How to create a financial forecast for a workwear manufacturer?
Creating a financial forecast for your workwear 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 workwear 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 workwear 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 workwear manufacturing business becomes handy.
Creating a workwear 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 workwear 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 workwear 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 workwear 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 workwear manufacturing business financial forecast?
A workwear 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 workwear 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 workwear 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 workwear 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 workwear manufacturing business's financial forecast.
The sales forecast for a workwear manufacturing business
From experience, it usually makes sense to start your workwear manufacturing business's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your workwear 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 workwear 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:
- Industry trends: As the demand for workwear increases, the average price of your products may also increase due to competition and supply and demand dynamics.
- Product design and quality: If you invest in improving the design and quality of your workwear, you may be able to charge a higher average price and attract more customers, resulting in an increase in monthly transactions.
- Economic conditions: A strong economy may lead to increased demand for workwear, allowing you to charge higher prices and experience a higher number of monthly transactions. Conversely, a weak economy may result in lower demand and lower prices.
- Seasonal demand: Depending on the industry your customers are in, there may be seasonal fluctuations in demand for workwear. For example, construction companies may require more workwear during the summer months, resulting in an increase in monthly transactions during that time.
- Cost of raw materials: If the cost of raw materials used in the manufacturing of workwear increases, you may need to raise your average price to maintain profitability. This could potentially lead to a decrease in monthly transactions if customers are unwilling to pay the higher price.
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 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 workwear manufacturing business
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your workwear 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 workwear manufacturing business will include some of the following items:
- Staff costs: This includes salaries, benefits, and any other expenses related to your employees, such as training and development.
- Accountancy fees: You will need to hire an accountant to help you manage your financial records, prepare tax returns, and provide financial advice.
- Insurance costs: As a workwear manufacturing business, you will need to have insurance coverage for your employees, equipment, and products.
- Software licenses: You may need to purchase software licenses for programs such as design software, inventory management, and accounting software.
- Banking fees: You will need to pay fees for business banking services, such as checking and savings accounts, credit card processing, and loans.
- Raw materials: This includes the cost of purchasing fabrics, buttons, zippers, and other materials needed to make your workwear products.
- Manufacturing equipment: You will need to purchase or lease equipment such as sewing machines, cutting machines, and pressing machines to manufacture your products.
- Rent: If you have a physical location for your business, you will need to pay rent for the space.
- Utilities: This includes the cost of electricity, water, and other utilities needed to run your manufacturing operations.
- Marketing and advertising: You will need to budget for marketing and advertising expenses to promote your business and products to potential customers.
- Packaging and shipping: You will need to account for the cost of packaging materials and shipping services to deliver your products to customers.
- Legal fees: You may need to consult with a lawyer for legal advice or assistance with contracts, trademarks, and other legal matters.
- Office supplies: You will need to purchase supplies such as paper, pens, and printer ink for your office operations.
- Maintenance and repairs: You may need to budget for repairs or maintenance of equipment and facilities to keep your business running smoothly.
- Taxes: As a business owner, you will need to pay various taxes, including income tax, payroll tax, and sales tax.
This list will need to be tailored to the specificities of your workwear manufacturing business, but should offer a good starting point for your budget.
What investments are needed to start or grow a workwear manufacturing business?
Once you have an idea of how much sales you could achieve and what it will cost to run your workwear manufacturing business, it is time to look into the equipment required to launch or expand the activity.
For a workwear manufacturing business, capital expenditures and initial working capital items could include:
- Machinery and Equipment: This includes the cost of purchasing and installing machinery and equipment used in the manufacturing process, such as cutting machines, sewing machines, and pressing machines.
- Factory Building: If you are planning on owning your own factory building, this will be a major capital expenditure. This includes the cost of purchasing or constructing the building, as well as any renovations or improvements needed for your manufacturing operations.
- Inventory: As a workwear manufacturing business, you will need to purchase raw materials, such as fabric and thread, to create your products. The cost of these materials will be included in your expenditure forecast.
- Furniture and Fixtures: This includes the cost of purchasing office furniture, such as desks and chairs, as well as any fixtures needed in your factory, such as work tables and storage shelves.
- Transportation and Delivery Vehicles: If your business will be responsible for delivering the finished products to customers, you will need to include the cost of purchasing or leasing transportation vehicles, such as trucks or vans, in your expenditure forecast.
Again, this list will need to be adjusted according to the specificities of your workwear 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 workwear manufacturing business
The next step in the creation of your financial forecast for your workwear 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 workwear manufacturing business?
Now let's have a look at the main output tables of your workwear manufacturing business's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your workwear manufacturing business's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a workwear 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
Your workwear manufacturing business's projected balance sheet provides a snapshot of your business’s financial position at year-end.
It is composed of three types of elements: assets, liabilities and equity:
- Assets: represent what the business possesses including cash, equipment, and accounts receivable (money owed by clients).
- Liabilities: represent funds advanced to the business by lenders and other creditors. They include accounts payable (money owed to suppliers), taxes payable and loans from banks and financial institutions.
- Equity: is the combination of what has been invested by the business owners and the cumulative profits and losses generated by the business 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 projection
The cash flow forecast of your workwear manufacturing business will show how much cash the business is expected to generate or consume over the next three to five years.
There are multiple ways of presenting a cash flow forecast but from experience, it is better to organise it by nature in order to clearly show these elements:
- Operating cash flow: how much cash is generated by the workwear manufacturing business's operations
- Investing cash flow: what is the business investing to expand or maintain its equipment
- Financing cash flow: is the business raising additional funds or repaying financiers (debt repayment, dividends)
Your cash flow forecast is the most important element of your overall financial projection and that’s where you should focus your attention to ensure that your workwear manufacturing business is adequately funded.
Note: if you are preparing a financial forecast in order to try to secure funding, you will need to include both a yearly and monthly cash flow forecast in your workwear manufacturing business's financial plan.
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 workwear manufacturing business's financial forecast?
Creating your workwear manufacturing business'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 workwear 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
Enlisting the help of a consultant or accountant is also a good way to obtain a professional workwear manufacturing business financial forecast.
The downside of this solution is its cost. From experience, obtaining a simple financial forecast over three years (including a balance sheet, income statement, and cash flow statement) is likely to cost a minimum of £700 or $1,000.
The indicative cost above, is for a small business, and a forecast is done as a one-shot exercise. Using a consultant or accountant to track your actuals vs. forecast and to keep your financial projections up to date on a monthly or quarterly basis will cost a lot more.
If you opt for this solution, make sure your accountant has in-depth knowledge of your industry, so that they may challenge your figures and offer insights (as opposed to just taking your assumptions at face value to create the forecast).
Why not use a spreadsheet such as Excel or Google Sheets to build your workwear manufacturing business's financial forecast?
Creating an accurate and error-free workwear 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 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 workwear 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 workwear 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 workwear 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 workwear 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 turnover forecast for a business?
- Financial forecast for a business idea
Know someone who owns or is thinking of starting a workwear manufacturing business? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
