How to create a financial forecast for an apparel accessories 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 apparel accessories manufacturing business.
Putting together an apparel accessories 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 apparel accessories 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 an apparel accessories manufacturing business?
The financial projections for your apparel accessories manufacturing business 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 apparel accessories manufacturing business'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 used as input to build an apparel accessories manufacturing business financial forecast?
A apparel accessories 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 apparel accessories manufacturing business.
If you are creating (or updating) the forecast of an existing apparel accessories 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 apparel accessories 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 apparel accessories 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 apparel accessories manufacturing business's financial forecast.
The sales forecast for an apparel accessories manufacturing business
The sales forecast, also called topline projection, is normally where you will start when building your apparel accessories 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 apparel accessories manufacturers), and consider the elements below:
- Changes in consumer preferences: As a apparel accessories manufacturer, you are aware that consumer preferences can have a significant impact on your average price and number of monthly transactions. If there is a sudden increase in demand for a specific type of accessory, such as hats or scarves, you may be able to charge a higher price and see an increase in sales. On the other hand, if there is a shift in consumer preferences away from your products, you may need to lower your prices to remain competitive and maintain sales.
- Economic conditions: Economic factors, such as inflation and unemployment rates, can also affect your business's average price and number of monthly transactions. In times of economic downturn, consumers may have less disposable income, leading to a decrease in sales. In contrast, during periods of economic growth, consumers may be more willing to spend on apparel accessories, allowing you to charge higher prices and see an increase in transactions.
- Seasonal trends: As an apparel accessories manufacturer, you are likely familiar with the impact of seasonal trends on your business. For example, during colder months, sales of winter accessories like hats and gloves may increase, while sales of summer accessories like sunglasses may decrease. Understanding these seasonal patterns can help you forecast your average price and number of monthly transactions more accurately.
- Competition: The level of competition in the market can also affect your business's average price and number of monthly transactions. If there are many other apparel accessories manufacturers offering similar products at lower prices, you may need to adjust your prices to remain competitive. On the other hand, if you have a unique product or hold a strong market position, you may be able to charge higher prices and see more transactions.
- Changes in fashion trends: As a manufacturer of apparel accessories, you are likely aware of the ever-changing nature of fashion trends. Keeping up with these trends can be crucial in determining your average price and number of monthly transactions. For example, if a particular type of accessory becomes popular, you may need to adjust your production to meet the demand and potentially increase prices. On the other hand, if a trend falls out of favor, you may need to adjust your prices or shift your focus to other products.
After the sales forecast comes the operating expenses budget, which we will now look into in more detail.
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The operating expenses for an apparel accessories manufacturing business
The next step is to estimate the expenses needed to run your apparel accessories manufacturing business 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 apparel accessories manufacturing business's operating expenses should include the following items at a minimum:
- Staff Costs: This includes salaries, wages, and benefits for all employees, including factory workers, designers, and administrative staff.
- Raw Materials: The cost of purchasing materials such as fabrics, zippers, buttons, and other necessary supplies for production.
- Production Equipment: This includes the cost of purchasing and maintaining equipment used in the manufacturing process, such as sewing machines and cutting tools.
- Utilities: The cost of electricity, water, and other utilities needed to run the production facility.
- Rent: The cost of leasing or renting a space for the production facility, as well as any additional storage or office space.
- Marketing and Advertising: This includes the costs of promoting and advertising the business, such as creating marketing materials and attending trade shows.
- Accountancy Fees: The cost of hiring an accountant to manage and file taxes, handle bookkeeping, and provide financial advice.
- Insurance Costs: The cost of insuring the business, including liability insurance, worker's compensation, and property insurance.
- Software Licenses: The cost of purchasing and maintaining software used for design, inventory management, and other business operations.
- Shipping and Freight: The cost of shipping raw materials and finished products to and from the production facility.
- Banking Fees: The cost of maintaining bank accounts, processing transactions, and any other fees associated with banking services.
- Taxes and Licenses: The cost of business licenses and permits, as well as taxes on income, property, and sales.
- Professional Services: This includes the cost of hiring consultants, lawyers, and other professionals for advice and services related to the business.
- Maintenance and Repairs: The cost of repairing and maintaining equipment, facilities, and other assets used in the business.
- Travel and Entertainment: The cost of business-related travel, meals, and entertainment for employees and clients.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small apparel accessories manufacturing business might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow an apparel accessories manufacturing business?
Creating and expanding an apparel accessories manufacturing business also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for an apparel accessories manufacturing business could include elements such as:
- Machinery and Equipment: This includes the cost of purchasing and setting up machines and equipment used in the manufacturing process, such as cutting machines, sewing machines, and printing machines. These are essential fixed assets for an apparel accessories manufacturing business.
- Factory or Warehouse Space: An apparel accessories manufacturing business requires a dedicated space for production and storage of finished products. This can include the cost of renting or purchasing a factory or warehouse space, as well as any renovations or improvements needed to make the space suitable for manufacturing.
- Inventory: As an apparel accessories manufacturing business, you will need to purchase raw materials and supplies to create your products. This can include fabrics, threads, buttons, zippers, and other necessary materials. The cost of purchasing and storing these materials can be significant and should be included in your expenditure forecast.
- Transportation and Shipping: Once your products are ready, you will need to transport them to retailers or customers. This can include the cost of shipping materials, as well as any vehicles or transportation services needed to deliver the products. This is an important cost to consider in your expenditure forecast.
- Technology and Software: In today's digital age, technology and software are crucial for running a successful apparel accessories manufacturing business. This can include the cost of purchasing computers, software for design and production, and other necessary technology for managing the business. These are fixed assets that should be included in your expenditure forecast.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your apparel accessories 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 apparel accessories manufacturing business
The next step in the creation of your financial forecast for your apparel accessories 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 an apparel accessories manufacturing business?
Now let's have a look at the main output tables of your apparel accessories manufacturing business's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your apparel accessories manufacturing business's expected growth and profitability over the next three to five years.
A financially viable P&L statement for an apparel accessories 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 apparel accessories 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 forecast
Your apparel accessories 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 apparel accessories 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 apparel accessories 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 apparel accessories manufacturing business'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 apparel accessories manufacturing business's financial projections?
Building an apparel accessories 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 forecasting software to build your apparel accessories 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 apparel accessories 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 apparel accessories manufacturing business's financial forecast?
Creating an accurate and error-free apparel accessories 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 forecasting templates available.
Our examples contain both the financial forecast, and a written business plan which presents, in detail, the company, the team, the strategy, and the medium-term objectives.
Whether you are just starting out or already have your own apparel accessories manufacturing business, looking at our template is always a good way to get ideas on how to model financial items and what to write when creating a business plan to secure funding.
Takeaways
- A financial forecast shows expected growth, profitability, and cash generation metrics for your apparel accessories manufacturing business.
- 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 apparel accessories manufacturing business. 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
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- Financial forecast for a business idea
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Founder & CEO at The Business Plan Shop Ltd
