How to create a financial forecast for a watch manufacturer?
Developing and maintaining an up-to-date financial forecast for your watch 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 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 manufacturing business?
In order to prosper, your business needs to have visibility on what lies ahead and the right financial resources to grow. This is where having a financial forecast for your watch manufacturing business becomes handy.
Creating a watch manufacturing business financial forecast forces you to take stock of where your business stands and where you want it to go.
Once you have clarity on the destination, you will need to draw up a plan to get there and assess what it means in terms of future profitability and cash flows for your watch manufacturing business.
Having this clear plan in place will give you the confidence needed to move forward with your business’s development.
Having an up-to-date financial forecast for a watch manufacturing business is also useful if your trading environment worsens, as the forecast enables you to adjust to your new market conditions and anticipate any potential cash shortfall.
Finally, your watch manufacturing business's financial projections will also help you secure financing, as banks and investors alike will want to see accurate projections before agreeing to finance your 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.
What information is used as input to build a watch manufacturing business financial forecast?
A watch manufacturing business'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 watch manufacturing business, 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 watch manufacturing business 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 watch manufacturing business 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 watch manufacturing business's financial forecast.
The sales forecast for a watch manufacturing business
From experience, it is usually best to start creating your watch manufacturing business financial forecast by your sales forecast.
To create an accurate sales forecast for your watch manufacturing business, you will have to rely on the data collected in your market research, or if you're running an existing watch manufacturing business, 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:
- Economic conditions: The state of the economy can greatly impact the average price of your watches and the number of monthly transactions. In a strong economy, consumers may be more willing to spend on luxury items such as watches, resulting in higher prices and increased sales. On the other hand, during an economic downturn, consumers may cut back on discretionary spending, leading to lower prices and decreased sales.
- Competition: The level of competition within the watch manufacturing industry can also affect your average price and monthly transactions. If there are a lot of competitors offering similar products at lower prices, you may have to lower your prices to remain competitive. This could result in lower average prices and potentially higher sales. However, if your watches are highly differentiated and in high demand, you may be able to maintain higher prices and see a higher number of monthly transactions.
- Product innovation: The introduction of new, innovative watch designs or features can also impact your average price and monthly transactions. If you are constantly introducing new and improved watches, you may be able to command higher prices and see increased sales. However, if your product line becomes stagnant, customers may be less willing to pay higher prices and your sales may suffer.
- Consumer preferences: Changes in consumer preferences can also affect your average price and monthly transactions. For example, if there is a shift towards more sustainable and eco-friendly products, you may need to adjust your manufacturing processes and materials, which could result in higher prices. On the other hand, if there is a trend towards minimalist and affordable watches, you may need to adjust your pricing strategy to stay competitive and maintain sales.
- Material costs: Fluctuations in the cost of raw materials used in watch manufacturing can impact your average price and monthly transactions. If the cost of materials increases, you may need to raise your prices to maintain profitability, which could result in lower sales. Conversely, if material costs decrease, you may be able to offer lower prices and potentially see an increase in sales.
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 watch manufacturing business
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your watch 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 watch manufacturing business will include some of the following items:
- Raw Materials: As a watch manufacturing business, you will need to purchase raw materials such as stainless steel, leather, and other materials to make your watches.
- Labor Costs: Your staff will be a major expense for your business. This includes salaries, benefits, and any training costs.
- Rent and Utilities: You will need a facility to manufacture your watches, which will come with costs such as rent, electricity, and water.
- Machinery and Equipment Maintenance: With the use of machinery and equipment, you will need to budget for regular maintenance and repairs.
- Packaging and Shipping: Once your watches are made, you will need to package and ship them to customers. This will include costs for packaging materials, shipping fees, and any customs or import/export fees.
- Marketing and Advertising: To promote your watch brand and attract customers, you may need to invest in marketing and advertising efforts such as social media ads, influencer partnerships, and print ads.
- Accounting and Bookkeeping: Keeping track of your financials is crucial for any business. You may need to hire an accountant or bookkeeper to help you manage your finances.
- Insurance: As a business, it's important to protect yourself from potential risks. You may need to budget for insurance to cover your business, employees, and products.
- Software Licenses: With the use of technology in your business, you may need to purchase software licenses for programs such as design software or inventory management systems.
- Banking Fees: You will need to have a business bank account and may incur fees for transactions, wire transfers, and other banking services.
- Legal Fees: As a business, you may need to seek legal advice or services for contracts, trademarks, or any other legal matters.
- Research and Development: To stay competitive in the watch industry, you may need to invest in research and development to improve your products and come up with new designs.
- Training and Development: As your business grows, you may need to invest in training and development programs for your employees to improve their skills and knowledge.
- Office Supplies: Running a business also means having office supplies on hand, such as paper, pens, and printer ink.
- Travel Expenses: If your business involves attending trade shows or meeting with suppliers or clients, you may need to budget for travel expenses such as flights, accommodations, and meals.
This list will need to be tailored to the specificities of your watch manufacturing business, but should offer a good starting point for your budget.
What investments are needed to start or grow a watch manufacturing business?
Your watch 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 manufacturing business, these could include:
- Machinery and equipment: This includes the tools and equipment necessary for the production of watches, such as watchmaking machines, polishing machines, and assembly tools. These are considered fixed assets as they are necessary for the daily operations of the business and have a useful life of more than one year.
- Inventory: As a watch manufacturing business, you will need to purchase raw materials and components to create your watches. These include watch movements, cases, dials, and hands. These items are considered fixed assets as they are essential for the production process and have a useful life of more than one year.
- Facility improvements: In order to have a functional production facility, you may need to make improvements such as renovating the space, installing specialized lighting or ventilation systems, or upgrading security measures. These are considered fixed assets as they are necessary for the operation of the business and have a useful life of more than one year.
- Research and development: As a watch manufacturer, you may need to invest in research and development to create new designs and improve existing ones. This can include hiring specialized staff, purchasing software or technology, and conducting market research. These are considered fixed assets as they are essential for the long-term success of the business and have a useful life of more than one year.
- Intellectual Property: As a watch manufacturing business, you may need to invest in obtaining patents or trademarks for your unique designs and brand name. These are considered fixed assets as they have a useful life of more than one year and are essential for protecting your business's intellectual property.
Again, this list will need to be adjusted according to the size and ambitions of your watch 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 manufacturing business
The next step in the creation of your financial forecast for your watch 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 manufacturing business?
Now let's have a look at the main output tables of your watch manufacturing business's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your watch manufacturing business's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a watch manufacturing business 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 watch 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 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 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 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 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 manufacturing business's financial projections?
Building a watch 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 watch 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 watch 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 manufacturing business's financial forecast?
Creating an accurate and error-free watch 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
- 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 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 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?
- Financial forecast for a business idea
Know someone who owns or is thinking of starting a watch manufacturing business? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
