How to create a financial forecast for a cheese processing company?
If you are serious about keeping visibility on your future cash flows, then you need to build and maintain a financial forecast for your cheese processing company.
Putting together a cheese processing company financial forecast may sound complex, but don’t worry, with the right tool, it’s easier than it looks, and The Business Plan Shop is here to guide you.
In this practical guide, we'll cover everything you need to know about building financial projections for your cheese processing company.
We will start by looking at why they are key, what information is needed, what a forecast looks like once completed, and what solutions you can use to create yours.
Let's dive in!
Why create and maintain a financial forecast for a cheese processing company?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your cheese processing company and ensure that it can be financially viable in the years to come.
A financial plan for a cheese processing company 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 cheese processing company 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 cheese processing company'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 a cheese processing company financial forecast?
A cheese processing company'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 cheese processing company.
If you are creating (or updating) the forecast of an existing cheese processing company, 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 cheese processing company 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 cheese processing company 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 cheese processing company's financial forecast.
The sales forecast for a cheese processing company
From experience, it usually makes sense to start your cheese processing company's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your cheese processing company (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 cheese processing company'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:
- Seasonal Demand: You can expect to see fluctuations in the average price and number of monthly transactions based on seasonal demand. During peak seasons, such as the holiday season, there may be a higher demand for specialty cheeses and therefore an increase in average price and number of transactions. Conversely, during slower seasons, you may need to adjust your prices or offer promotions to maintain sales.
- Milk Supply: The availability and cost of milk can greatly impact your cheese processing business. If there is a shortage of milk, the cost of production may increase, leading to a higher average price for your cheese. Alternatively, a surplus of milk may drive down production costs and allow you to offer lower prices to customers.
- Competition: The presence of other cheese processing companies in your market can also affect your average price and number of monthly transactions. If there is a lot of competition, you may need to adjust your prices to stay competitive. On the other hand, if you are the only cheese processing company in the area, you may have more flexibility with your prices and see an increase in transactions.
- New Product Launches: Introducing new types of cheese or flavors can also impact your average price and number of monthly transactions. If a new product is well-received by customers, you may see an increase in sales and be able to charge a higher price for it. However, if the new product does not perform well, it may lead to a decrease in transactions and require you to lower the price.
- Weather Conditions: The weather can also play a role in your cheese processing business. Extreme temperatures or natural disasters can affect the supply of milk or the ability to transport and deliver your products. This can result in production delays, which can impact your average price and number of transactions for the month.
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 a cheese processing company
The next step is to estimate the costs you’ll have to incur to operate your cheese processing company.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your cheese processing company's operating expenses should normally include the following items:
- Staff costs: Salaries and benefits for employees including production workers, quality control staff, and administrative staff.
- Raw materials: Costs for purchasing milk, rennet, and other ingredients needed for cheese production.
- Packaging materials: Expenses for purchasing packaging materials such as containers, labels, and shrink wrap.
- Utilities: Costs for electricity, gas, and water used in the cheese processing facility.
- Rent: Monthly rent for the production facility and any additional storage space.
- Equipment maintenance: Expenses for regular maintenance and repairs of equipment used in the cheese making process.
- Transportation: Costs for shipping finished products to distributors or directly to customers.
- Marketing and advertising: Expenses for promoting the cheese brand and reaching potential customers.
- Accountancy fees: Fees for hiring an accountant to handle financial records and tax preparation.
- Insurance costs: Expenses for insurance coverage on the production facility, equipment, and products.
- Software licenses: Fees for using software programs to manage inventory, sales, and other business operations.
- Banking fees: Expenses for maintaining a business bank account and processing credit card payments.
- Training and development: Costs for providing employees with training to improve their skills and knowledge in cheese production.
- Office supplies: Expenses for purchasing necessary office supplies such as paper, ink, and stationery.
- Waste disposal: Costs for disposing of waste generated during the cheese making process.
This list is not exhaustive by any means, and will need to be tailored to your cheese processing company's specific circumstances.
What investments are needed to start or grow a cheese processing company?
Your cheese processing company 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 cheese processing company, these could include:
- Machinery and Equipment: This includes items such as cheese presses, cheese graters, cheese slicers, and other specialized equipment used in the cheese processing process.
- Building and Facilities: As a cheese processing company, you will need a facility to store and process your cheese. This may include the purchase or renovation of a building, as well as the installation of refrigeration units and other necessary equipment.
- Transportation Vehicles: In order to transport your cheese products to customers, you may need to invest in delivery trucks or vans. This can be a significant capital expenditure, especially if your company operates on a larger scale.
- Packaging Materials: Packaging is an essential aspect of the cheese processing industry. You may need to purchase packaging materials such as plastic wrap, containers, labels, and other supplies to package your cheese products for sale.
- Storage and Shelving: Proper storage and shelving are crucial for maintaining the quality of your cheese products. You may need to invest in specialized storage units, such as refrigerated shelves, to ensure that your cheese is stored at the proper temperature and humidity levels.
Again, this list will need to be adjusted according to the size and ambitions of your cheese processing company.
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 cheese processing company
The next step in the creation of your financial forecast for your cheese processing company 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 cheese processing company?
Now let's have a look at the main output tables of your cheese processing company'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 cheese processing company'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 cheese processing company will look different than for a startup.
The projected balance sheet
Your cheese processing company'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 projection
The cash flow forecast of your cheese processing company will show how much cash the business is expected to generate or consume over the next three to five years.
There are multiple ways of presenting a cash flow forecast but from experience, it is better to organise it by nature in order to clearly show these elements:
- Operating cash flow: how much cash is generated by the cheese processing company's operations
- Investing cash flow: what is the business investing to expand or maintain its equipment
- Financing cash flow: is the business raising additional funds or repaying financiers (debt repayment, dividends)
Your cash flow forecast is the most important element of your overall financial projection and that’s where you should focus your attention to ensure that your cheese processing company is adequately funded.
Note: if you are preparing a financial forecast in order to try to secure funding, you will need to include both a yearly and monthly cash flow forecast in your cheese processing company's financial plan.
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 cheese processing company's financial forecast?
Creating your cheese processing company's financial forecast may sound fairly daunting, but the good news is that there are several ways to go about it.
Using online financial projection software to build your cheese processing company's forecast
The modern and easiest way to build a forecast is to use professional financial projection 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 cheese processing company 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 cheese processing company's financial forecast?
Creating an accurate and error-free cheese processing company 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 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 cheese processing company, 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 cheese processing company
Takeaways
- A financial forecast shows expected growth, profitability, and cash generation metrics for your cheese processing company.
- 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 cheese processing company. 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
