How to create a financial forecast for a cake manufacturer?
Developing and maintaining an up-to-date financial forecast for your cake 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 a cake 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 a cake manufacturing business?
The financial projections for your cake 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 cake 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 used as input to build a cake manufacturing business financial forecast?
A cake manufacturing business'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 cake manufacturing business.
If you are creating (or updating) the forecast of an existing cake manufacturing business, 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 cake manufacturing business 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 cake manufacturing business 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 cake manufacturing business's financial forecast.
The sales forecast for a cake manufacturing business
From experience, it is usually best to start creating your cake manufacturing business financial forecast by your sales forecast.
To create an accurate sales forecast for your cake manufacturing business, you will have to rely on the data collected in your market research, or if you're running an existing cake manufacturing business, 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:
- Seasonal Demand: As a cake manufacturer, the time of year can greatly impact the average price and number of monthly transactions for your business. For example, during the holiday season, there may be a high demand for specialty cakes, resulting in higher prices and an increase in transactions. On the other hand, during slower months, such as January and February, you may need to adjust your prices to attract more customers and maintain a steady number of transactions.
- Ingredients Cost: The cost of ingredients can directly affect the average price of your cakes. If there is a shortage or increase in the cost of a key ingredient, such as butter or flour, you may need to adjust your prices to maintain profit margins. This could also impact the number of monthly transactions as customers may be less willing to pay higher prices for their favorite cakes.
- New Product Offerings: Introducing new products can also impact your average price and number of monthly transactions. For example, if you decide to expand your menu to include vegan or gluten-free options, you may be able to charge a higher price and attract a new customer base. On the other hand, if a new product does not perform well, it may result in lower prices and fewer transactions.
- Competition: The competition in your area can also affect your average price and number of monthly transactions. If there are several other cake manufacturers in your area, you may need to adjust your prices to remain competitive. Additionally, if a new competitor enters the market and offers lower prices, it may result in a decrease in your average price and number of transactions.
- Customer Preferences: Changes in customer preferences can also impact your business's sales forecast. For example, if there is a trend towards healthier options, you may need to adjust your menu and pricing to accommodate this shift. Alternatively, if there is a growing demand for specialty cakes for events such as weddings or birthdays, you may be able to charge higher prices and see an increase in 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.
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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 cake manufacturing business
The next step is to estimate the expenses needed to run your cake 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 cake manufacturing business's operating expenses should include the following items at a minimum:
- Staff costs: This includes wages, benefits, and taxes for your employees, such as bakers, decorators, and sales staff.
- Ingredients: This covers the cost of all the necessary ingredients for making your cakes, including flour, sugar, butter, and eggs.
- Packaging materials: You will need to invest in packaging materials, such as boxes, bags, and labels, to ensure your cakes are safely and attractively presented.
- Equipment maintenance: In order to keep your production running smoothly, you will need to regularly maintain and repair your baking equipment, such as ovens, mixers, and refrigerators.
- Rent/ lease: If you are not operating out of your own property, you will need to factor in the cost of renting or leasing a commercial kitchen or storefront for your business.
- Utilities: Running a cake manufacturing business will require a significant amount of electricity and water, so make sure to budget for these expenses.
- Accountancy fees: It is important to have a professional handle your business finances, so be sure to include the cost of hiring an accountant to help with bookkeeping, taxes, and financial planning.
- Insurance: Protect your business and your assets by investing in insurance coverage for your cake manufacturing business, including liability and property insurance.
- Marketing and advertising: In order to attract customers and promote your business, you will need to budget for marketing and advertising expenses, such as creating a website, printing business cards, and running social media ads.
- Software licenses: In today's digital age, you will likely need to invest in software licenses for programs such as accounting software, design software, and customer relationship management (CRM) tools.
- Transportation costs: If you plan on delivering your cakes to customers or selling at farmers' markets or events, you will need to budget for transportation costs, such as gas, vehicle maintenance, and rental fees.
- Banking fees: As a business owner, you will need to open a business bank account and may incur fees for transactions, wire transfers, and account maintenance.
- Professional development: In order to stay up-to-date with industry trends and techniques, you may want to invest in professional development opportunities, such as attending workshops or conferences.
- Rent/ lease of storage space: If you need extra space to store ingredients, equipment, or finished products, you may need to budget for additional rental or leasing costs.
- Office supplies: In addition to baking supplies, you will also need to purchase office supplies, such as paper, pens, and printer ink, to keep your business running smoothly.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small cake 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 cake manufacturing business?
Creating and expanding a cake manufacturing business also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a cake manufacturing business could include elements such as:
- Bakery Equipment: This includes all the necessary machinery and tools needed for baking, such as mixers, ovens, refrigerators, and other specialized equipment. These are essential for producing high-quality cakes efficiently and consistently.
- Packaging Materials: As a cake manufacturing business, you will need to invest in packaging materials to ensure that your cakes are presented well and can be easily transported to customers. This may include boxes, bags, labels, and other materials.
- Delivery Vehicles: If you plan on offering delivery services, you will need to purchase vehicles to transport your cakes safely and efficiently. This may include vans or trucks, depending on the size of your business and the volume of orders you receive.
- Storage Facility: As a cake manufacturing business, you will need a designated storage facility to keep your ingredients, finished products, and packaging materials organized and in good condition. This may include renting a warehouse or investing in a commercial storage unit.
- Kitchen Renovations: If you are starting your business from scratch or expanding an existing one, you may need to renovate your kitchen to accommodate the production of cakes. This may include installing new counters, sinks, or other equipment to meet your specific needs.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your cake 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 cake manufacturing business
The next step in the creation of your financial forecast for your cake 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 cake manufacturing business?
Now let's have a look at the main output tables of your cake manufacturing business's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your cake manufacturing business's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a cake manufacturing business 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
Your cake manufacturing business's forecasted balance sheet enables you to assess your financial structure and working capital requirements.
It is composed of three types of elements: assets, liabilities and equity:
- Assets: represent what the business owns and uses to produce cash flows. It includes resources such as cash, equipment, and accounts receivable (money owed by clients).
- Liabilities: represent funds advanced to the business by lenders and other creditors. It includes items such as accounts payable (money owed to suppliers), taxes due and loans.
- 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 projected cash flow statement
A projected cash flow statement for a cake manufacturing business 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 cake manufacturing business'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 cake manufacturing 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 cake manufacturing business's financial forecast?
Creating your cake 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 cake 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.
Hiring a financial consultant or chartered accountant
Hiring a consultant or chartered accountant is also an efficient way to get a professional cake 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 cake manufacturing business's financial forecast?
Creating an accurate and error-free cake manufacturing business 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 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 forecast shows expected growth, profitability, and cash generation metrics for your cake manufacturing business.
- Tracking actuals vs. forecast and having an up-to-date financial forecast is key to maintaining visibility on your future cash flows.
- Using financial forecasting software is the modern way of creating and maintaining financial projections.
We hope that this guide helped you gain a clearer perspective on the steps needed to create the financial forecast for a cake manufacturing business. Don't hesitate to contact us if you 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
- Financial forecast example
- How to project revenues for a business?
- Financial forecast for a business idea
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Founder & CEO at The Business Plan Shop Ltd
