourcing the creation of your shipyard 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 shipyard'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 shipyard 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 shipyard'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
- A financial forecast shows expected growth, profitability, and cash generation metrics for your shipyard.
- 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 shipyard. 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?
- Financial forecast for a business idea
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Founder & CEO at The Business Plan Shop Ltd
