How to create a financial forecast for a baby food manufacturer?
Creating a financial forecast for your baby food manufacturing business, and ensuring it stays up to date, is the only way to maintain visibility on future cash flows.
This might sound complex, but with the right guidance and tools, creating an accurate financial forecast for your baby food manufacturing business is not that hard.
In this guide, we'll cover everything from the main goal of a financial projection, the data you need as input, to the tables that compose it, and the tools that can help you build a forecast efficiently.
Without further ado, let us begin!
Why create and maintain a financial forecast for a baby food manufacturing business?
The financial projections for your baby food 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 baby food 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 needed to build a baby food manufacturing business 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 a baby food manufacturing business, 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 baby food manufacturing business 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 baby food manufacturing business, 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 baby food manufacturing business's financial forecast.
The sales forecast for a baby food manufacturing business
The sales forecast, also called topline projection, is normally where you will start when building your baby food 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 baby food manufacturers), and consider the elements below:
- New government regulations: Changes in government regulations regarding food safety, labeling, or ingredients could lead to increased production costs, which may ultimately affect the average price of your baby food products.
- Competition: Increased competition from other baby food manufacturers may lead to price wars and lower average prices for your products, or it may require you to increase spending on marketing and advertising to maintain your market share.
- Seasonal demand: The demand for baby food may vary throughout the year, with busier seasons (such as winter when more babies are born) resulting in higher monthly transactions, and slower seasons resulting in lower transactions.
- Ingredient availability: Changes in the availability or cost of key ingredients, such as fruits or vegetables, could affect your production costs and potentially lead to a change in your average price.
- Economic conditions: Economic downturns or recessions may lead to lower consumer spending on non-essential items such as specialty baby food, resulting in a decrease in monthly transactions and potentially requiring you to adjust your average price to maintain profitability.
After the sales forecast comes the operating expenses budget, which we will now look into in more detail.
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 a baby food manufacturing business
The next step is to estimate the expenses needed to run your baby food 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 baby food 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 hiring and managing employees such as training, uniforms, and payroll taxes.
- Raw Materials: The main cost of producing baby food will be the ingredients used to make the food, such as fruits, vegetables, grains, and meats. These costs can vary depending on the season and availability.
- Packaging Materials: Baby food will need to be packaged in jars, pouches, or other containers. These materials can include glass, plastic, and labels.
- Rent/Lease: If you are renting or leasing a space for your baby food manufacturing business, this will be a significant expense. This can include costs for utilities, maintenance, and insurance for the property.
- Utilities: This includes expenses for electricity, water, gas, and any other utilities needed to run your manufacturing equipment and facilities.
- Equipment Maintenance: To ensure your equipment is running smoothly and efficiently, you will need to budget for regular maintenance and repairs.
- Accountancy Fees: Hiring an accountant or bookkeeper to manage your finances and taxes is essential for any business, including a baby food manufacturing business.
- Insurance Costs: It is important to have insurance to protect your business from any potential risks, such as product liability, property damage, or employee injuries.
- Software Licenses: You may need to purchase software for inventory management, accounting, or production planning. These licenses can be a significant expense.
- Transportation/Shipping: If you are selling your baby food to retailers or directly to customers, you will need to factor in the cost of transportation and shipping.
- Marketing and Advertising: To promote your baby food and attract customers, you may need to invest in marketing and advertising efforts, such as social media ads, influencer collaborations, or product samples.
- Banking Fees: This includes fees for business bank accounts, credit card processing, and any other financial services you may need for your business operations.
- Licenses and Permits: Depending on your location, you may need to obtain licenses and permits to operate your baby food manufacturing business. These can include food handling permits, health department permits, and business licenses.
- Office Supplies: This includes expenses for office supplies such as paper, pens, printer ink, and other supplies needed for day-to-day operations.
- Training and Development: As your business grows, you may need to invest in training and development for your employees to improve their skills and knowledge.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small baby food manufacturing business might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow a baby food manufacturing business?
Your baby food manufacturing business 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 a baby food manufacturing business, these could include:
- Machinery and equipment: This includes the cost of purchasing or leasing machines and equipment necessary for the production of baby food, such as blenders, mixers, and packaging machines.
- Facility renovations: If you need to renovate or build a new facility to accommodate your baby food manufacturing business, this would be considered a capital expenditure. This could include costs for construction, plumbing, electrical work, and any necessary permits.
- Transportation vehicles: Depending on your business model, you may need to purchase or lease vehicles to transport your baby food products to retailers or distributors. This could include refrigerated trucks or vans to ensure the freshness of your products.
- Storage and warehousing: As a baby food manufacturer, you will need to store your products in a safe and hygienic environment. This may require purchasing or leasing warehouse space and investing in storage racks, shelves, and other equipment to organize and store your products.
- Technology and software: In today's digital age, having the right technology and software is essential for a successful business. This could include purchasing computers, software for inventory management and accounting, and other technology to streamline your operations.
Again, this list will need to be adjusted according to the size and ambitions of your baby food 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 baby food manufacturing business
The next step in the creation of your financial forecast for your baby food 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 a baby food manufacturing business?
Now let's have a look at the main output tables of your baby food manufacturing business's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your baby food manufacturing business is likely to be in the years to come.
For your baby food 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 baby food 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 baby food 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 baby food 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 forecast
Your baby food 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 baby food 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 baby food 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 baby food 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 baby food manufacturing business's financial forecast?
Creating your baby food manufacturing business'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 baby food manufacturing business'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.
Hiring a financial consultant or chartered accountant
Hiring a consultant or chartered accountant is also an efficient way to get a professional baby food 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 baby food manufacturing business's financial forecast?
Creating an accurate and error-free baby food manufacturing business financial forecast with a spreadsheet is very technical and requires a deep knowledge of accounting and an understanding of financial modelling.
Very few business owners are financially savvy enough to be able to build a forecast themselves on Excel without making mistakes.
Lenders and investors know this, which is why forecasts created on Excel by the business owner are often frowned upon.
Having numbers one can trust is key when it comes to financial forecasting and to that end using software is much safer.
Using financial forecasting software is also faster than using a spreadsheet, and, with the rise of artificial intelligence, software is also becoming smarter at helping us analyse the numbers to make smarter decisions.
Finally, like everything with spreadsheets, tracking actuals vs. forecasts and keeping your projections up to date as the year progresses is manual, tedious, and error-prone. Whereas financial projection 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 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 baby food manufacturing business, 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 baby food manufacturing business
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 baby food 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 a baby food 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 create a sales forecast for a business?
- Example of financial forecast for business idea
Know someone who owns or is thinking of starting a baby food manufacturing business? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
