How to create a financial forecast for a log and lumber hauling firm?
Creating a financial forecast for your log and lumber hauling firm, 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 log and lumber hauling firm 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 log and lumber hauling firm?
The financial projections for your log and lumber hauling 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 log and lumber hauling 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 used as input to build a log and lumber hauling firm financial forecast?
A log and lumber hauling firm'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 log and lumber hauling firm.
If you are creating (or updating) the forecast of an existing log and lumber hauling firm, 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 log and lumber hauling firm 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 log and lumber hauling firm 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 log and lumber hauling firm's financial forecast.
The sales forecast for a log and lumber hauling firm
From experience, it usually makes sense to start your log and lumber hauling firm's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your log and lumber hauling 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 log and lumber hauling 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:
- Weather conditions: As a log and lumber hauling firm, you are heavily reliant on the weather for the successful transportation of your products. Extreme weather events such as heavy rain or snowstorms can disrupt your operations and delay shipments, leading to a decrease in both the average price and number of monthly transactions.
- Market demand for lumber: The demand for lumber is influenced by various factors such as economic conditions, construction activity, and consumer preferences. A decrease in market demand for lumber can result in a decrease in the average price and number of monthly transactions for your firm.
- Competition: The presence of other log and lumber hauling firms in the market can also affect your business's average price and number of monthly transactions. If there is high competition, you may need to lower your prices to remain competitive, resulting in a decrease in the average price. Additionally, competition can also lead to a decrease in the number of monthly transactions as customers have more options to choose from.
- Log and lumber prices: The prices of logs and lumber can fluctuate due to various factors such as supply and demand, changes in regulations, and international trade policies. As a result, the average price for your services may also fluctuate, affecting your business's revenue and number of transactions.
- Transportation costs: The cost of transporting logs and lumber can also impact your business's average price and number of monthly transactions. If the transportation costs increase, you may need to adjust your prices to cover these costs, leading to an increase in the average price. On the other hand, if you are unable to pass on these costs to the customer, it may result in a decrease in the number of monthly transactions as customers may seek cheaper alternatives.
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 log and lumber hauling firm
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your log and lumber hauling firm on a daily basis.
Expenses normally vary based on how much revenue you anticipate (which is why, from experience, it is always better to start your forecast with the topline projection), and where your business is based.
Operating expenses for a log and lumber hauling firm will include some of the following items:
- Staff Costs: This includes wages, benefits, and any other costs associated with hiring and managing employees, such as training and payroll processing fees.
- Fuel Expenses: As a log and lumber hauling firm, your main business involves transporting heavy loads over long distances. This means you will have significant fuel expenses, including the cost of diesel or gasoline for your trucks and other equipment.
- Maintenance and Repairs: Your trucks, trailers, and other equipment will need regular maintenance and occasional repairs to keep them in good working condition. This can include costs for parts, labor, and any outsourced maintenance services.
- Insurance Costs: As with any business, it's important to have insurance coverage to protect your assets and employees. As a log and lumber hauling firm, you will likely need commercial auto insurance, general liability insurance, and workers' compensation insurance.
- Vehicle Registration and Licensing Fees: In addition to insurance, you will also need to pay for vehicle registration and licensing fees for your trucks and other equipment.
- Accountancy Fees: It's important to keep accurate financial records for your business, which may require the services of an accountant or bookkeeper. This can include fees for tax preparation, financial statement preparation, and other accounting services.
- Software Licences: To manage your business operations efficiently, you may need to invest in software licenses for programs such as fleet management, accounting, and dispatching.
- Office Supplies: You will need basic office supplies such as paper, pens, and printer ink to keep your office running smoothly.
- Rent or Lease Payments: If you don't own your office space or equipment, you will need to budget for rent or lease payments.
- Marketing and Advertising Expenses: To attract new clients and grow your business, you may need to invest in marketing and advertising efforts, such as website development, online advertising, and print materials.
- Phone and Internet Expenses: In today's digital world, it's essential to have reliable phone and internet services to communicate with clients, suppliers, and employees.
- Banking Fees: As a business, you will have various banking needs, such as checking accounts, credit card processing, and business loans. These services often come with fees that you will need to budget for.
- Legal Fees: As your business grows, you may need the services of a lawyer for contracts, leases, and other legal matters. It's essential to budget for these expenses to protect your business and ensure compliance with laws and regulations.
- Vehicle Permits and Inspections: Depending on your location, you may need to obtain special permits or have regular vehicle inspections for your trucks and other equipment. These expenses should be factored into your budget.
- Safety and Compliance Training: As a log and lumber hauling firm, you will have strict safety and compliance regulations to follow. This may require regular training for your employees, which should be included in your operating expenses forecast.
This list will need to be tailored to the specificities of your log and lumber hauling firm, but should offer a good starting point for your budget.
What investments are needed to start or grow a log and lumber hauling firm?
Your log and lumber hauling 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 log and lumber hauling firm, these could include:
- Trucks and trailers - These are essential assets for a log and lumber hauling firm as they are used to transport the logs and lumber from the forest to the mill. You will need to factor in the cost of purchasing or leasing these vehicles, as well as ongoing maintenance and insurance costs.
- Logging equipment - In order to efficiently harvest the logs, a log and lumber hauling firm will need to invest in specialized equipment such as chainsaws, skidders, loaders, and grapple trucks. These items can be expensive but are necessary for the success of your business.
- Sawmill machinery - If you plan on processing the lumber yourself, you will need to purchase or lease sawmill equipment such as saws, kilns, and planers. These items will have a significant impact on your expenditure forecast and should be carefully considered.
- Storage facilities - A log and lumber hauling firm will need to have adequate storage facilities to store the harvested logs and processed lumber. This can include warehouses, lumber yards, and drying sheds. The cost of leasing or purchasing these facilities should be included in your expenditure forecast.
- Office equipment - Although not directly related to the hauling of logs and lumber, a log and lumber hauling firm will still need basic office equipment such as computers, printers, and office furniture. These items may seem small compared to the other capital expenditures, but they are still important to factor in when creating your forecast.
Again, this list will need to be adjusted according to the size and ambitions of your log and lumber hauling 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 log and lumber hauling firm
The next step in the creation of your financial forecast for your log and lumber hauling 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 log and lumber hauling firm?
Now let's have a look at the main output tables of your log and lumber hauling firm's financial forecast.
The forecasted profit & loss statement
The profit & loss forecast gives you a clear picture of your business’ expected growth over the first three to five years, and whether it’s likely to be profitable or not.
A healthy log and lumber hauling firm's P&L statement should show:
- Sales growing at (minimum) or above (better) inflation
- Stable (minimum) or expanding (better) profit margins
- A healthy level of net profitability
This will of course depend on the stage of your business: numbers for an established log and lumber hauling firm will look different than for a startup.
The projected balance sheet
Your log and lumber hauling firm'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 cash flow projection
The cash flow forecast of your log and lumber hauling firm 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 log and lumber hauling firm'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 log and lumber hauling firm 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 log and lumber hauling firm's financial plan.
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 log and lumber hauling firm's financial forecast?
Creating your log and lumber hauling 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 log and lumber hauling 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.
Hiring a financial consultant or chartered accountant
Hiring a consultant or chartered accountant is also an efficient way to get a professional log and lumber hauling firm 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 log and lumber hauling firm's financial forecast?
Creating an accurate and error-free log and lumber hauling 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 log and lumber hauling 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 log and lumber hauling firm
Takeaways
- A financial forecast shows expected growth, profitability, and cash generation metrics for your log and lumber hauling 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 log and lumber hauling 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 project revenues for a business?
- Sample financial forecast for business idea
Know someone who runs a log and lumber hauling firm? Share our business guide with them!
Founder & CEO at The Business Plan Shop Ltd
