How to create a financial forecast for a watch and clock manufacturer?
Developing and maintaining an up-to-date financial forecast for your watch and clock manufacturing business is key in order to maintain visibility on your business’s future cash flows.
If you feel overwhelmed at the thought of putting together a watch and clock manufacturing business financial forecast then don’t worry as this guide is here to help you.
We'll cover everything from: the main objectives of a financial forecast, the data you need to gather before starting, to the tables that compose it, and the tools that will help you create and maintain your forecast efficiently.
Let's get started!
Why create and maintain a financial forecast for a watch and clock manufacturing business?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your watch and clock manufacturing business and ensure that it can be financially viable in the years to come.
A financial plan for a watch and clock 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 watch and clock 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 watch and clock 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 watch and clock manufacturing business financial forecast?
A watch and clock 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 watch and clock manufacturing business.
If you are creating (or updating) the forecast of an existing watch and clock 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 watch and clock 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 watch and clock 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 watch and clock manufacturing business's financial forecast.
The sales forecast for a watch and clock manufacturing business
The sales forecast, also called topline projection, is normally where you will start when building your watch and clock 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 watch and clock manufacturers), and consider the elements below:
- Competition: Keep an eye on your competitors' pricing strategies, as well as any new products they introduce that could impact your average price or number of transactions. For example, if a competitor releases a similar product at a lower price point, it could drive down your average price and potentially decrease your number of transactions.
- Inflation: As a manufacturer, you are likely to be impacted by changes in inflation rates. If the cost of raw materials and production increases due to inflation, you may need to adjust your prices to maintain profitability. This could affect your average price and potentially decrease the number of transactions if customers are hesitant to pay higher prices.
- Economic Conditions: Economic factors such as changes in consumer spending, unemployment rates, and interest rates can all affect the demand for luxury goods like watches and clocks. During times of economic downturn, consumers may be more cautious with their spending, resulting in a decrease in both average price and number of transactions. On the other hand, during times of economic growth, consumers may be more willing to invest in luxury items, potentially increasing your average price and number of transactions.
- Technological Advancements: The watch and clock industry is constantly evolving, with new technologies and features being introduced all the time. Keep an eye on these advancements, as they may impact the perceived value of your products and the average price you can charge. For example, if a new technology allows for more accurate timekeeping, customers may be willing to pay a higher price for your products, resulting in an increase in average price and potentially an increase in transactions.
- Fashion Trends: The fashion industry heavily influences the watch and clock market. Keep up with current fashion trends and consider incorporating them into your products to attract more customers. For example, if larger, bold watches are currently in style, offering a range of options in this style could attract more customers and potentially increase your average price and number of transactions.
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 watch and clock manufacturing business
The next step is to estimate the costs you’ll have to incur to operate your watch and clock manufacturing business.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your watch and clock manufacturing business's operating expenses should normally include the following items:
- Staff costs: This includes salaries, wages, and benefits for your employees, such as watch and clock assemblers, technicians, and administrative staff.
- Accountancy fees: You will need to hire an accountant to handle your financial statements, tax filings, and other financial matters specific to your watch and clock manufacturing business.
- Insurance costs: This includes liability insurance to protect your business in case of accidents or damages, as well as property insurance to cover any losses or damages to your manufacturing facility, equipment, or inventory.
- Software licences: In order to design and produce high-quality watches and clocks, you may need to invest in specialized software programs for CAD (computer-aided design) and CAM (computer-aided manufacturing).
- Banking fees: As a business, you will have to pay for various banking fees, such as transaction fees, wire transfer fees, and monthly account maintenance fees.
- Raw material costs: This includes the cost of purchasing materials, such as metals, glass, and other components, to produce your watches and clocks.
- Utility expenses: Your manufacturing facility will require electricity, water, and other utilities, which will add to your operating expenses.
- Marketing and advertising costs: In order to promote your brand and products, you may need to invest in marketing and advertising efforts, such as creating a website, attending trade shows, and running social media campaigns.
- Shipping and logistics: You will need to factor in the cost of shipping your finished products to retailers or directly to customers.
- Rent or mortgage: If you do not own your manufacturing facility, you will need to pay rent or a mortgage for the space.
- Equipment maintenance: Your manufacturing equipment, such as lathes and drills, will require regular maintenance and occasional repairs, which will add to your operating expenses.
- Legal fees: In order to protect your business and products, you may need to hire a lawyer to handle any legal matters, such as patent applications or contracts with suppliers and retailers.
- Research and development: As a watch and clock manufacturer, you may want to invest in research and development to improve your products and stay ahead of the competition.
- Travel expenses: If you attend trade shows or travel to meet with suppliers or retailers, you will need to factor in the cost of travel, accommodation, and meals.
- Taxes: Your business will be responsible for paying various taxes, such as income tax, sales tax, and payroll taxes.
This list is not exhaustive by any means, and will need to be tailored to your watch and clock manufacturing business's specific circumstances.
What investments are needed to start or grow a watch and clock manufacturing business?
Your watch and clock 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 watch and clock manufacturing business, these could include:
- Machinery and Equipment: This includes any specialized machinery or equipment used in the manufacturing process, such as lathes, drills, and specialized tools for creating small watch parts.
- Facility Renovations: If you are starting your watch and clock manufacturing business from scratch, you may need to invest in renovating a space to serve as your production facility. This may include things like installing new flooring, lighting, or plumbing systems.
- Inventory: As a manufacturer, you will need to purchase raw materials and components to produce your watches and clocks. This can be a significant expense, especially if you are creating high-end or luxury timepieces that require expensive materials.
- Packaging and Shipping Materials: In addition to the actual production of your watches and clocks, you will also need to invest in packaging and shipping materials to send your products to customers. This may include boxes, bubble wrap, and shipping labels.
- Technology and Software: As technology plays a crucial role in modern manufacturing, you may need to invest in software and technology to aid in the design, production, and quality control of your watches and clocks. This may include CAD software, inventory management systems, and quality control tools.
Again, this list will need to be adjusted according to the size and ambitions of your watch and clock 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 watch and clock manufacturing business
The next step in the creation of your financial forecast for your watch and clock 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 watch and clock manufacturing business?
Now let's have a look at the main output tables of your watch and clock 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 watch and clock 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 watch and clock manufacturing business will look different than for a startup.
The projected balance sheet
The projected balance sheet gives an overview of your watch and clock 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 watch and clock 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 watch and clock 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 watch and clock 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 watch and clock 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 watch and clock manufacturing business's financial forecast?
Using the right tool or solution will make the creation of your watch and clock manufacturing business's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your watch and clock manufacturing business'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 watch and clock 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 watch and clock 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 watch and clock 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 watch and clock 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 watch and clock 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 watch and clock 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 watch and clock 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 watch and clock 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 project revenues for a business?
- Financial forecast for a business idea
Know someone who owns or is thinking of starting a watch and clock manufacturing business? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
