How to create a financial forecast for an oven and furnace maker?
Developing and maintaining an up-to-date financial forecast for your oven and furnace 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 oven and furnace 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 oven and furnace manufacturing business?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your oven and furnace manufacturing business and ensure that it can be financially viable in the years to come.
A financial plan for an oven and furnace 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 oven and furnace 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 oven and furnace 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 used as input to build an oven and furnace manufacturing business financial forecast?
A oven and furnace 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 oven and furnace 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 oven and furnace 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 oven and furnace 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 oven and furnace manufacturing business's financial forecast.
The sales forecast for an oven and furnace manufacturing business
From experience, it usually makes sense to start your oven and furnace manufacturing business's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your oven and furnace manufacturing business (which can be used as a starting point for existing businesses) and the data collected in your market research (which both new ventures and existing businesses need to project their sales forward).
Your oven and furnace manufacturing business's sales forecast can be broken down into two key estimates:
- The average price
- The number of monthly transactions
To assess these variables accurately, you will need to consider the following factors:
- Economic conditions: Economic conditions such as a recession or economic boom can greatly impact your oven and furnace business. During a recession, customers may be less likely to purchase expensive appliances, causing a decrease in your average price and number of monthly transactions. On the other hand, during an economic boom, customers may have more disposable income and be more willing to invest in high-end appliances, resulting in an increase in your average price and number of monthly transactions.
- Competition: The level of competition in your market can also affect your sales forecast. If there are many other oven and furnace manufacturers in your area, you may need to lower your prices in order to remain competitive. This could lead to a decrease in your average price and an increase in your number of monthly transactions.
- Technological advancements: Advancements in technology can also impact your business. If there are new and improved oven and furnace models on the market, customers may be more likely to purchase them, resulting in a decrease in your average price as customers opt for newer, more advanced models. On the other hand, if your business is the one introducing new technology to the market, you may be able to increase your average price and attract more customers.
- Energy costs: The cost of energy can have a significant impact on your oven and furnace business. If there is a rise in energy costs, customers may be less likely to purchase your appliances, resulting in a decrease in your number of monthly transactions. However, if your business offers energy-efficient models, you may be able to increase your average price as customers are willing to pay more for appliances that can save them money on their energy bills.
- Seasonal trends: Seasonal trends can also affect your sales forecast. In colder months, customers may be more likely to purchase furnaces, resulting in an increase in your number of monthly transactions. On the other hand, in warmer months, customers may be more focused on purchasing air conditioning units, leading to a decrease in your number of monthly transactions. This can also impact your average price, as demand for specific products changes throughout the year.
Once you have a sales forecast in place, the next step will be to work on your overhead budget. Let’s have a look at that now.
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 oven and furnace manufacturing business
The next step is to estimate the expenses needed to run your oven and furnace 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 oven and furnace manufacturing business's operating expenses should include the following items at a minimum:
- Staff costs: This includes salaries, benefits, and any other expenses related to your employees. This is a major expense for an oven and furnace manufacturing business as you need a skilled and dedicated workforce to produce high-quality products.
- Accountancy fees: As a business, you need to keep track of your finances and ensure that you are complying with all tax laws and regulations. Hiring an accountant or using accounting software can help you manage your finances and keep your business running smoothly.
- Insurance costs: As a manufacturer, you need to protect your business against potential risks such as accidents, property damage, and liability claims. Insurance costs can vary depending on the size and location of your business.
- Software licenses: A manufacturing business requires various software for designing, planning, and managing production. These software licenses can be a significant expense, but they are essential for streamlining your operations and improving efficiency.
- Banking fees: As a business owner, you will have to pay fees for various banking services such as checking accounts, wire transfers, and credit card processing. These fees can add up over time and should be included in your operating expenses forecast.
- Raw materials: As an oven and furnace manufacturer, you will need to purchase various raw materials such as metal, glass, and other components to produce your products. The cost of these materials can vary depending on market prices and availability.
- Utilities: Manufacturing processes require a significant amount of energy, so utility costs such as electricity, gas, and water should be included in your operating expenses forecast.
- Rent or lease payments: If you do not own your manufacturing facility, you will have to pay rent or lease payments. These costs can vary depending on the location and size of your business.
- Marketing and advertising: To attract customers and increase sales, you need to invest in marketing and advertising. This can include online and offline advertising, trade shows, and other promotional activities.
- Maintenance and repairs: As with any machinery, ovens and furnaces require regular maintenance and occasional repairs. These costs should be factored into your operating expenses forecast to ensure your equipment stays in good working condition.
- Shipping and transportation: If you sell your products to customers outside of your local area, you will have to pay for shipping and transportation costs. These costs can vary depending on the size and weight of your products, as well as the distance they need to be shipped.
- Taxes and licenses: As a business owner, you will have to pay various taxes and obtain necessary licenses to operate your business legally. These costs should be included in your operating expenses forecast to avoid any surprises.
- Legal fees: As a business owner, you may need to seek legal advice or services for various reasons, such as drafting contracts, trademark registrations, or handling disputes. These fees can be significant, so they should be included in your operating expenses forecast.
- Office supplies and equipment: Even though your main focus is manufacturing, you will still need office supplies and equipment for administrative tasks such as bookkeeping, invoicing, and communication. These costs should be included in your operating expenses forecast.
- Training and development: To keep up with industry standards and improve the skills of your employees, you may need to invest in training and development programs. These costs should be included in your operating expenses forecast to ensure your business stays competitive.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small oven and furnace 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 oven and furnace manufacturing business?
Creating and expanding an oven and furnace manufacturing business also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for an oven and furnace manufacturing business could include elements such as:
- Machinery and Equipment: This includes the cost of purchasing or leasing the necessary machinery and equipment for your oven and furnace manufacturing business. This could include items such as industrial ovens, furnaces, conveyor belts, and other specialized equipment.
- Facility Upgrades: In order to properly operate your oven and furnace manufacturing business, you may need to make upgrades or renovations to your facility. This could include installing proper ventilation systems, upgrading electrical systems, or making structural changes to accommodate the specialized equipment.
- Raw Materials and Inventory: As a manufacturing business, you will need to purchase raw materials and maintain an inventory of these materials in order to produce your ovens and furnaces. This may include items such as metal sheets, insulation materials, and other necessary components.
- Transportation and Delivery: In order to get your ovens and furnaces to your customers, you will need to factor in the cost of transportation and delivery. This could include purchasing or leasing vehicles, hiring drivers, and covering fuel and maintenance costs.
- Software and Technology: To keep your oven and furnace manufacturing business running efficiently, you may need to invest in software and technology. This could include specialized design software, inventory management systems, or customer relationship management software.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your oven and furnace 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 oven and furnace manufacturing business
The next step in the creation of your financial forecast for your oven and furnace 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 oven and furnace manufacturing business?
Now let's have a look at the main output tables of your oven and furnace 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 oven and furnace 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 oven and furnace manufacturing business will look different than for a startup.
The projected balance sheet
Your oven and furnace 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 oven and furnace 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 oven and furnace 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 oven and furnace 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 oven and furnace 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 oven and furnace manufacturing business's financial projections?
Building an oven and furnace 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 forecasting software to build your oven and furnace 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.
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 oven and furnace 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 oven and furnace manufacturing business's financial forecast?
You and your financial partners need numbers you can trust. Unless you have studied finance or accounting, creating a trustworthy and error-free oven and furnace manufacturing business financial forecast on a spreadsheet is likely to prove challenging.
Financial modelling is very technical by nature and requires a solid grasp of accounting principles to be done without errors. This means that using spreadsheet software like Excel or Google Sheets to create accurate financial forecasts is out of reach for most business owners.
Creating forecasts in Excel is also inefficient nowadays:
- Software has advanced to the point where forecasting can be done much faster and more accurately than manually on a spreadsheet.
- With artificial intelligence, the software is capable of detecting mistakes and helping decision-making.
Spreadsheets are versatile tools but they are not tailor-made for reporting. Importing your oven and furnace manufacturing business's accounting data in Excel to track actual vs. forecast is incredibly manual and tedious (and so is keeping forecasts up to date). It is much faster to use dedicated financial planning tools like The Business Plan Shop which are built specially 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 projection shows expected growth, profitability, and cash generation for your business over the next three to five years.
- Tracking actuals vs. forecast and keeping your financial forecast up-to-date is the only way to maintain visibility on future cash flows.
- Using financial forecasting software makes it easy to create and maintain up-to-date projections for your oven and furnace manufacturing business.
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 oven and furnace manufacturing business. Don't hesitate to contact our team if you have any questions or want to share your experience building forecasts!
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 projections
- How to create a turnover forecast for a business?
- Example of financial forecast for business idea
Know someone who runs or wants to start an oven and furnace manufacturing business? Share our financial projection guide with them!
Founder & CEO at The Business Plan Shop Ltd
