How to create a financial forecast for a dairy processing firm?
If you are serious about keeping visibility on your future cash flows, then you need to build and maintain a financial forecast for your dairy processing firm.
Putting together a dairy processing firm 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 dairy processing firm.
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 dairy processing firm?
The financial projections for your dairy processing firm 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 dairy processing firm'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 dairy processing firm 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 dairy processing firm, 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 dairy processing firm 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 dairy processing firm, 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 dairy processing firm's financial forecast.
The sales forecast for a dairy processing firm
From experience, it usually makes sense to start your dairy processing firm's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your dairy processing firm (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 dairy processing firm'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 Fluctuations: As a dairy processing firm, you know that milk production varies throughout the year. This can affect the availability and price of raw milk, which in turn can impact the average price of your products and the number of monthly transactions. For example, during the spring when cows are calving, milk production increases and may result in a decrease in prices due to oversupply. On the other hand, during the winter when cows are producing less milk, prices may increase due to limited supply.
- Changes in Consumer Preferences: Consumer preferences and trends can also affect your sales forecast. For instance, the rise in demand for organic and plant-based milk may lead to a decrease in sales for traditional dairy products. This shift in preferences may also impact your average price as organic and plant-based milk often have a higher price point compared to traditional dairy products.
- Weather Conditions: Extreme weather conditions, such as droughts or floods, can have a significant impact on your business. These conditions can affect the quality and quantity of milk produced, which can result in higher prices for raw milk. This increase in prices can then be passed on to consumers, leading to a potential decrease in monthly transactions.
- Competition: Your competition can also affect your sales forecast. If there are new entrants in the market, this can lead to an increase in competition and potentially lower prices for your products. On the other hand, if a competitor exits the market, this may result in an increase in prices for your products and an increase in monthly transactions.
- Government Regulations: Changes in government regulations can have a direct impact on your business. For example, new regulations on milk production or labeling may require you to make changes to your processes, which can result in increased costs. These increased costs may then be reflected in your average price, potentially affecting the number of monthly transactions.
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 dairy processing firm
The next step is to estimate the costs you’ll have to incur to operate your dairy processing firm.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your dairy processing firm's operating expenses should normally include the following items:
- Staff Costs: This includes salaries, wages, benefits, and any other expenses related to your employees, such as training and development.
- Accountancy Fees: You will need to hire an accountant or accounting firm to handle your financial records, tax preparation, and other financial tasks.
- Insurance Costs: As a dairy processing firm, you will need to have various insurance policies in place, including property insurance, liability insurance, and workers' compensation insurance.
- Software Licences: You may need to purchase software licenses for various programs to help with tasks such as payroll, inventory management, and production planning.
- Banking Fees: This includes fees for maintaining a business bank account, transaction fees, and any fees associated with loans or lines of credit.
- Raw Materials: As a dairy processing firm, you will need to purchase raw materials such as milk, cream, and other ingredients for your products.
- Packaging Materials: You will also need to purchase packaging materials, such as bottles, cartons, and labels, for your dairy products.
- Utilities: This includes expenses for electricity, water, and other utilities needed to operate your dairy processing facility.
- Transportation Costs: You may need to transport your products to distribution centers or retail locations, which will incur transportation costs.
- Marketing and Advertising: You will need to budget for marketing and advertising expenses to promote your dairy products and reach potential customers.
- Maintenance and Repairs: Your dairy processing equipment and facility will require regular maintenance and occasional repairs, which will incur expenses.
- Rent or Mortgage: If you do not own your facility, you will need to budget for rent payments or a mortgage if you choose to purchase the property.
- Taxes and Licenses: You will need to pay various taxes and obtain necessary licenses to operate your dairy processing firm.
- Consulting Fees: You may need to hire consultants or experts to provide guidance and advice on various aspects of your business, such as production processes or marketing strategies.
- Office Supplies: This includes expenses for items such as paper, pens, and other office supplies needed to run your dairy processing firm.
This list is not exhaustive by any means, and will need to be tailored to your dairy processing firm's specific circumstances.
What investments are needed to start or grow a dairy processing firm?
Your dairy processing firm 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 dairy processing firm, these could include:
- Machinery and Equipment: This includes the purchase of specialized machinery and equipment such as pasteurizers, separators, homogenizers, and packaging machines.
- Building and Infrastructure: This includes the construction or renovation of buildings, storage facilities, and other infrastructure necessary for dairy processing operations.
- Transportation Fleet: This includes the purchase of vehicles used for transporting raw milk and finished dairy products to and from the processing facility.
- Cooling and Refrigeration Systems: Dairy products require strict temperature control, so the installation of cooling and refrigeration systems is a necessary capital expenditure for a dairy processing firm.
- Waste Management Systems: Proper waste management is crucial for dairy processing firms, so investing in waste management systems such as waste treatment plants or composting facilities is essential.
Again, this list will need to be adjusted according to the size and ambitions of your dairy processing firm.
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 dairy processing firm
The next step in the creation of your financial forecast for your dairy processing firm 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 dairy processing firm?
Now let's have a look at the main output tables of your dairy processing firm's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your dairy processing firm is likely to be in the years to come.
For your dairy processing firm 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 dairy processing firms, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.
The projected balance sheet
Your dairy processing firm'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 forecast
Your dairy processing firm'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 dairy processing firm:
- 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 dairy processing firm'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 dairy processing firm'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 dairy processing firm's financial forecast?
Creating your dairy processing firm'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 dairy processing firm'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.
Calling in a financial consultant or chartered accountant
Enlisting the help of a consultant or accountant is also a good way to obtain a professional dairy processing firm financial forecast.
The downside of this solution is its cost. From experience, obtaining a simple financial forecast over three years (including a balance sheet, income statement, and cash flow statement) is likely to cost a minimum of £700 or $1,000.
The indicative cost above, is for a small business, and a forecast is done as a one-shot exercise. Using a consultant or accountant to track your actuals vs. forecast and to keep your financial projections up to date on a monthly or quarterly basis will cost a lot more.
If you opt for this solution, make sure your accountant has in-depth knowledge of your industry, so that they may challenge your figures and offer insights (as opposed to just taking your assumptions at face value to create the forecast).
Why not use a spreadsheet such as Excel or Google Sheets to build your dairy processing firm's financial forecast?
Creating an accurate and error-free dairy processing firm 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 dairy processing firm, 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 dairy processing firm
Takeaways
- A financial forecast shows expected growth, profitability, and cash generation metrics for your dairy processing firm.
- 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 dairy processing firm. 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 create a turnover forecast for a business?
- Example of financial forecast for business idea
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Founder & CEO at The Business Plan Shop Ltd
