How to create a financial forecast for a textile finishing workshop?
If you are serious about keeping visibility on your future cash flows, then you need to build and maintain a financial forecast for your textile finishing workshop.
Putting together a textile finishing workshop 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 textile finishing workshop.
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 textile finishing workshop?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your textile finishing workshop and ensure that it can be financially viable in the years to come.
A financial plan for a textile finishing workshop 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 textile finishing workshop 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 textile finishing workshop'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 textile finishing workshop financial forecast?
A textile finishing workshop's financial forecast is only as good as the inputs used to build it.
If you are creating (or updating) the forecast of an existing textile finishing workshop, then you mostly need your accounting information, key historical operating non-financial data, and your team’s input on what to expect for the coming years.
If you are building financial projections for a textile finishing workshop startup, you will need to have done your research and have a clear picture of your competitive environment and go-to-market strategy so that you can forecast sales accurately.
For a new venture, you will also need a precise list of the resources needed to keep the textile finishing workshop running on a day-to-day basis and a list of the equipment and expenditures required to start the business (more on that later).
Let's now take a closer look at the elements that make up your textile finishing workshop's financial forecast.
The sales forecast for a textile finishing workshop
From experience, it is usually best to start creating your textile finishing workshop financial forecast by your sales forecast.
To create an accurate sales forecast for your textile finishing workshop, you will have to rely on the data collected in your market research, or if you're running an existing textile finishing workshop, the historical data of the business, to estimate two key variables:
- The average price
- The number of monthly transactions
To get there, you will need to consider the following factors:
- You can expect an increase in your average price if you invest in new and advanced machinery for your textile finishing workshop. The improved quality and efficiency of your services can justify a higher price point for your customers.
- Your number of monthly transactions may decrease if there is a sudden increase in the price of raw materials, such as dyes and chemicals. This can lead to higher production costs, which you may have to pass on to your customers, resulting in a decrease in demand.
- The introduction of new government regulations on environmental sustainability can also impact your average price. If you are required to invest in eco-friendly practices, this may lead to an increase in your costs and subsequently, a higher price for your services.
- Your location can also affect your number of monthly transactions. If your textile finishing workshop is located in a densely populated area with a high demand for textile services, you can expect a higher number of transactions compared to a rural or less populated area.
- Your average price may decrease if there is an influx of new competitors in the market. This can lead to price wars and a decrease in the perceived value of your services. You may have to adjust your prices to remain competitive and retain your customers.
Once you have an idea of what your future sales will look like, it will be time to work on your overhead budget. Let’s see what this entails.
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 textile finishing workshop
The next step is to estimate the costs you’ll have to incur to operate your textile finishing workshop.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your textile finishing workshop's operating expenses should normally include the following items:
- Staff Costs: This includes wages, salaries, and benefits for the employees working in the textile finishing workshop. This also includes any training and development costs for the staff.
- Accountancy Fees: You may need to hire an accountant to manage your financial records and tax obligations. This will incur some fees that must be accounted for in your operating expenses.
- Insurance Costs: It is important to have insurance coverage for your workshop to protect against any unforeseen events such as fire, theft, or accidents. This will incur a monthly or annual cost.
- Software Licenses: You may need to purchase or renew licenses for software programs that are essential for your textile finishing operations, such as design software or inventory management software.
- Banking Fees: You will need to maintain a business bank account for your workshop, which will incur fees for transactions, overdrafts, and other services.
- Raw Materials: This includes the cost of purchasing fabrics, dyes, chemicals, and other materials used in the finishing process.
- Utilities: You will need to pay for electricity, water, and other utilities to keep your workshop running smoothly.
- Rent or Mortgage: If you do not own the building where your workshop is located, you will need to pay rent. If you own the building, you may have a mortgage to pay off.
- Equipment Maintenance: You will need to regularly maintain and repair your equipment, such as sewing machines and dryers, to keep them in good working condition.
- Marketing and Advertising: To attract customers and promote your services, you may need to allocate funds for marketing and advertising strategies, such as social media ads or print ads.
- Packaging and Shipping: If you offer shipping services for your finished products, you will need to include the cost of packaging materials and postage in your operating expenses.
- Professional Services: You may need to hire outside professionals, such as lawyers or consultants, for specific tasks or projects, which will incur fees.
- Office Supplies: This includes the cost of purchasing office supplies, such as paper, ink, and pens, for your administrative tasks.
- Safety and Compliance: To ensure the safety of your employees and comply with regulations, you may need to invest in safety equipment and training programs.
- Repairs and Renovations: Over time, your workshop may require repairs or renovations, such as repainting the walls or replacing broken equipment, which will incur costs.
This list is not exhaustive by any means, and will need to be tailored to your textile finishing workshop's specific circumstances.
What investments are needed to start or grow a textile finishing workshop?
Your textile finishing workshop 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 textile finishing workshop, these could include:
- Textile Finishing Machinery: This includes equipment such as fabric inspection machines, dyeing machines, printing machines, and finishing machines.
- Packaging and Labeling Equipment: As a textile finishing workshop, you will need to invest in equipment for packaging and labeling your finished products. This can include machines for cutting, folding, and labeling fabrics.
- Storage and Handling Equipment: To properly store and handle your textiles, you may need to purchase equipment such as racks, shelves, and forklifts. This will help to keep your workshop organized and efficient.
- Safety Equipment: It is important to ensure the safety of your employees in the workshop. This may require the purchase of safety equipment such as fire extinguishers, first aid kits, and protective gear.
- Software and Technology: In today's digital age, investing in software and technology can greatly improve the efficiency and productivity of your workshop. This may include purchasing software for inventory management, accounting, or digital design tools for creating patterns and designs.
Again, this list will need to be adjusted according to the size and ambitions of your textile finishing workshop.
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 textile finishing workshop
The next step in the creation of your financial forecast for your textile finishing workshop 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 textile finishing workshop?
Now let's have a look at the main output tables of your textile finishing workshop's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your textile finishing workshop's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a textile finishing workshop 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
The projected balance sheet gives an overview of your textile finishing workshop'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 textile finishing workshop. 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 projected cash flow statement
A projected cash flow statement for a textile finishing workshop 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 textile finishing workshop'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 textile finishing workshop 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 textile finishing workshop's financial forecast?
Creating your textile finishing workshop'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 textile finishing workshop'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.
Hiring a financial consultant or chartered accountant
Hiring a consultant or chartered accountant is also an efficient way to get a professional textile finishing workshop financial projection.
As you can imagine, this solution is much more expensive than using software. From experience, the creation of a simple financial forecast over three years (including a balance sheet, income statement, and cash flow statement) is likely to start around £700 or $1,000 excluding taxes.
The indicative estimate above, is for a small business, and a forecast done as a one-off. Using a financial consultant or accountant to track your actuals vs. forecast and to keep your financial forecast up to date on a monthly or quarterly basis will naturally cost a lot more.
If you choose this solution, make sure your service provider has first-hand experience in your industry, so that they may challenge your assumptions and offer insights (as opposed to just taking your figures at face value to create the forecast’s financial statements).
Why not use a spreadsheet such as Excel or Google Sheets to build your textile finishing workshop's financial forecast?
Creating an accurate and error-free textile finishing workshop 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 textile finishing workshop, 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 textile finishing workshop.
- 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 textile finishing workshop. 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 sales for a business?
- Example of financial forecast for business idea
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Founder & CEO at The Business Plan Shop Ltd
