How to create a financial forecast for a sports goods manufacturer?
Creating a financial forecast for your sports goods manufacturing business, 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 sports goods manufacturing business 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 sports goods manufacturing business?
The financial projections for your sports goods 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 sports goods 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.
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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 sports goods 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 sports goods 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 sports goods 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 sports goods 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 sports goods manufacturing business's financial forecast.
The sales forecast for a sports goods manufacturing business
The sales forecast, also called topline projection, is normally where you will start when building your sports goods manufacturing business 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 sports goods manufacturers), and consider the elements below:
- Changes in material costs: As a sports goods manufacturer, you rely heavily on raw materials such as rubber, leather, and fabric to produce your products. Fluctuations in the prices of these materials can greatly impact your average price, as well as the number of monthly transactions. For example, if the cost of rubber increases, you may have to raise your prices to maintain your profit margins, which could lead to a decrease in sales.
- Competitor pricing strategies: Your pricing strategy may be affected by what your competitors are charging for similar products. If they lower their prices, you may need to adjust yours to remain competitive. This could result in a decrease in your average price, but an increase in the number of monthly transactions as customers are attracted to your lower prices.
- Economic conditions: The overall state of the economy can have an impact on your sales forecast. During an economic downturn, consumers may have less disposable income to spend on sports goods, leading to a decrease in both average price and number of transactions. On the other hand, during a strong economy, customers may be more willing to spend on high-end sports equipment, resulting in an increase in average price.
- Seasonal demand: Depending on the type of sports goods you manufacture, your sales forecast may be affected by seasonal demand. For example, if you produce ski equipment, your sales may be higher in the winter months and lower in the summer. This can impact your average price as well, as you may need to offer discounts during the off-season to attract customers.
- Technological advancements: As technology continues to advance, it can have a significant impact on the sports goods industry. For example, the introduction of new materials or manufacturing processes may allow you to produce products at a lower cost, resulting in a decrease in your average price. On the other hand, if you invest in innovative technologies, you may be able to produce high-end products that can command a higher price, leading to an increase in average price and possibly a decrease in the number of monthly transactions.
After the sales forecast comes the operating expenses budget, which we will now look into in more detail.
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The operating expenses for a sports goods manufacturing business
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your sports goods 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 sports goods manufacturing business will include some of the following items:
- Staff Costs: This includes the salaries, benefits, and training costs for all employees, including production workers, designers, and administrative staff.
- Raw Materials: The cost of purchasing materials such as fabrics, plastics, and metals to produce sports goods.
- Accountancy Fees: The fees paid to an accountant for services such as bookkeeping, tax preparation, and financial forecasting.
- Insurance Costs: This includes general liability insurance, workers' compensation insurance, and product liability insurance to protect against potential risks and lawsuits.
- Rent/Lease: The cost of renting or leasing a manufacturing facility, warehouse, or office space.
- Utilities: This includes electricity, water, and gas expenses for operating the manufacturing facility.
- Marketing and Advertising: The cost of promoting and advertising the sports goods, including print and digital advertising, trade shows, and sponsorships.
- Software Licenses: The cost of software used for designing, production planning, inventory management, and financial management.
- Shipping and Freight: The cost of shipping raw materials and finished products to and from the manufacturing facility.
- Maintenance and Repairs: This includes the cost of maintaining and repairing equipment and machinery used in the production process.
- Travel and Entertainment: Expenses related to business travel, such as flights, accommodations, and meals, as well as entertaining clients and suppliers.
- Banking Fees: The cost of bank charges, such as transaction fees, overdraft fees, and wire transfer fees.
- Packaging Materials: The cost of packaging materials, such as boxes, labels, and packing tape, for shipping the sports goods.
- Professional Fees: This includes fees paid to lawyers, consultants, and other professionals for services such as legal advice, product testing, and quality control.
- Training and Development: The cost of training programs and workshops for employees to improve their skills and knowledge in sports goods manufacturing.
This list will need to be tailored to the specificities of your sports goods manufacturing business, but should offer a good starting point for your budget.
What investments are needed to start or grow a sports goods manufacturing business?
Creating and expanding a sports goods manufacturing business also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a sports goods manufacturing business could include elements such as:
- Factory equipment and machinery: This includes equipment such as cutting machines, sewing machines, and heat presses that are necessary for the production of sports goods. These are considered fixed assets as they have a long lifespan and provide value to the business over a period of time.
- Inventory: As a sports goods manufacturing business, you will need to invest in raw materials and finished goods inventory. This includes materials such as fabric, foam, and rubber for creating sports equipment, as well as finished products such as balls, bats, and protective gear.
- Warehouse or production facility: You will need a space to store your equipment, inventory, and finished goods. This could be in the form of a warehouse or a production facility. This is a major capital expenditure as it involves purchasing or leasing a property for your business operations.
- Transportation vehicles: If your business involves shipping your products to retailers or directly to customers, you will need transportation vehicles such as trucks or vans. This is an essential capital expenditure for ensuring timely delivery of your goods.
- Computer systems and software: In today's digital age, it is important for businesses to have reliable computer systems and software for various tasks such as inventory management, accounting, and communication. These are considered fixed assets as they have a long lifespan and are necessary for the smooth functioning of the business.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your sports goods 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 sports goods manufacturing business
The next step in the creation of your financial forecast for your sports goods 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 sports goods manufacturing business?
Now let's have a look at the main output tables of your sports goods 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 sports goods 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 sports goods manufacturing business will look different than for a startup.
The projected balance sheet
Your sports goods manufacturing business's forecasted balance sheet enables you to assess your financial structure and working capital requirements.
It is composed of three types of elements: assets, liabilities and equity:
- Assets: represent what the business owns and uses to produce cash flows. It includes resources such as cash, equipment, and accounts receivable (money owed by clients).
- Liabilities: represent funds advanced to the business by lenders and other creditors. It includes items such as accounts payable (money owed to suppliers), taxes due and loans.
- 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 projected cash flow statement
A projected cash flow statement for a sports goods manufacturing business is used to show how much cash the business is generating or consuming.
The cash flow forecast is usually organised by nature to show three key metrics:
- The operating cash flow: do the core business activities generate or consume cash?
- The investing cash flow: how much is the business investing in long-term assets (this is usually compared to the level of fixed assets on the balance sheet to assess whether the business is regularly maintaining and renewing its equipment)?
- The financing cash flow: is the business raising new financing or repaying financiers (debt repayment, dividends)?
Cash is king and keeping an eye on future cash flows is imperative for running a successful business. Therefore, you should pay close attention to your sports goods manufacturing business's cash flow forecast.
If you are trying to secure financing, note that it is customary to provide both yearly and monthly cash flow forecasts in a financial plan - so that the reader can analyze seasonal variation and ensure the sports goods manufacturing 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 sports goods manufacturing business's financial forecast?
Using the right tool or solution will make the creation of your sports goods manufacturing business's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your sports goods 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 sports goods 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 sports goods manufacturing business'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 sports goods manufacturing business 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 sports goods manufacturing business'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 projection templates for inspiration
The Business Plan Shop has dozens of financial forecast templates available.
Our examples contain a complete business plan with a financial forecast and a written presentation of the company, the team, the strategy, and the medium-term objectives.
Whether you are just starting out or already have your own sports goods manufacturing business, looking at our financial forecast template is a good way to:
- Understand what a complete business plan should look like
- Understand how you should model financial items for your sports goods manufacturing business
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 sports goods 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 sports goods 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 sales forecast for a business?
- Example of financial forecast for business idea
Know someone who owns or is thinking of starting a sports goods manufacturing business? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
