How to create a financial forecast for a wooden toy manufacturer?

If you are serious about keeping visibility on your future cash flows, then you need to build and maintain a financial forecast for your wooden toy manufacturing business.

Putting together a wooden toy manufacturing business 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 wooden toy manufacturing business. 

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 wooden toy 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 wooden toy manufacturing business becomes handy.

Creating a wooden toy 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 wooden toy 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 wooden toy 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 wooden toy 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.

What information is used as input to build a wooden toy manufacturing business financial forecast?

A wooden toy 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 wooden toy manufacturing business.

If you are creating (or updating) the forecast of an existing wooden toy 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 wooden toy 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 wooden toy 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 wooden toy manufacturing business's financial forecast.

The sales forecast for a wooden toy manufacturing business

From experience, it is usually best to start creating your wooden toy manufacturing business financial forecast by your sales forecast.

To create an accurate sales forecast for your wooden toy manufacturing business, you will have to rely on the data collected in your market research, or if you're running an existing wooden toy 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:

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.

The operating expenses for a wooden toy manufacturing business

The next step is to estimate the costs you’ll have to incur to operate your wooden toy manufacturing business.

These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.). 

But your wooden toy manufacturing business's operating expenses should normally include the following items:

This list is not exhaustive by any means, and will need to be tailored to your wooden toy manufacturing business's specific circumstances.

What investments are needed to start or grow a wooden toy manufacturing business?

Your wooden toy 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 wooden toy manufacturing business, these could include:

Again, this list will need to be adjusted according to the size and ambitions of your wooden toy manufacturing business.

The financing plan of your wooden toy manufacturing business

The next step in the creation of your financial forecast for your wooden toy 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 wooden toy manufacturing business?

Now let's have a look at the main output tables of your wooden toy manufacturing business's financial forecast.

The profit & loss forecast

The forecasted profit & loss statement will enable you to visualise your wooden toy manufacturing business's expected growth and profitability over the next three to five years.

A financially viable P&L statement for a wooden toy 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 wooden toy 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 wooden toy 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 cash flow forecast

Your wooden toy manufacturing business's cash flow forecast shows how much cash your business is expected to consume or generate in the years to come.

It is best practice to organise the cash flow forecast by nature to better explain where cash is used or generated by the wooden toy manufacturing business:

• Operating cash flow: shows how much cash is generated by the operating activities
• Investing cash flow: shows how much will be invested in capital expenditure to maintain or expand the business 
• Financing cash flow: shows if the business is raising new capital or repaying financiers (debt repayment, dividends)

Keeping an eye on (and regularly updating) your wooden toy manufacturing business's cash flow forecast is key to ensuring that your business has sufficient liquidity to operate normally and to detect financing requirements as early as possible.

If you are trying to raise capital, you will normally be asked to provide a monthly cash flow forecast in your wooden toy manufacturing business's financial plan - so that banks or investors can assess seasonal variation and ensure your business is appropriately capitalised.

Which tool should you use to create your wooden toy manufacturing business's financial forecast?

Using the right tool or solution will make the creation of your wooden toy manufacturing business's financial forecast much easier than it sounds. Let’s explore the main options.

Using online financial projection software to build your wooden toy 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 wooden toy 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 wooden toy 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 wooden toy 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 wooden toy 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.

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

1. A financial forecast shows expected growth, profitability, and cash generation metrics for your wooden toy manufacturing business.
2. Tracking actuals vs. forecast and having an up-to-date financial forecast is key to maintaining visibility on your future cash flows.
3. 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 wooden toy manufacturing business. Don't hesitate to contact us if you have any questions!

Also on The Business Plan Shop

• Financial forecast example
• How to create a sales forecast for a business?
• Financial forecast for a business idea

Know someone who runs a wooden toy manufacturing business? Share our business guide with them!