How to create a financial forecast for an equipment rental company?

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

Putting together an equipment rental company 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 equipment rental company. 

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 equipment rental company?

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

A financial plan for an equipment rental company 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 equipment rental company 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 equipment rental company'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 needed to build an equipment rental company 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 equipment rental company, 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 equipment rental company 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 equipment rental company, 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 equipment rental company's financial forecast.

The sales forecast for an equipment rental company

The sales forecast, also called topline projection, is normally where you will start when building your equipment rental company 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 equipment rental companies), and consider the elements below:

After the sales forecast comes the operating expenses budget, which we will now look into in more detail.

The operating expenses for an equipment rental company

The next step is to estimate the costs you’ll have to incur to operate your equipment rental company.

These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.). 

But your equipment rental company's operating expenses should normally include the following items:

This list is not exhaustive by any means, and will need to be tailored to your equipment rental company's specific circumstances.

What investments are needed to start or grow an equipment rental company?

Your equipment rental company 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 equipment rental company, these could include:

Again, this list will need to be adjusted according to the size and ambitions of your equipment rental company.

The financing plan of your equipment rental company

The next step in the creation of your financial forecast for your equipment rental company 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 equipment rental company?

Now let's have a look at the main output tables of your equipment rental company's financial forecast.

The profit & loss forecast

The forecasted profit & loss statement will enable you to visualise your equipment rental company's expected growth and profitability over the next three to five years.

A financially viable P&L statement for an equipment rental company 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

The projected balance sheet gives an overview of your equipment rental company'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 equipment rental company. 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 equipment rental company 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 equipment rental company'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 equipment rental company 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 equipment rental company's financial plan. 

Which tool should you use to create your equipment rental company's financial forecast?

Creating your equipment rental company's financial forecast may sound fairly daunting, but the good news is that there are several ways to go about it.

Using online financial forecasting software to build your equipment rental company'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 equipment rental company 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 equipment rental company's financial forecast?

Creating an accurate and error-free equipment rental company 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.

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 equipment rental company, 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 equipment rental company

Takeaways

1. A financial projection shows expected growth, profitability, and cash generation for your business over the next three to five years.
2. Tracking actuals vs. forecast and keeping your financial forecast up-to-date is the only way to maintain visibility on future cash flows.
3. Using financial forecasting software makes it easy to create and maintain up-to-date projections for your equipment rental company.

You have reached the end of our guide. We hope you now have a better understanding of how to create a financial forecast for an equipment rental company. Don't hesitate to contact our team if you have any questions or want to share your experience building forecasts!

Also on The Business Plan Shop

• Example of financial projections
• How to project sales for a business?
• Example of financial forecast for business idea

Know someone who runs or wants to start an equipment rental company? Share our financial projection guide with them!