How to create a financial forecast for a food and drinks wholesaler?
Developing and maintaining an up-to-date financial forecast for your food and drinks wholesaler 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 food and drinks wholesaler 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 food and drinks wholesaler?
The financial projections for your food and drinks wholesaler 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 food and drinks wholesaler'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 food and drinks wholesaler financial forecast?
A food and drinks wholesaler'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 food and drinks wholesaler.
If you are creating (or updating) the forecast of an existing food and drinks wholesaler, 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 food and drinks wholesaler 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 food and drinks wholesaler 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 food and drinks wholesaler's financial forecast.
The sales forecast for a food and drinks wholesaler
From experience, it is usually best to start creating your food and drinks wholesaler financial forecast by your sales forecast.
To create an accurate sales forecast for your food and drinks wholesaler, you will have to rely on the data collected in your market research, or if you're running an existing food and drinks wholesaler, 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 food and drinks wholesaler, you may experience fluctuations in demand based on the time of year. For example, during the summer months, there may be a higher demand for cold beverages and grilling supplies, while in the winter, there may be a higher demand for hot beverages and comfort foods. This can affect your average price and number of monthly transactions, as you may need to adjust your prices and inventory levels to meet the changing demand.
- Cost of Ingredients: The cost of ingredients can have a significant impact on your average price and number of monthly transactions. If the cost of certain ingredients increases, you may need to raise your prices to maintain your profit margin. This could potentially lead to a decrease in the number of transactions, as customers may be less willing to pay the higher prices.
- Competition: The level of competition in your area can also affect your sales forecast. If there are many other food and drinks wholesalers in your area, you may need to adjust your prices and promotions to stay competitive. This could potentially impact your average price and number of monthly transactions.
- Economic Factors: Economic factors such as inflation, interest rates, and consumer spending can also influence your sales forecast. In times of economic downturn, consumers may be more price-sensitive, leading to a decrease in your average price and number of monthly transactions. On the other hand, during periods of economic prosperity, consumers may be more willing to spend, resulting in an increase in your average price and number of monthly transactions.
- Trends and Fads: The food and drinks industry is constantly evolving, and new trends and fads can impact your sales forecast. For example, if there is a sudden increase in demand for a particular type of food or drink, you may need to adjust your prices and inventory to meet this demand. On the other hand, if a previously popular product falls out of favor, it may result in a decrease in your average price and number of 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.
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 food and drinks wholesaler
The next step is to estimate the costs you’ll have to incur to operate your food and drinks wholesaler.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your food and drinks wholesaler's operating expenses should normally include the following items:
- Staff costs: This includes salaries, wages, and benefits for all of your employees, including sales representatives, warehouse staff, and office staff.
- Accountancy fees: You will need to hire an accountant to manage your financial records, prepare tax returns, and provide financial advice.
- Insurance costs: As a food and drinks wholesaler, you will need to have insurance to protect your business from potential risks, such as property damage, liability claims, and product recalls.
- Software licences: You may need to purchase software licences for your accounting, inventory management, and customer relationship management systems.
- Banking fees: As you will be handling large sums of money, you will need to pay various banking fees, such as transaction fees, wire transfer fees, and account maintenance fees.
- Rent: You will need to pay rent for your warehouse and office space.
- Utilities: This includes electricity, water, and gas for your warehouse and office.
- Transportation costs: You will need to cover the costs of shipping and transporting your products from the manufacturers to your warehouse, and from your warehouse to your customers.
- Marketing and advertising: You may need to invest in marketing and advertising to promote your business and attract new customers.
- Packaging materials: You will need to purchase packaging materials, such as boxes, bags, and labels, to package your products for shipping.
- Office supplies: This includes paper, ink, pens, and other supplies needed for your office operations.
- Maintenance and repairs: You will need to budget for any maintenance and repairs for your warehouse, office, and equipment.
- Training and development: You may need to invest in training and development for your employees to improve their skills and knowledge.
- Taxes and licenses: You will need to pay various taxes, such as income tax and sales tax, as well as obtain any necessary business licenses and permits.
- Travel expenses: If you attend trade shows or visit suppliers, you will need to budget for travel expenses, such as airfare, hotel, and meals.
This list is not exhaustive by any means, and will need to be tailored to your food and drinks wholesaler's specific circumstances.
What investments are needed to start or grow a food and drinks wholesaler?
Your food and drinks wholesaler 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 food and drinks wholesaler, these could include:
- Warehouse Space: As a food and drinks wholesaler, you will need to store a large amount of inventory. This means you will need to invest in warehouse space to accommodate your products. This could include renting or purchasing a warehouse, as well as any necessary renovations or repairs.
- Delivery Vehicles: In order to transport your products to your customers, you will need delivery vehicles. This could include purchasing trucks or vans, as well as any necessary maintenance or repairs for these vehicles.
- Refrigeration Equipment: Many food and drinks products require refrigeration to maintain their freshness and quality. As a food and drinks wholesaler, you will need to invest in refrigeration equipment such as walk-in coolers, refrigerated trucks, or refrigerated display cases for your warehouse or retail space.
- Point of Sale (POS) System: To efficiently process and track your sales, you will need a reliable POS system. This could include hardware such as cash registers, scanners, and computers, as well as software for inventory management, sales tracking, and customer data.
- Forklifts and Pallet Jacks: As a food and drinks wholesaler, you will likely need to move and transport heavy pallets of products within your warehouse. Investing in forklifts and pallet jacks can help improve efficiency and reduce physical strain on your employees.
Again, this list will need to be adjusted according to the size and ambitions of your food and drinks wholesaler.
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 food and drinks wholesaler
The next step in the creation of your financial forecast for your food and drinks 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 food and drinks wholesaler?
Now let's have a look at the main output tables of your food and drinks wholesaler's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your food and drinks wholesaler is likely to be in the years to come.
For your food and drinks wholesaler 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 food and drinks wholesalers, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.
The projected balance sheet
Your food and drinks wholesaler'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 food and drinks wholesaler'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 food and drinks wholesaler:
- 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 food and drinks wholesaler'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 food and drinks wholesaler'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 food and drinks wholesaler's financial forecast?
Creating your food and drinks 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 food and drinks 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 food and drinks 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 food and drinks wholesaler's financial forecast?
Creating an accurate and error-free food and drinks 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.
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 food and drinks wholesaler.
- 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 food and drinks wholesaler. 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
