How to create a financial forecast for an industrial design studio?
Developing and maintaining an up-to-date financial forecast for your industrial design studio 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 industrial design studio 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 industrial design studio?
The financial projections for your industrial design studio 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 industrial design studio'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 industrial design studio financial forecast?
A industrial design studio'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 industrial design studio.
If you are creating (or updating) the forecast of an existing industrial design studio, 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 industrial design studio 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 industrial design studio 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 industrial design studio's financial forecast.
The sales forecast for an industrial design studio
From experience, it is usually best to start creating your industrial design studio financial forecast by your sales forecast.
To create an accurate sales forecast for your industrial design studio, you will have to rely on the data collected in your market research, or if you're running an existing industrial design studio, 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 technology: As new technologies emerge and become more widely adopted, your clients may demand more advanced designs that require higher prices. This could also lead to an increase in the number of monthly transactions as your studio becomes known for creating innovative designs.
- Economic trends: Economic downturns may lead to a decrease in the number of clients seeking industrial design services, as they may cut back on non-essential expenses. This could result in a decrease in both average price and number of monthly transactions for your studio.
- Competition: The presence of other industrial design studios in your area could affect your average price and number of monthly transactions. If there is a lot of competition, you may need to lower your prices to remain competitive, which could impact your average price. On the other hand, if you have a unique selling point, you may be able to charge higher prices and attract more clients, increasing your number of monthly transactions.
- Changing consumer preferences: As consumer preferences and trends shift, your clients may start requesting different types of designs. This could affect your average price if the new designs require more or less effort, materials, or expertise. It could also impact your number of monthly transactions if the new designs are more or less popular.
- External events: Unforeseen events such as natural disasters, political instability, or pandemics can have a significant impact on the economy and consumer behavior. These events could potentially disrupt your business operations and cause fluctuations in your average price and number of monthly transactions.
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 industrial design studio
The next step is to estimate the expenses needed to run your industrial design studio 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 industrial design studio's operating expenses should include the following items at a minimum:
- Staff costs: This includes salaries, wages, benefits, and any other expenses related to your employees. As an industrial design studio, you will have a team of designers, engineers, and support staff, all of whom will need to be compensated for their work.
- Accountancy fees: You will need to hire an accountant or accounting firm to handle your financial records, prepare tax returns, and provide financial advice. This is especially important for an industrial design studio, as tracking expenses and managing finances can be complex.
- Insurance costs: It is important to have insurance to protect your business and assets in case of accidents, lawsuits, or other unforeseen events. This may include general liability insurance, professional liability insurance, and property insurance.
- Software licences: As an industrial design studio, you will need to use various software programs for designing, drafting, and modeling. This may include licenses for CAD software, 3D rendering software, and other design tools.
- Banking fees: You will need a business bank account to manage your finances, and there may be fees associated with maintaining the account, making transactions, and using certain banking services.
- Rent: If you have a physical studio space, you will need to pay rent for it. This may include lease payments, utilities, and maintenance costs.
- Marketing and advertising: To promote your industrial design studio and attract clients, you may need to invest in marketing and advertising efforts. This may include creating a website, printing business cards and brochures, and running online ads.
- Professional development: In order to stay up-to-date with the latest design trends and techniques, you may need to invest in professional development for yourself and your team. This may include attending conferences, workshops, and training programs.
- Office supplies: You will need basic office supplies such as paper, pens, and printer ink to run your business. Additionally, you may need to purchase specialized supplies for your design work, such as drafting tools and materials.
- Travel expenses: If you need to travel for client meetings, industry events, or other business purposes, you will need to budget for travel expenses such as airfare, lodging, and meals.
- Legal fees: As a business owner, you may need to consult with a lawyer for various legal matters, such as drafting contracts, protecting intellectual property, and dealing with any potential legal issues.
- Taxes: As with any business, you will need to pay taxes on your income and profits. It is important to budget for these expenses and consult with an accountant to ensure you are properly managing your tax obligations.
- Equipment maintenance: If you have any equipment in your studio, such as computers, printers, or 3D printers, you will need to budget for regular maintenance and repairs to keep them in good working condition.
- Utilities: If you have a physical studio space, you will need to budget for your monthly utility bills, including electricity, water, and internet.
- Subscriptions: You may need to subscribe to industry publications or online design platforms to stay informed and access valuable resources for your work.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small industrial design studio might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow an industrial design studio?
Once you have an idea of how much sales you could achieve and what it will cost to run your industrial design studio, it is time to look into the equipment required to launch or expand the activity.
For an industrial design studio, capital expenditures and initial working capital items could include:
- Computer equipment: This includes desktop computers, laptops, and other devices necessary for designing and creating digital files and graphics.
- Design software: As an industrial design studio, you will need to invest in design software such as CAD (computer-aided design) programs, 3D modeling software, and rendering tools.
- Studio equipment and tools: This can include items such as drafting tables, cutting machines, power tools, and other equipment necessary for physical prototyping and model making.
- Office furniture: In order to create a productive and comfortable work environment, you may need to purchase office furniture such as desks, chairs, and storage units.
- Prototyping materials: As an industrial design studio, you will likely need to purchase various materials for physical prototyping and model making, such as wood, metal, plastic, and other raw materials.
Again, this list will need to be adjusted according to the specificities of your industrial design studio.
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 industrial design studio
The next step in the creation of your financial forecast for your industrial design studio 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 industrial design studio?
Now let's have a look at the main output tables of your industrial design studio's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your industrial design studio is likely to be in the years to come.
For your industrial design studio 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 industrial design studios, 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 industrial design studio'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 industrial design studio. 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 projected cash flow statement
A projected cash flow statement for an industrial design studio is used to show how much cash the business is generating or consuming.
The cash flow forecast is usually organised by nature to show three key metrics:
- The operating cash flow: do the core business activities generate or consume cash?
- The investing cash flow: how much is the business investing in long-term assets (this is usually compared to the level of fixed assets on the balance sheet to assess whether the business is regularly maintaining and renewing its equipment)?
- The financing cash flow: is the business raising new financing or repaying financiers (debt repayment, dividends)?
Cash is king and keeping an eye on future cash flows is imperative for running a successful business. Therefore, you should pay close attention to your industrial design studio's cash flow forecast.
If you are trying to secure financing, note that it is customary to provide both yearly and monthly cash flow forecasts in a financial plan - so that the reader can analyze seasonal variation and ensure the industrial design studio 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 industrial design studio's financial projections?
Building an industrial design studio 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 industrial design studio's projections
The modern and easiest way is to use professional online financial forecasting 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 industrial design studio 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 industrial design studio's financial forecast?
Creating an accurate and error-free industrial design studio 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 industrial design studio, 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 industrial design studio 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 industrial design studio, 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
