How to create a financial forecast for a cocoa powder wholesaler?

Creating a financial forecast for your cocoa powder wholesaler, 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 cocoa powder wholesaler 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 cocoa powder wholesaler?

Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your cocoa powder wholesaler and ensure that it can be financially viable in the years to come.

A financial plan for a cocoa powder wholesaler 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 cocoa powder wholesaler 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 cocoa powder wholesaler'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.

What information is used as input to build a cocoa powder wholesaler financial forecast?

A cocoa powder wholesaler'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 cocoa powder wholesaler, 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 a cocoa powder wholesaler 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 cocoa powder wholesaler 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 cocoa powder wholesaler's financial forecast.

The sales forecast for a cocoa powder wholesaler

The sales forecast, also called topline projection, is normally where you will start when building your cocoa powder wholesaler 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 cocoa powder wholesalers), and consider the elements below:

After the sales forecast comes the operating expenses budget, which we will now look into in more detail.

The operating expenses for a cocoa powder wholesaler

The next step is to estimate the costs you’ll have to incur to operate your cocoa powder wholesaler.

These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.). 

But your cocoa powder wholesaler's operating expenses should normally include the following items:

This list is not exhaustive by any means, and will need to be tailored to your cocoa powder wholesaler's specific circumstances.

What investments are needed to start or grow a cocoa powder wholesaler?

Once you have an idea of how much sales you could achieve and what it will cost to run your cocoa powder wholesaler, it is time to look into the equipment required to launch or expand the activity.

For a cocoa powder wholesaler, capital expenditures and initial working capital items could include:

Again, this list will need to be adjusted according to the specificities of your cocoa powder wholesaler.

The financing plan of your cocoa powder wholesaler

The next step in the creation of your financial forecast for your cocoa powder wholesaler 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 cocoa powder wholesaler?

Now let's have a look at the main output tables of your cocoa powder wholesaler's financial forecast.

The profit & loss forecast

The forecasted profit & loss statement will enable you to visualise your cocoa powder wholesaler's expected growth and profitability over the next three to five years.

A financially viable P&L statement for a cocoa powder wholesaler 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

The projected balance sheet gives an overview of your cocoa powder wholesaler'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 cocoa powder wholesaler. 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 projection

The cash flow forecast of your cocoa powder wholesaler 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 cocoa powder wholesaler'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 cocoa powder wholesaler 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 cocoa powder wholesaler's financial plan. 

Which tool should you use to create your cocoa powder wholesaler's financial forecast?

Creating your cocoa powder wholesaler'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 cocoa powder wholesaler'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.

Calling in a financial consultant or chartered accountant

Outsourcing the creation of your cocoa powder wholesaler financial forecast is another possible solution.

This will cost more than using software as you can expect as your price will have to cover the accountant’s time, software cost, and profit margin.

Price can vary greatly based on the complexity of your business. For a small business, from experience, a simple three-year financial forecast (including a balance sheet, income statement, and cash flow statement) will start at around £700 or $1,000. 

Bear in mind that this is for forecasts produced at a single point in time, updating or tracking your forecast against actuals will cost extra. 

If you decide to outsource your forecasting:

• Make sure the professional has direct experience in your industry and is able to challenge your assumptions constructively. 
• Steer away from consultants using sectorial ratios to build their client’s financial forecasts (these projections are worthless for a small business).

Why not use a spreadsheet such as Excel or Google Sheets to build your cocoa powder wholesaler's financial forecast?

Creating an accurate and error-free cocoa powder wholesaler 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.

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 cocoa powder wholesaler, 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 cocoa powder wholesaler

Takeaways

1. A financial projection shows expected growth, profitability, and cash generation for your business over the next three to five years.
2. Tracking actuals vs. forecast and keeping your financial forecast up-to-date is the only way to maintain visibility on future cash flows.
3. Using financial forecasting software makes it easy to create and maintain up-to-date projections for your cocoa powder wholesaler.

You have reached the end of our guide. We hope you now have a better understanding of how to create a financial forecast for a cocoa powder wholesaler. Don't hesitate to contact our team if you have any questions or want to share your experience building forecasts!

Also on The Business Plan Shop

• Example of financial projections
• How to project sales for a business?
• Financial forecast template for a business idea

Know someone who runs or wants to start a cocoa powder wholesaler? Share our financial projection guide with them!