When it comes to accounting for manufacturing companies, planning ahead is crucial. Budgets and forecasts can give manufacturers deeper insights into their financial performance, helping them cut costs and make decisions that benefit the business long-term.
As an energy-intensive industry, the manufacturing sector has felt the pressure of the energy crisis more than most. Combined with supply chain issues and the rising cost of raw materials, it’s more important than ever for manufacturers to keep a close eye on their spending.
So what’s the secret to creating a realistic manufacturing budget — and what does an effective financial forecast look like? Read on to find out more.
Budgeting and forecasting: what’s the difference?
Before you draw up your financial strategy, you need to understand the difference between budgeting and forecasting.
Businesses use budgets to predict their financial performance over a set period — usually a year. Budgeting can make it easier to set realistic long-term goals, anticipate risks and put upper limits on your spending.
Forecasting, meanwhile, can tell you whether you’re on track to stay within budget and meet your goals. Creating monthly or quarterly forecasts can give you the opportunity to shift gears if anything changes.
How to draw up a solid financial strategy for your manufacturing business
Maintain good bookkeeping practices
Keeping accurate records and staying organised throughout the year can save you a lot of time when financial planning. After all, it’s much easier to predict future sales and expenses when you have the right data to hand.
A good bookkeeping system can also help you base your budgets and forecasts on the most up-to-date information available.
Examine your past financial statements
If you’ve been in the manufacturing business for a while, your past financial statements will play a key role in budgeting and forecasting. Looking at your balance sheets, sales data and business expenses from previous periods can make it easier to predict your performance going forward.
Understand the manufacturing industry
Considering how the manufacturing sector is performing as a whole can strengthen your financial strategy. Stepping back and looking at the bigger picture can make it easier to flag potential risks when drawing up your budget.
Monitoring economic trends throughout the year can also help ensure you’re never caught off guard.
This step is particularly important if you run a startup and don’t have historical financial statements to base your strategy on.
Think about what you want to achieve
Setting targets and tracking your progress is an important part of financial planning. Think about what you want to achieve over the budgetary period — do you want to increase sales volumes or cut down on spending? Is there a new market you’re looking to expand into?
Whatever your ambitions, make sure you set realistic, measurable goals. Having something achievable to aim towards can help you move your manufacturing business forward.
Use manufacturing cloud accounting
Cloud accounting comes with a lot of benefits, and it can also make financial planning a lot easier. Depending on your software plan, you’ll be able to create annual budgets, sales projections and cashflow forecasts at the click of a button.
You’ll also be able to collaborate on tasks with your employees and your accountant, helping to increase visibility across your organisation.
Getting accounting for manufacturing companies right
If you run a manufacturing business, balancing your workload in the office and on the factory floor can be difficult. You might not have the time or resources necessary to draw up an in-depth budget or effective cashflow forecast. So how can we help?
As experienced manufacturing accountants, we can draw up a financial strategy that works for your business. We’ll help you navigate the unique accounting challenges you face as a manufacturer and recommend solutions to address them.
We’ll even offer advice on the best cloud accounting software for manufacturers and stay on top of your books for you. That way, you can track how your business is performing in real time.
Get in touch with us today to find out more about getting accounting for manufacturing companies right.