How to create a financial forecast for an air conditioning supplier?
If you are serious about keeping visibility on your future cash flows, then you need to build and maintain a financial forecast for your air conditioning supplier.
Putting together an air conditioning supplier 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 air conditioning supplier.
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 an air conditioning supplier?
The financial projections for your air conditioning supplier 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 air conditioning supplier'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 needed to build an air conditioning supplier financial forecast?
The quality of your inputs is key when it comes to financial modelling: no matter how good the model is, if your inputs are off, so will the forecast.
If you are building a financial plan to start an air conditioning supplier, you will need to have done your market research and have a clear picture of your sales and marketing strategies so that you can project revenues with confidence.
You will also need to have a clear idea of what resources will be required to operate the air conditioning supplier on a daily basis, and to have done your research with regard to the equipment needed to launch your venture (see further down this guide).
If you are creating a financial forecast of an existing air conditioning supplier, things are usually simpler as you will be able to use your historical accounting data as a budgeting base, and complement that with your team’s view on what lies ahead for the years to come.
Let's now zoom in on what will go in your air conditioning supplier's financial forecast.
The sales forecast for an air conditioning supplier
From experience, it usually makes sense to start your air conditioning supplier's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your air conditioning supplier (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 air conditioning supplier'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:
- Seasonal Demand: As an air conditioning supplier, you are likely to see fluctuations in demand based on the seasons. During the summer months, when temperatures are at their highest, customers will be more likely to purchase air conditioning units, leading to an increase in average price and number of monthly transactions.
- New Construction Projects: The construction industry has a significant impact on the air conditioning market. When there is an increase in new construction projects, there is a higher demand for air conditioning units, which can lead to an increase in both average price and number of monthly transactions for your business.
- Technological Advancements: With the constant advancements in technology, there may be new and improved air conditioning units entering the market. This could potentially lead to a decrease in your average price as customers may opt for the newer, more efficient models. However, it could also lead to an increase in the number of monthly transactions as customers may be more inclined to upgrade their older units.
- Economic Factors: Changes in the economy can also affect the air conditioning market. During times of economic downturn, customers may be less likely to purchase new air conditioning units, leading to a decrease in both average price and number of monthly transactions. On the other hand, during economic booms, customers may be more willing to invest in upgraded or additional air conditioning units, leading to an increase in both metrics for your business.
- Competition: The presence of competitors in the market can also have an impact on your business's sales forecast. If there is increased competition in your area, you may need to adjust your prices to stay competitive, which could result in a decrease in your average price. However, if you are able to differentiate your products or offer unique services, you may still see an increase in the number of monthly transactions despite the competition.
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.
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 an air conditioning supplier
The next step is to estimate the expenses needed to run your air conditioning supplier on a day-to-day basis.
These will vary based on the level of sales expected, and the location and size of your business.
But your air conditioning supplier's operating expenses should include the following items at a minimum:
- Staff Costs: This includes salaries, wages, and benefits for your employees, such as technicians, installers, customer service representatives, and administrative staff.
- Accountancy Fees: You may need to hire an accountant to help manage your company's finances, file taxes, and provide financial advice.
- Insurance Costs: As an air conditioning supplier, you need to protect your business and assets from potential risks, such as accidents, property damage, and liability claims.
- Software Licences: You may need to purchase software licences for programs that help manage your inventory, schedule appointments, and track customer information.
- Banking Fees: You may incur fees for various banking services, such as processing credit card payments, wire transfers, and monthly account maintenance.
- Marketing Expenses: In order to attract new customers and retain existing ones, you may need to invest in marketing efforts, such as online ads, print materials, and promotional events.
- Rent/Lease Payments: If you do not own your business property, you will need to pay rent or lease fees for your office, warehouse, or showroom.
- Vehicle Expenses: If you have company vehicles for deliveries or service calls, you will need to budget for fuel, maintenance, and insurance costs.
- Utilities: This includes expenses for electricity, gas, water, and internet services for your business location.
- Inventory Costs: You will need to purchase and stock air conditioning units, parts, and supplies to fulfill customer orders and maintain your inventory levels.
- Training and Development: In order to keep up with industry advancements and provide quality services, you may need to invest in training and development for your employees.
- Office Supplies: This includes expenses for paper, ink, pens, and other office supplies needed to run your business.
- Travel Expenses: If you attend conferences, trade shows, or visit suppliers, you will need to budget for travel expenses, such as airfare, lodging, and meals.
- Legal Fees: You may need to seek legal advice or assistance for contracts, disputes, or other legal matters related to your business.
- Repairs and Maintenance: You may need to budget for unexpected repairs or regular maintenance for your equipment, vehicles, and office space.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small air conditioning supplier might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow an air conditioning supplier?
Creating and expanding an air conditioning supplier also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for an air conditioning supplier could include elements such as:
- New Air Conditioning Units: As an air conditioning supplier, you may need to invest in new units to keep up with demand or to offer new products to your customers. These units can be expensive, but they are essential for your business to thrive. Make sure to budget for the cost of purchasing and installing these units in your expenditure forecast.
- Warehouse Equipment: If you have a warehouse to store your air conditioning units and other products, you will need to invest in equipment such as forklifts, pallet jacks, and storage racks. These items are costly but necessary for the smooth operation of your business. Consider including them in your expenditure forecast to ensure that you have the funds to purchase them when needed.
- Delivery Vehicles: As an air conditioning supplier, you will need reliable vehicles to transport your products to your customers. Whether you choose to lease or buy these vehicles, they will be a significant capital expenditure for your business. Plan ahead and include them in your forecast to avoid any unexpected costs.
- Office Equipment and Technology: In addition to the equipment needed for your warehouse and delivery, you will also need to invest in office equipment and technology like computers, printers, and software to manage your business operations. These items may seem small compared to other capital expenditures, but they can quickly add up and impact your budget if not properly planned for.
- Building Renovations and Improvements: If you own your office or warehouse space, you may need to make renovations or improvements to accommodate your growing business. This can include expanding your warehouse space, upgrading your office facilities, or installing new equipment for improved efficiency. These types of expenditures can be costly but are necessary for the long-term success of your business.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your air conditioning supplier.
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 air conditioning supplier
The next step in the creation of your financial forecast for your air conditioning supplier 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 an air conditioning supplier?
Now let's have a look at the main output tables of your air conditioning supplier's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your air conditioning supplier's expected growth and profitability over the next three to five years.
A financially viable P&L statement for an air conditioning supplier 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 air conditioning supplier'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 forecast
Your air conditioning supplier'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 air conditioning supplier:
- 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 air conditioning supplier'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 air conditioning supplier's financial plan - so that banks or investors can assess seasonal variation and ensure your 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 air conditioning supplier's financial projections?
Building an air conditioning supplier 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 forecasting software to build your air conditioning supplier's projections
The modern and easiest way is to use an online financial forecasting tool 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 projection software for free by signing up here.
Hiring a financial consultant or chartered accountant
Hiring a consultant or chartered accountant is also an efficient way to get a professional air conditioning supplier financial projection.
As you can imagine, this solution is much more expensive than using software. From experience, the creation of a simple financial forecast over three years (including a balance sheet, income statement, and cash flow statement) is likely to start around £700 or $1,000 excluding taxes.
The indicative estimate above, is for a small business, and a forecast done as a one-off. Using a financial consultant or accountant to track your actuals vs. forecast and to keep your financial forecast up to date on a monthly or quarterly basis will naturally cost a lot more.
If you choose this solution, make sure your service provider has first-hand experience in your industry, so that they may challenge your assumptions and offer insights (as opposed to just taking your figures at face value to create the forecast’s financial statements).
Why not use a spreadsheet such as Excel or Google Sheets to build your air conditioning supplier's financial forecast?
Creating an accurate and error-free air conditioning supplier financial forecast with a spreadsheet is very technical and requires a deep knowledge of accounting and an understanding of financial modelling.
Very few business owners are financially savvy enough to be able to build a forecast themselves on Excel without making mistakes.
Lenders and investors know this, which is why forecasts created on Excel by the business owner are often frowned upon.
Having numbers one can trust is key when it comes to financial forecasting and to that end using software is much safer.
Using financial forecasting software is also faster than using a spreadsheet, and, with the rise of artificial intelligence, software is also becoming smarter at helping us analyse the numbers to make smarter decisions.
Finally, like everything with spreadsheets, tracking actuals vs. forecasts and keeping your projections up to date as the year progresses is manual, tedious, and error-prone. Whereas financial projection 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 forecast shows expected growth, profitability, and cash generation metrics for your air conditioning supplier.
- Tracking actuals vs. forecast and having an up-to-date financial forecast is key to maintaining visibility on your future cash flows.
- 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 an air conditioning supplier. Don't hesitate to contact us if you 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
- Financial forecast example
- How to project sales for a business?
- Financial forecast for a business idea
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Founder & CEO at The Business Plan Shop Ltd
