How to create a financial forecast for an auto equipment and parts wholesaler?

If you are serious about keeping visibility on your future cash flows, then you need to build and maintain a financial forecast for your auto equipment and parts wholesaler.

Putting together an auto equipment and parts wholesaler 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 auto equipment and parts wholesaler. 

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 auto equipment and parts wholesaler?

Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your auto equipment and parts wholesaler and ensure that it can be financially viable in the years to come.

A financial plan for an auto equipment and parts wholesaler enables you to look at your business in detail - from income to operating costs and investments - to evaluate its expected profitability and future cash flows.

This gives you the visibility needed to plan future investments and expansion with confidence. 

And, when your trading environment gets tougher, having an up to date auto equipment and parts wholesaler forecast enables you to detect potential upcoming financing shortfalls in advance, enabling you to make adjustments or secure financing before you run out of cash.

It’s also important to remember that your auto equipment and parts wholesaler's financial forecast will be essential when looking for financing. You can be 100% certain that banks and investors will ask to see your numbers, so make sure they’re set out accurately and attractively.

What information is used as input to build an auto equipment and parts wholesaler financial forecast?

A auto equipment and parts wholesaler'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 auto equipment and parts wholesaler.

If you are creating (or updating) the forecast of an existing auto equipment and parts wholesaler, 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 auto equipment and parts wholesaler 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 auto equipment and parts wholesaler 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 auto equipment and parts wholesaler's financial forecast.

The sales forecast for an auto equipment and parts wholesaler

From experience, it usually makes sense to start your auto equipment and parts wholesaler's financial projection with the revenues forecast.

The inputs used to forecast your sales will include the historical trading data of your auto equipment and parts wholesaler (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 auto equipment and parts wholesaler'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:

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. 

The operating expenses for an auto equipment and parts wholesaler

Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your auto equipment and parts wholesaler 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 an auto equipment and parts wholesaler will include some of the following items:

This list will need to be tailored to the specificities of your auto equipment and parts wholesaler, but should offer a good starting point for your budget.

What investments are needed to start or grow an auto equipment and parts wholesaler?

Once you have an idea of how much sales you could achieve and what it will cost to run your auto equipment and parts wholesaler, it is time to look into the equipment required to launch or expand the activity.

For an auto equipment and parts wholesaler, capital expenditures and initial working capital items could include:

• Warehouse or Distribution Center: Purchase or lease a warehouse or distribution center to store inventory efficiently.
• Warehouse Equipment - In order to efficiently store and handle your inventory, you will need to invest in warehouse equipment such as shelving, forklifts, and pallet jacks.
• Delivery Vehicles - As a wholesaler, you will need to transport your inventory to your customers. This may require purchasing delivery vehicles such as trucks or vans.
• Office Equipment - In addition to your warehouse operations, you will also need office equipment such as computers, printers, and furniture to manage your administrative tasks.
• Technology Upgrades - To stay competitive and efficient, you may need to invest in technology upgrades such as inventory management software, POS systems, or online ordering platforms.

Again, this list will need to be adjusted according to the specificities of your auto equipment and parts wholesaler.

The financing plan of your auto equipment and parts wholesaler

The next step in the creation of your financial forecast for your auto equipment and parts wholesaler 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 auto equipment and parts wholesaler?

Now let's have a look at the main output tables of your auto equipment and parts wholesaler's financial forecast.

The projected profit & loss statement

The projected profit & loss shows how profitable your auto equipment and parts wholesaler is likely to be in the years to come.

For your auto equipment and parts wholesaler to be financially viable, your projected P&L should ideally show:

• Sales growing above inflation (the higher the better)
• Profit margins which are stable or expanding (the higher the better) 
• A net profit at the end of each financial year (the higher the better)

This is for established auto equipment and parts wholesalers, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.

The projected balance sheet

Your auto equipment and parts wholesaler's forecasted balance sheet enables you to assess your financial structure and working capital requirements.

It is composed of three types of elements: assets, liabilities and equity:

• Assets: represent what the business owns and uses to produce cash flows. It includes resources such as cash, equipment, and accounts receivable (money owed by clients).
• Liabilities: represent funds advanced to the business by lenders and other creditors. It includes items such as accounts payable (money owed to suppliers), taxes due and loans.
• 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 auto equipment and parts wholesaler 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 auto equipment and parts wholesaler'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 auto equipment and parts wholesaler 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 auto equipment and parts wholesaler's financial plan. 

Which tool should you use to create your auto equipment and parts wholesaler's financial projections?

Building an auto equipment and parts wholesaler 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 auto equipment and parts wholesaler'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.

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 auto equipment and parts wholesaler 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 auto equipment and parts wholesaler'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 auto equipment and parts wholesaler 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 auto equipment and parts wholesaler'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 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 auto equipment and parts wholesaler, 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 auto equipment and parts wholesaler

Takeaways

1. A financial forecast shows expected growth, profitability, and cash generation metrics for your auto equipment and parts wholesaler.
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 an auto equipment and parts wholesaler. Don't hesitate to contact us if you have any questions!

Also on The Business Plan Shop

• Financial forecast example
• How to project revenues for a business?
• Financial forecast template for a business idea

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