How to create a financial forecast for a home delivery company?
Creating a financial forecast for your home delivery 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 home delivery 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 home delivery company?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your home delivery company and ensure that it can be financially viable in the years to come.
A financial plan for a home delivery 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 home delivery 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 home delivery 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 home delivery company financial forecast?
A home delivery 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 home delivery company.
If you are creating (or updating) the forecast of an existing home delivery 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 home delivery 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 home delivery 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 home delivery company's financial forecast.
The sales forecast for a home delivery company
From experience, it is usually best to start creating your home delivery company financial forecast by your sales forecast.
To create an accurate sales forecast for your home delivery company, you will have to rely on the data collected in your market research, or if you're running an existing home delivery company, 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 home delivery company, your business may experience fluctuations in demand based on the time of year. For example, during the holiday season, there may be a higher demand for your services due to increased online shopping and gift delivery needs. This could result in an increase in your average price and number of monthly transactions.
- Fuel Prices: The cost of fuel can greatly impact your business's average price and number of monthly transactions. If fuel prices increase, you may need to adjust your delivery fees to cover the additional cost, which could result in a decrease in the number of transactions. Alternatively, if fuel prices decrease, you may be able to offer lower delivery fees, leading to an increase in transactions.
- Competitor Pricing: The prices of your competitors can also affect your business's average price and number of monthly transactions. If a competitor offers lower prices for similar services, you may need to adjust your prices to remain competitive. This could result in a decrease in your average price and an increase in transactions as customers are attracted to the lower prices.
- Weather Conditions: Inclement weather can impact your business's ability to make deliveries, which can affect your average price and number of monthly transactions. For example, during severe weather, you may need to suspend or delay deliveries, which could lead to a decrease in transactions for that month. Additionally, if you need to use specialized vehicles to make deliveries in certain weather conditions, this could increase your average price.
- Customer Preferences: Changes in customer preferences can also affect your business's average price and number of monthly transactions. For instance, if there is a shift towards eco-friendly packaging, you may need to invest in more expensive packaging materials, which could increase your average price. Alternatively, if customers prefer faster delivery times, you may need to offer expedited services at a higher price, resulting in an increase in your average price and possibly a decrease in the 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 home delivery company
The next step is to estimate the costs you’ll have to incur to operate your home delivery company.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your home delivery company's operating expenses should normally include the following items:
- Staff Costs: This includes the salaries, benefits, and training costs for all employees involved in the home delivery operations, such as delivery drivers, warehouse workers, customer service representatives, and administrative staff.
- Vehicle Expenses: This includes the costs associated with owning and maintaining delivery vehicles, such as fuel, repairs, insurance, and registration fees.
- Packaging Materials: As a home delivery company, you will need to purchase packaging materials such as boxes, envelopes, tape, and labels to ensure your products are safely delivered to customers.
- Marketing and Advertising: To attract new customers and retain existing ones, you may need to spend money on marketing and advertising efforts, such as social media ads, flyers, or other promotional materials.
- Accountancy Fees: To ensure your financial records are accurate and tax-compliant, you may need to hire an accountant or outsource your bookkeeping and tax preparation tasks.
- Insurance Costs: It is important to protect your business from potential risks and liabilities, so you may need to purchase insurance policies such as liability insurance, workers' compensation, and vehicle insurance.
- Software Licenses: To manage your orders, inventory, and customer data efficiently, you may need to invest in software licenses for a delivery management system, accounting software, or customer relationship management tools.
- Banking Fees: Every time you process a transaction, whether it is through credit card payments or bank transfers, you may incur banking fees, such as transaction fees, monthly fees, and foreign exchange fees.
- Utilities: Your home delivery operations may require the use of utilities such as electricity, water, and internet, which will add to your monthly expenses.
- Rent or Mortgage: If you are operating from a physical location, you will need to pay rent or mortgage payments for your office space, warehouse, or storage facility.
- Inventory Costs: To fulfill customer orders, you will need to purchase inventory and raw materials. Keep track of your inventory costs, including the cost of goods, storage, and potential spoilage.
- Customer Service Costs: To maintain a high level of customer satisfaction, you may need to invest in a customer service team, which may include salaries, training, and equipment costs.
- Legal Fees: As a business owner, you may need to seek legal advice or services, such as drafting contracts, reviewing lease agreements, or dealing with any legal disputes.
- Equipment and Supplies: Apart from your delivery vehicles, you may need to purchase other equipment and supplies, such as computers, printers, and office supplies, to support your daily operations.
- Taxes and Licenses: As a business, you will have to pay various taxes, such as income tax, sales tax, and property tax. You may also need to obtain licenses or permits to operate legally.
This list is not exhaustive by any means, and will need to be tailored to your home delivery company's specific circumstances.
What investments are needed to start or grow a home delivery company?
Creating and expanding a home delivery company also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a home delivery company could include elements such as:
- Delivery vehicles: As a home delivery company, you will need to invest in vehicles to transport your products to your customers. These can range from vans to trucks, depending on the size and volume of your deliveries.
- Warehouse equipment: In order to store and organize your products, you will need to purchase equipment such as shelving units, pallet jacks, and forklifts. These items are essential for efficient operations and ensuring the safety of your products.
- Technology and software: As the world becomes more digital, investing in technology and software is crucial for a successful home delivery company. This includes purchasing a delivery management system, inventory management software, and customer relationship management software.
- Packaging materials: As your company grows, you will need to purchase packaging materials such as boxes, tape, and packing materials to ensure that your products are delivered safely to your customers.
- Delivery equipment: Depending on the types of products you are delivering, you may need to invest in specialized equipment such as refrigerated trucks or trailers for perishable items, or specialized equipment for fragile items.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your home delivery 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 home delivery company
The next step in the creation of your financial forecast for your home delivery 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 home delivery company?
Now let's have a look at the main output tables of your home delivery company's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your home delivery company is likely to be in the years to come.
For your home delivery 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 home delivery 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 home delivery 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 forecast
Your home delivery company'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 home delivery company:
- 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 home delivery company'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 home delivery company'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 home delivery company's financial forecast?
Using the right tool or solution will make the creation of your home delivery company's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial projection software to build your home delivery 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 home delivery 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 home delivery company's financial forecast?
Creating an accurate and error-free home delivery company 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 projection shows expected growth, profitability, and cash generation for your business over the next three to five years.
- Tracking actuals vs. forecast and keeping your financial forecast up-to-date is the only way to maintain visibility on future cash flows.
- Using financial forecasting software makes it easy to create and maintain up-to-date projections for your home delivery company.
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 home delivery company. Don't hesitate to contact our team if you have any questions or want to share your experience building forecasts!
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 projections
- How to project sales for a business?
- Financial forecast for a business idea
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Founder & CEO at The Business Plan Shop Ltd
