How to create a financial forecast for a freight road trucking company?
Creating a financial forecast for your freight road trucking company, 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 freight road trucking company 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 freight road trucking company?
The financial projections for your freight road trucking company 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 freight road trucking company'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.
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What information is needed to build a freight road trucking company 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 freight road trucking company, 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 freight road trucking company 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 freight road trucking company, 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 freight road trucking company's financial forecast.
The sales forecast for a freight road trucking company
The sales forecast, also called topline projection, is normally where you will start when building your freight road trucking company 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 freight road trucking companies), and consider the elements below:
- Fuel Prices: Fluctuations in fuel prices can significantly impact your average price and number of monthly transactions. Higher fuel prices can lead to increased costs for your business, which may result in higher prices for your customers.
- Competition: The presence of strong competitors in your market can affect your average price and number of monthly transactions. If there are many similar trucking companies in your area, you may need to lower your prices to remain competitive.
- Weather Conditions: Extreme weather conditions, such as heavy snow or rain, can cause delays and disruptions in your operations. This can lead to longer delivery times and potentially higher prices for your customers.
- Economic Conditions: Changes in the economy, such as a recession or economic boom, can impact your average price and number of monthly transactions. During a recession, customers may be more price-sensitive and may look for cheaper shipping options, while during an economic boom, they may be willing to pay higher prices for faster and more reliable shipping.
- Regulations: Changes in government regulations, such as new emissions standards or stricter safety requirements, can affect your business's operations and costs. This may result in higher prices for your customers as you need to invest in new equipment or make other changes to comply with regulations.
After the sales forecast comes the operating expenses budget which we will now look into in more detail.
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The operating expenses for a freight road trucking company
The next step is to estimate the cost you’ll have to incur to operate your freight road trucking company.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your freight road trucking company's operating expenses should normally include the following items:
- Fuel Costs: As a freight road trucking company, one of your major operating expenses will be fuel costs. This includes diesel or gasoline for your trucks and other vehicles.
- Driver Salaries: Your drivers are the backbone of your company and their salaries will make up a significant portion of your operating expenses. This includes wages, benefits, and any bonuses or incentives.
- Vehicle Maintenance: Keeping your trucks and other vehicles in good working condition is crucial for a successful freight road trucking company. This expense includes regular maintenance, repairs, and any unexpected breakdowns.
- Tolls and Taxes: Depending on the routes you take, you may encounter toll roads or have to pay taxes on certain shipments. These costs should be factored into your operating expenses.
- Insurance Premiums: As with any business, insurance is a necessary expense. For a freight road trucking company, this includes liability insurance, cargo insurance, and any other coverage needed to protect your assets and business.
- Accountancy Fees: Keeping track of your finances and taxes can be a daunting task, which is why it's important to budget for accountancy fees. These can include bookkeeping, tax preparation, and other financial services.
- Software Licenses: In today's digital age, software is an essential tool for businesses. As a freight road trucking company, you may need specialized software for tracking shipments, managing logistics, and other operations.
- Office Rent and Utilities: Even though your business may primarily operate on the road, you may still need an office space for administrative tasks and meetings. This includes rent, utilities, and other office expenses.
- Marketing and Advertising: In order to attract new clients and grow your business, you may need to invest in marketing and advertising efforts. This can include print ads, online ads, and attending industry events.
- Employee Training: As your business grows, you may need to hire new employees or provide training for existing staff. This expense should be included in your operating budget.
- Banking Fees: Managing finances and processing payments will incur banking fees, such as transaction fees, wire transfer fees, and account maintenance fees. Be sure to account for these expenses in your operating budget.
- Permits and Licenses: Depending on your location and the type of freight you transport, you may need to obtain permits and licenses to operate legally. These costs should be considered in your operating expenses.
- Office Supplies: While your main operations may take place on the road, you may still need office supplies for administrative tasks. This can include paper, pens, printer ink, and other necessary items.
- Employee Benefits: In addition to salaries, you may also offer benefits to your employees, such as health insurance, retirement plans, and paid time off. These costs should be factored into your operating expenses.
- Legal Fees: As a business owner, you may encounter legal issues that require the assistance of a lawyer. Budget for legal fees, such as consultations, contract reviews, and representation, in your operating expenses.
This list is not exhaustive by any means, and will need to be tailored to your freight road trucking company's specific circumstances.
What investments are needed to start or grow a freight road trucking company?
Creating and expanding a freight road trucking company also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a freight road trucking company could include elements such as:
- Trucks and Trailers: As a freight road trucking company, your main asset will be your fleet of trucks and trailers. These will be used to transport goods from one location to another. When creating your expenditure forecast, you need to take into account the cost of purchasing new trucks and trailers.
- Warehouse and Storage Facilities: In addition to your trucks and trailers, you will also need warehouse and storage facilities to house the goods you are transporting. These facilities will require a significant amount of capital investment, including construction or rental costs, as well as ongoing maintenance and utility expenses.
- Technology and Equipment: In order to effectively manage your freight road trucking company, you will need to invest in technology and equipment. This includes items such as GPS tracking systems, computer software, and communication devices. These tools will help you to track your shipments, manage your inventory, and communicate with your drivers and clients.
- Safety and Compliance: As a trucking company, you will also need to invest in safety and compliance measures. This includes items such as safety equipment for your drivers, as well as expenses related to obtaining necessary permits and licenses. Failure to comply with safety regulations can result in costly fines and penalties, so it is important to budget for these expenses.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your freight road trucking 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 freight road trucking company
The next step in the creation of your financial forecast for your freight road trucking 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 freight road trucking company?
Now let's have a look at the main output tables of your freight road trucking company's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your freight road trucking company is likely to be in the years to come.
For your freight road trucking company 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 freight road trucking companies, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.
The projected balance sheet
Your freight road trucking company'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 freight road trucking company 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 freight road trucking company'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 freight road trucking company 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 freight road trucking company's financial forecast?
Creating your freight road trucking 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 forecasting software to build your freight road trucking company'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.
Calling in a financial consultant or chartered accountant
Outsourcing the creation of your freight road trucking company 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 freight road trucking company's financial forecast?
You and your financial partners need numbers you can trust. Unless you have studied finance or accounting, creating a trustworthy and error-free freight road trucking company financial forecast on a spreadsheet is likely to prove challenging.
Financial modelling is very technical by nature and requires a solid grasp of accounting principles to be done without errors. This means that using spreadsheet software like Excel or Google Sheets to create accurate financial forecasts is out of reach for most business owners.
Creating forecasts in Excel is also inefficient nowadays:
- Software has advanced to the point where forecasting can be done much faster and more accurately than manually on a spreadsheet.
- With artificial intelligence, the software is capable of detecting mistakes and helping decision-making.
Spreadsheets are versatile tools but they are not tailor-made for reporting. Importing your freight road trucking company's accounting data in Excel to track actual vs. forecast is incredibly manual and tedious (and so is keeping forecasts up to date). It is much faster to use dedicated financial planning tools like The Business Plan Shop which are built specially 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 for a freight road trucking company with a financial forecast and a written section detailing the company, the team, the strategy, and the medium-term objectives.
Whether you are just starting out or already have your own freight road trucking 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 freight road trucking company
Takeaways
- Having a financial forecast enables you to visualise the expected growth, profitability, and cash generation for your business over the next three to five years.
- Tracking actuals vs. forecast and keeping your financial projections up-to-date is the only way to get a view on what your freight road trucking company future cash flows may look like.
- Using financial forecasting software is the mordern and easy way to create and maintain your forecasts.
This is the end of our guide on how to build the financial forecast for a freight road trucking company, we hope you found it useful. Don't hesitate to contact us if you want to share your feedback or 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
- Example of financial forecast
- How to create a sales forecast for a business?
- Financial forecast for a business idea
Know someone who owns or is thinking of starting a freight road trucking company? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
