How to create a financial forecast for an electronic game manufacturer?
Developing and maintaining an up-to-date financial forecast for your electronic game 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 electronic game 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 electronic game manufacturing business?
The financial projections for your electronic game 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 electronic game 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 electronic game manufacturing business financial forecast?
A electronic game manufacturing business's financial forecast is only as good as the inputs used to build it.
If you are creating (or updating) the forecast of an existing electronic game manufacturing business, then you mostly need your accounting information, key historical operating non-financial data, and your team’s input on what to expect for the coming years.
If you are building financial projections for an electronic game manufacturing business startup, you will need to have done your research and have a clear picture of your competitive environment and go-to-market strategy so that you can forecast sales accurately.
For a new venture, you will also need a precise list of the resources needed to keep the electronic game manufacturing business running on a day-to-day basis and a list of the equipment and expenditures required to start the business (more on that later).
Let's now take a closer look at the elements that make up your electronic game manufacturing business's financial forecast.
The sales forecast for an electronic game manufacturing business
The sales forecast, also called topline projection, is normally where you will start when building your electronic game 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 electronic game manufacturers), and consider the elements below:
- Competition: The level of competition in the electronic game market can affect the average price of your products. If there are many competitors offering similar games at lower prices, you may need to lower your prices to remain competitive and maintain your market share.
- Technology advancements: Advancements in technology can also affect the average price of your games. If new, more advanced technology is introduced, you may need to increase the price of your games to cover the cost of implementing these advancements.
- Consumer preferences: Changes in consumer preferences can also impact the average price of your games. If there is a shift towards more expensive, high-quality games, you may be able to increase your prices to cater to this demand.
- Economic conditions: Economic conditions, such as a recession or inflation, can affect the purchasing power of your target market. This can impact the number of monthly transactions for your games as consumers may have less disposable income to spend on entertainment.
- Partnerships with popular franchises: Collaborating with popular franchises to create licensed games can also impact your sales forecast. If you secure partnerships with well-known franchises, it can lead to an increase in demand for your games and potentially allow you to charge a higher price.
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 electronic game manufacturing business
The next step is to estimate the expenses needed to run your electronic game 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 electronic game manufacturing business's operating expenses should include the following items at a minimum:
- Staff Costs: This includes salaries, benefits, and payroll taxes for all employees, including designers, developers, marketers, and administrative staff.
- Accountancy Fees: You will need to hire an accountant to manage your financial records, file taxes, and provide financial advice.
- Insurance Costs: You will need to purchase insurance to protect your business from potential risks, such as product liability, property damage, and cyber attacks.
- Software Licences: You will need to purchase licences for software used in game development, such as design tools, coding platforms, and project management software.
- Marketing Expenses: This includes costs for advertising, promotions, and public relations to promote your games and reach your target audience.
- Research and Development: You will need to invest in research and development to create new and innovative games that will attract customers.
- Rent and Utilities: You will need to pay for office space, utilities, and internet services to run your business.
- Inventory Costs: This includes the cost of purchasing materials and components to create your games, such as hardware, software, and packaging.
- Shipping and Logistics: You will need to cover the costs of shipping and logistics to get your games to customers, retailers, and distributors.
- Legal Fees: You may need to hire a lawyer to help with contracts, licenses, and legal disputes related to intellectual property or business operations.
- Taxes: You will need to pay taxes on your business income, property, and sales, as well as any other applicable taxes.
- Banking Fees: You will need to pay fees for business bank accounts, credit card processing, and other financial services.
- Office Supplies: This includes the cost of purchasing office supplies, such as paper, ink, pens, and other necessary items for day-to-day operations.
- Travel Expenses: You may need to travel for business meetings, conferences, or trade shows, which can incur expenses for transportation, lodging, and meals.
- Maintenance and Repairs: You will need to cover the cost of maintaining and repairing equipment and facilities used in game development, such as computers, servers, 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 electronic game 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 electronic game manufacturing business?
Creating and expanding an electronic game manufacturing business also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for an electronic game manufacturing business could include elements such as:
- Equipment: As an electronic game manufacturing business, you will need to invest in various pieces of equipment to design, develop, and manufacture your games. This can include computers, software, printers, scanners, and other specialized equipment.
- Production Facility: In order to produce your games, you will need a dedicated production facility. This could be a warehouse, a factory, or even a specialized clean room depending on the complexity of your games.
- Inventory: As a manufacturing business, you will need to purchase raw materials and components to create your games. This can include items like circuit boards, controllers, and packaging materials.
- Intellectual Property: If you plan on creating original games, you may need to invest in intellectual property protection such as patents, trademarks, and copyrights. This can help safeguard your unique ideas and prevent others from copying them.
- Distribution and Shipping: In order to get your games into the hands of consumers, you will need to invest in distribution and shipping. This can include purchasing vehicles, hiring staff, and setting up distribution centers.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your electronic game 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 electronic game manufacturing business
The next step in the creation of your financial forecast for your electronic game 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 electronic game manufacturing business?
Now let's have a look at the main output tables of your electronic game manufacturing business's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your electronic game manufacturing business is likely to be in the years to come.
For your electronic game 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 electronic game manufacturers, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.
The projected balance sheet
The projected balance sheet gives an overview of your electronic game 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 electronic game 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 projection
The cash flow forecast of your electronic game manufacturing business 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 electronic game manufacturing business'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 electronic game manufacturing business 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 electronic game manufacturing business's financial plan.
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 electronic game manufacturing business's financial projections?
Building an electronic game 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 electronic game 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.
Hiring a financial consultant or chartered accountant
Hiring a consultant or chartered accountant is also an efficient way to get a professional electronic game 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 electronic game manufacturing business's financial forecast?
Creating an accurate and error-free electronic game 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 electronic game 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
- 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 electronic game 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 electronic game 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 project revenues for a business?
- Example of financial forecast for business idea
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Founder & CEO at The Business Plan Shop Ltd
