How to create a financial forecast for a trailer manufacturer?
Creating a financial forecast for your trailer 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 trailer 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 trailer manufacturing business?
The financial projections for your trailer 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 trailer 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 used as input to build a trailer manufacturing business financial forecast?
A trailer 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 trailer manufacturing business.
If you are creating (or updating) the forecast of an existing trailer 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 trailer 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 trailer 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 trailer manufacturing business's financial forecast.
The sales forecast for a trailer manufacturing business
From experience, it usually makes sense to start your trailer manufacturing business's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your trailer 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 trailer 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:
- You may experience a decrease in the average price of trailers if there is an increase in steel prices, as steel is a key material used in trailer manufacturing.
- Your monthly transaction numbers may be affected by changes in consumer preferences, such as a shift towards smaller, more fuel-efficient trailers or a desire for more features and amenities.
- The average price of your trailers may be impacted by changes in technology, such as the development of more lightweight and durable materials, which could potentially drive up costs.
- If there are changes in regulations or safety standards for trailers, this could affect the number of monthly transactions as well as the average price as it may require updates or changes to your current trailer designs.
- Your sales forecast may be impacted by economic factors, such as a recession or an increase in disposable income, which could affect the demand for trailers and the average price customers are willing to pay.
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.
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The operating expenses for a trailer manufacturing business
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your trailer 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 trailer manufacturing business will include some of the following items:
- Staff Costs: This includes salaries, benefits, and any other expenses related to your employees. As a trailer manufacturing business, you will need skilled technicians, engineers, and administrative staff to run your operations.
- Raw Materials: To manufacture trailers, you will need to purchase raw materials such as steel, aluminum, and other components.
- Machinery and Equipment Maintenance: In order to keep your production running smoothly, you will need to maintain and repair your machinery and equipment regularly.
- Utilities: This includes electricity, water, and gas expenses for your manufacturing facility.
- Rent or Mortgage: If you do not own the manufacturing facility, you will need to pay rent or mortgage for your business premises.
- Marketing and Advertising: To attract customers and promote your business, you will need to invest in marketing and advertising strategies such as website development, social media ads, and print materials.
- Accountancy Fees: You will need to hire an accountant or outsource your accounting needs to ensure your financial records are accurate and up-to-date.
- Insurance Costs: As a business owner, it is important to have insurance coverage for your manufacturing facility, vehicles, and employees.
- Software Licenses: To manage your business operations efficiently, you may need to invest in software licenses for accounting, inventory management, and other business processes.
- Shipping and Freight Costs: If you are selling your trailers nationally or internationally, you will need to cover shipping and freight costs to deliver the products to your customers.
- Professional Fees: This includes any fees paid to lawyers, consultants, or other professionals for their services.
- Banking Fees: As a business, you will have banking fees associated with managing your finances, such as transaction fees and wire transfer fees.
- Employee Training: To ensure your employees have the necessary skills and knowledge to manufacture high-quality trailers, you may need to invest in training programs.
- Maintenance and Repairs: In addition to machinery and equipment maintenance, you may also need to cover maintenance and repair costs for your business premises and vehicles.
- Taxes and Licenses: As a business, you will have to pay taxes and obtain necessary licenses to operate legally.
This list will need to be tailored to the specificities of your trailer manufacturing business, but should offer a good starting point for your budget.
What investments are needed to start or grow a trailer manufacturing business?
Your trailer 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 trailer manufacturing business, these could include:
- Trailer Manufacturing Equipment: This includes the cost of purchasing or leasing machinery and tools such as welding equipment, saws, drills, and other specialized equipment needed for trailer manufacturing.
- Factory or Warehouse Space: As a trailer manufacturing business, you will need a dedicated space for production and storage of your trailers. This could include the purchase or rent of a factory or warehouse, as well as any necessary renovations or improvements to the space.
- Fleet of Vehicles: In order to transport trailers to clients or to receive raw materials, you may need to purchase or lease a fleet of vehicles such as trucks or vans. This could also include the cost of branding and equipping the vehicles with necessary equipment.
- Computer and Software Systems: In today's digital age, a trailer manufacturing business will likely require computer systems and specialized software for design, inventory management, and accounting purposes. This could also include the cost of training employees to use these systems effectively.
- Safety and Security Equipment: As a responsible business owner, you will need to invest in safety and security equipment to ensure the well-being of your employees and the protection of your assets. This could include items such as fire extinguishers, security cameras, and safety gear for employees.
Again, this list will need to be adjusted according to the size and ambitions of your trailer 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 trailer manufacturing business
The next step in the creation of your financial forecast for your trailer 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 trailer manufacturing business?
Now let's have a look at the main output tables of your trailer 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 trailer 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 trailer manufacturing business will look different than for a startup.
The projected balance sheet
The projected balance sheet gives an overview of your trailer 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 trailer 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 projected cash flow statement
A projected cash flow statement for a trailer 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 trailer 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 trailer 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 trailer manufacturing business's financial forecast?
Using the right tool or solution will make the creation of your trailer manufacturing business's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial projection software to build your trailer 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 trailer 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 trailer manufacturing business's financial forecast?
Creating an accurate and error-free trailer 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 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 projection shows expected growth, profitability, and cash generation for your business over the next three to five years.
- Tracking actuals vs. forecast and keeping your financial forecast up-to-date is the only way to maintain visibility on future cash flows.
- Using financial forecasting software makes it easy to create and maintain up-to-date projections for your trailer manufacturing business.
You have reached the end of our guide. We hope you now have a better understanding of how to create a financial forecast for a trailer manufacturing business. Don't hesitate to contact our team if you have any questions or want to share your experience building forecasts!
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 projections
- How to create a turnover forecast for a business?
- Example of financial forecast for business idea
Know someone who runs or wants to start a trailer manufacturing business? Share our financial projection guide with them!
Founder & CEO at The Business Plan Shop Ltd
