How to create a financial forecast for an electric motor manufacturer ?
Developing and maintaining an up-to-date financial forecast for your electric motor manufacturing business is key in order to maintain visibility on your business’s future cash flows.
If you feel overwhelmed at the thought of putting together an electric motor manufacturing business financial forecast then don’t worry as this guide is here to help you.
We'll cover everything from: the main objectives of a financial forecast, the data you need to gather before starting, to the tables that compose it, and the tools that will help you create and maintain your forecast efficiently.
Let's get started!
Why create and maintain a financial forecast for an electric motor manufacturing business ?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your electric motor manufacturing business and ensure that it can be financially viable in the years to come.
A financial plan for an electric motor manufacturing business 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 electric motor manufacturing business 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 electric motor manufacturing business '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.
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 electric motor manufacturing business 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 electric motor manufacturing business , 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 electric motor manufacturing business 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 electric motor manufacturing business , 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 electric motor manufacturing business 's financial forecast.
The sales forecast for an electric motor manufacturing business
From experience, it is usually best to start creating your electric motor manufacturing business financial forecast by your sales forecast.
To create an accurate sales forecast for your electric motor manufacturing business , you will have to rely on the data collected in your market research, or if you're running an existing electric motor 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:
- Economic conditions: Changes in the overall economy, such as recessions or economic booms, can impact the demand for electric motors. During a recession, businesses may be more likely to delay or cancel equipment purchases, leading to a decrease in sales. On the other hand, during an economic boom, businesses may have more funds available for equipment upgrades, resulting in an increase in sales.
- Technological advancements: As technology continues to evolve, newer and more efficient electric motors may enter the market. This may lead to a decrease in demand for older, less efficient models and a decrease in average price as businesses opt for the newer models.
- Government regulations: Changes in government regulations, such as stricter emissions standards, may require businesses to upgrade their electric motors to comply. This could result in an increase in demand for newer, more environmentally friendly models, leading to an increase in both sales and average price.
- Competition: The presence of competitors in the market can directly impact the business's sales and average price. If there are many competitors offering similar products at lower prices, the business may need to lower their prices to remain competitive. On the other hand, if the business has a unique product or there are few competitors, they may be able to maintain higher prices.
- Industry trends: Changes in the industry, such as a shift towards renewable energy sources, can also affect the demand for electric motors. If there is a growing demand for electric vehicles or renewable energy systems, this could lead to an increase in sales for the business. Alternatively, if there is a decline in the use of electric motors in certain industries, this could result in a decrease in sales.
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.
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 electric motor manufacturing business
The next step is to estimate the expenses needed to run your electric motor 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 electric motor manufacturing business 's operating expenses should include the following items at a minimum:
- Staff Costs: This includes the salaries and benefits of all employees, such as production workers, engineers, and administrative staff.
- Accountancy Fees: As a manufacturing business, you will need to hire an accountant to keep track of your financial records and file taxes.
- Insurance Costs: This covers the cost of insurance for your business, including liability insurance, property insurance, and worker's compensation insurance.
- Software Licenses: You will need specialized software for designing and testing your electric motors, as well as for managing your inventory and finances.
- Banking Fees: Your business will have regular banking fees, such as transaction fees, wire transfer fees, and account maintenance fees.
- Raw Materials: This includes the cost of purchasing materials such as copper wire, steel, and magnets to build your electric motors.
- Utilities: Your business will have ongoing expenses for utilities such as electricity, water, and gas.
- Rent: If you do not own your manufacturing facility, you will have to pay rent for the space you use.
- Marketing and Advertising: To attract customers, you will need to invest in marketing and advertising efforts such as print ads, online ads, and trade show booths.
- Packaging and Shipping: You will need to purchase packaging materials and pay for shipping costs to deliver your electric motors to customers.
- Maintenance and Repairs: Your machinery and equipment will require regular maintenance and occasional repairs, which can be costly.
- Training and Development: To ensure your employees have the necessary skills to manufacture high-quality electric motors, you may need to invest in training programs and workshops.
- Taxes and Licenses: Your business will have to pay various taxes, such as income tax and sales tax, as well as obtain necessary licenses to operate legally.
- Travel Expenses: If your business involves traveling for meetings, conferences, or customer visits, you will have to cover the cost of transportation, lodging, and meals.
- Legal Fees: As a business, you may need to seek legal advice or services, which can result in significant fees.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small electric motor 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 electric motor manufacturing business ?
Once you have an idea of how much sales you could achieve and what it will cost to run your electric motor manufacturing business , it is time to look into the equipment required to launch or expand the activity.
For an electric motor 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 lathes, presses, and assembly line equipment.
- Building and Facilities: This includes the cost of purchasing or leasing a building for the manufacturing facility, as well as any renovations or improvements needed to make it suitable for manufacturing electric motors.
- Tools and Supplies: This includes the cost of purchasing tools and supplies needed to manufacture electric motors, such as hand tools, drills, and raw materials.
- Research and Development: This includes the cost of conducting research and development to improve and innovate new electric motor designs and technologies.
- Software and Technology: This includes the cost of purchasing software and technology to aid in the design and production of electric motors, such as CAD software and automated production systems.
Again, this list will need to be adjusted according to the specificities of your electric motor 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 electric motor manufacturing business
The next step in the creation of your financial forecast for your electric motor 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 electric motor manufacturing business ?
Now let's have a look at the main output tables of your electric motor manufacturing business 's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your electric motor manufacturing business is likely to be in the years to come.
For your electric motor manufacturing business 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 electric motor manufacturers, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.
The projected balance sheet
Your electric motor 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 electric motor 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 electric motor 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 electric motor 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 electric motor 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 electric motor manufacturing business 's financial forecast?
Using the right tool or solution will make the creation of your electric motor manufacturing business 's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your electric motor manufacturing business '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 electric motor manufacturing business 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 electric motor manufacturing business 's financial forecast?
Creating an accurate and error-free electric motor 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 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 electric motor 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 electric motor 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
- How to project sales for a business?
- Example of financial forecast for business idea
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Founder & CEO at The Business Plan Shop Ltd
