How to create a financial forecast for an electrical wire and cable maker?
Developing and maintaining an up-to-date financial forecast for your electrical wire and cable 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 electrical wire and cable 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 electrical wire and cable manufacturing business?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your electrical wire and cable manufacturing business and ensure that it can be financially viable in the years to come.
A financial plan for an electrical wire and cable 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 electrical wire and cable 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 electrical wire and cable 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 electrical wire and cable 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 electrical wire and cable 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 electrical wire and cable 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 electrical wire and cable 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 electrical wire and cable manufacturing business's financial forecast.
The sales forecast for an electrical wire and cable manufacturing business
From experience, it is usually best to start creating your electrical wire and cable manufacturing business financial forecast by your sales forecast.
To create an accurate sales forecast for your electrical wire and cable manufacturing business, you will have to rely on the data collected in your market research, or if you're running an existing electrical wire and cable 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:
- Changes in raw material costs: As you know, the cost of raw materials can greatly impact your business's average price. If the cost of copper, aluminum, or other materials used in your wire and cable production increases, you may need to adjust your prices accordingly to maintain profitability.
- Industry demand for specialized products: The demand for specialized wires and cables, such as those used in renewable energy systems or electric vehicles, can greatly impact your business's average price. If there is a high demand for these specialized products, you may be able to charge a premium price, whereas a decrease in demand may result in lower prices to remain competitive.
- New technology and innovation: Advancements in technology and innovation can also affect your business's average price. As new, more efficient methods of wire and cable production are developed, you may need to lower your prices to remain competitive. On the other hand, if your business is at the forefront of innovation, you may be able to charge a higher price for your products.
- Economic conditions: Changes in the overall economy can impact your business's average price. During a recession, customers may be more price-sensitive and demand lower prices, whereas during a boom, customers may be willing to pay more for your products. Keep an eye on economic trends that could affect your pricing strategy.
- Regulatory changes: Changes in regulations, such as safety or environmental standards, can also affect your business's average price. If new regulations require you to use more expensive materials or production methods, this could result in higher prices. Conversely, if regulations are relaxed, you may be able to lower your prices to remain competitive.
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 electrical wire and cable manufacturing business
The next step is to estimate the costs you’ll have to incur to operate your electrical wire and cable manufacturing business.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your electrical wire and cable manufacturing business's operating expenses should normally include the following items:
- Staff Costs: This includes salaries, wages, and benefits for all employees, including production workers, administrative staff, and management.
- Raw Materials: The cost of purchasing raw materials such as copper, aluminum, and other materials used in the production of electrical wires and cables.
- Utilities: The cost of electricity, water, and other utilities used in the manufacturing process.
- Rent or Lease: The cost of renting or leasing a manufacturing facility or warehouse to produce and store the wires and cables.
- Equipment Maintenance: The cost of maintaining and repairing production equipment such as extruders, wire drawing machines, and cable coilers.
- Packaging and Shipping: The cost of packaging materials and shipping fees for sending finished products to customers.
- Marketing and Advertising: The cost of promoting the business and its products through advertising, trade shows, and other marketing efforts.
- Accountancy Fees: The cost of hiring an accountant to manage financial records and prepare tax returns.
- Insurance Costs: The cost of insuring the business and its assets, including liability insurance, property insurance, and workers' compensation insurance.
- Software Licenses: The cost of purchasing and renewing software licenses for accounting, inventory management, and other business operations.
- Banking Fees: The cost of maintaining business bank accounts and processing transactions, including wire transfers and credit card fees.
- Professional Services: The cost of hiring consultants, lawyers, and other professionals for legal, financial, or other business needs.
- Office Supplies: The cost of purchasing office supplies such as paper, ink, and other materials for administrative tasks.
- Maintenance and Repairs: The cost of maintaining and repairing the manufacturing facility, office space, and other business assets.
- Employee Training: The cost of providing training and development opportunities for employees to improve their skills and knowledge.
This list is not exhaustive by any means, and will need to be tailored to your electrical wire and cable manufacturing business's specific circumstances.
What investments are needed to start or grow an electrical wire and cable manufacturing business?
Your electrical wire and cable manufacturing business financial forecast will also need to include the capital expenditures (aka investments in plain English) and initial working capital items required for the creation or development of your business.
For an electrical wire and cable manufacturing business, these could include:
- Machinery and Equipment: This includes the cost of purchasing or leasing machinery and equipment needed for the production of electrical wires and cables. This can include wire drawing machines, extruders, and cable cutting machines.
- Facility Renovations: In order to properly set up a manufacturing facility for electrical wires and cables, you may need to renovate the space to accommodate the machinery and equipment. This can include installing proper ventilation systems, adding electrical outlets, and reinforcing floors for heavy equipment.
- Raw Materials and Supplies: As with any manufacturing business, there will be a need for raw materials and supplies to produce the final product. This can include copper and aluminum wire, plastic for insulation, and packaging materials.
- Transportation and Shipping: Once the electrical wires and cables are produced, they will need to be transported to customers or distributors. This may require purchasing or leasing trucks, as well as hiring personnel to handle shipping and logistics.
- Quality Control and Testing Equipment: To ensure that the electrical wires and cables meet industry standards and are safe for use, you may need to invest in quality control and testing equipment. This can include specialized tools and machines for testing electrical conductivity, insulation strength, and durability.
Again, this list will need to be adjusted according to the size and ambitions of your electrical wire and cable 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 electrical wire and cable manufacturing business
The next step in the creation of your financial forecast for your electrical wire and cable 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 electrical wire and cable manufacturing business?
Now let's have a look at the main output tables of your electrical wire and cable manufacturing business's financial forecast.
The forecasted profit & loss statement
The profit & loss forecast gives you a clear picture of your business’ expected growth over the first three to five years, and whether it’s likely to be profitable or not.
A healthy electrical wire and cable manufacturing business's P&L statement should show:
- Sales growing at (minimum) or above (better) inflation
- Stable (minimum) or expanding (better) profit margins
- A healthy level of net profitability
This will of course depend on the stage of your business: numbers for an established electrical wire and cable manufacturing business will look different than for a startup.
The projected balance sheet
The projected balance sheet gives an overview of your electrical wire and cable manufacturing business's financial structure at the end of the financial year.
It is composed of three categories of items: assets, liabilities and equity:
- Assets: are what the business possesses and uses to produce cash flows. It includes resources such as cash, buildings, equipment, and accounts receivable (money owed by clients).
- Liabilities: are the debts of your electrical wire and cable manufacturing business. They include accounts payable (money owed to suppliers), taxes due and bank loans.
- Equity: is the combination of what has been invested by the business owners and the cumulative profits 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 electrical wire and cable 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 electrical wire and cable 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 electrical wire and cable 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 electrical wire and cable 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 electrical wire and cable manufacturing business's financial projections?
Building an electrical wire and cable 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 projection software to build your electrical wire and cable manufacturing business's forecast
The modern and easiest way to build a forecast is to use professional financial projection 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 electrical wire and cable 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 electrical wire and cable manufacturing business's financial forecast?
Creating an accurate and error-free electrical wire and cable 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
- 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 electrical wire and cable 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 an electrical wire and cable 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
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Founder & CEO at The Business Plan Shop Ltd
