How to create a financial forecast for a socks and tights 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 socks and tights manufacturing business.
Putting together a socks and tights 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 socks and tights 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 socks and tights manufacturing business?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your socks and tights manufacturing business and ensure that it can be financially viable in the years to come.
A financial plan for a socks and tights 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 socks and tights 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 socks and tights 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.
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 socks and tights manufacturing business financial forecast?
A socks and tights manufacturing business'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 socks and tights manufacturing business.
If you are creating (or updating) the forecast of an existing socks and tights manufacturing business, 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 socks and tights manufacturing business 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 socks and tights manufacturing business 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 socks and tights manufacturing business's financial forecast.
The sales forecast for a socks and tights manufacturing business
From experience, it usually makes sense to start your socks and tights manufacturing business's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your socks and tights 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 socks and tights 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:
- Seasonal trends: As a socks and tights manufacturing business, your sales may be significantly affected by seasonal trends. For example, during the colder months, there may be a higher demand for tights compared to socks. Therefore, you may need to adjust your sales forecast accordingly to ensure you have enough inventory to meet the demand.
- Fashion trends: The fashion industry is constantly evolving, and this can have a significant impact on your business. If a particular style or color of socks or tights becomes popular, it may increase the demand for those products. On the other hand, if a certain style falls out of fashion, it may result in a decline in sales. Keeping an eye on fashion trends and incorporating them into your sales forecast can help you stay ahead of the game.
- Raw material costs: The cost of raw materials, such as yarn and fabric, can fluctuate depending on various factors such as supply and demand, weather conditions, and political events. These fluctuations can have a direct impact on your average price and ultimately, your sales forecast. It is important to monitor these costs and adjust your prices accordingly to maintain profitability.
- Competition: In the socks and tights industry, you may face competition from both domestic and international manufacturers. Changes in your competitors' pricing strategies or product offerings can affect your sales and average price. Keeping an eye on the market and staying competitive is crucial in creating an accurate sales forecast.
- Economic conditions: Economic conditions, such as a recession or inflation, can have a significant impact on consumer spending. During an economic downturn, consumers may prioritize essential items over non-essential ones like socks and tights. This can result in a decrease in sales and average price. It is important to consider the current economic climate when creating your sales forecast.
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 socks and tights manufacturing business
The next step is to estimate the costs you’ll have to incur to operate your socks and tights manufacturing business.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your socks and tights manufacturing business's operating expenses should normally include the following items:
- Raw materials: As a socks and tights manufacturing business, you will need to purchase various raw materials such as cotton, wool, nylon, and spandex to produce your products.
- Production labor costs: You will need to pay your production staff for their time and labor to create your socks and tights.
- Packaging materials: In addition to raw materials, you will also need to purchase packaging materials such as boxes, labels, and tags to package your products for sale.
- Shipping and freight costs: When your products are ready, you will need to ship them to your distributors or directly to customers. This will incur costs for shipping and freight services.
- Marketing and advertising expenses: To promote your brand and products, you will need to invest in marketing and advertising efforts such as social media ads, print ads, and influencer partnerships.
- Rent and utilities: Your manufacturing facility and office space will require rent and utilities such as electricity, water, and internet.
- Staff costs: In addition to production labor costs, you will also need to budget for other staff costs such as salaries, benefits, and training.
- Accountancy fees: You will need the assistance of an accountant to manage your financial records, prepare tax returns, and provide financial advice.
- Insurance costs: As a business owner, it is important to protect your assets and employees with insurance coverage for potential risks such as liability and property damage.
- Software licenses: To streamline your operations and manage your finances, you may need to purchase software licenses for accounting, inventory management, and other business tools.
- Banking fees: To manage your business finances, you may incur fees for services such as wire transfers, ATM withdrawals, and check processing.
- Maintenance and repairs: Your manufacturing equipment and office space will require regular maintenance and occasional repairs to ensure smooth operations.
- Professional fees: As your business grows, you may need to seek professional services from lawyers, consultants, or other experts for various business needs.
- Taxes and licenses: As a business, you will need to pay taxes and obtain necessary licenses to operate legally.
- Office supplies: Your office space will require supplies such as stationery, printer ink, and other office essentials.
This list is not exhaustive by any means, and will need to be tailored to your socks and tights manufacturing business's specific circumstances.
What investments are needed to start or grow a socks and tights manufacturing business?
Your socks and tights 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 socks and tights manufacturing business, these could include:
- Machinery and Equipment: This includes the purchase of specialized machines and equipment used in the manufacturing process, such as knitting machines, sewing machines, and cutting machines.
- Factory Renovations: As a socks and tights manufacturing business, you will need a suitable space to house your equipment and operations. This may require renovations to the building, such as installing new flooring, lighting, and ventilation systems.
- Raw Materials Inventory: In order to produce socks and tights, you will need to purchase raw materials, such as yarn, elastic, and dyes. The cost of these materials should be included in your expenditure forecast.
- Packaging Materials: Socks and tights will need to be packaged in order to be sold to customers. This may include purchasing boxes, labels, and other packaging materials.
- Distribution and Delivery Vehicles: Once your products are ready, you will need a way to transport them to your customers. This may involve purchasing delivery vehicles or hiring a shipping company.
Again, this list will need to be adjusted according to the size and ambitions of your socks and tights 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 socks and tights manufacturing business
The next step in the creation of your financial forecast for your socks and tights 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 socks and tights manufacturing business?
Now let's have a look at the main output tables of your socks and tights manufacturing business's financial forecast.
The forecasted profit & loss statement
The profit & loss forecast gives you a clear picture of your business’ expected growth over the first three to five years, and whether it’s likely to be profitable or not.
A healthy socks and tights manufacturing business's P&L statement should show:
- Sales growing at (minimum) or above (better) inflation
- Stable (minimum) or expanding (better) profit margins
- A healthy level of net profitability
This will of course depend on the stage of your business: numbers for an established socks and tights manufacturing business will look different than for a startup.
The projected balance sheet
The projected balance sheet gives an overview of your socks and tights manufacturing business'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 socks and tights manufacturing business. 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 forecast
Your socks and tights 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 socks and tights 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 socks and tights 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 socks and tights 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 socks and tights manufacturing business's financial projections?
Building a socks and tights 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 projection software to build your socks and tights manufacturing business'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 socks and tights 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 socks and tights manufacturing business's financial forecast?
Creating an accurate and error-free socks and tights 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 socks and tights 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
- 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 socks and tights manufacturing business 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 socks and tights manufacturing business, 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?
- Example of financial forecast for business idea
Know someone who owns or is thinking of starting a socks and tights manufacturing business? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
