How to create a financial forecast for a logistics company?
Creating a financial forecast for your logistics 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 logistics 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 logistics company?
In order to prosper, your business needs to have visibility on what lies ahead and the right financial resources to grow. This is where having a financial forecast for your logistics company becomes handy.
Creating a logistics company financial forecast forces you to take stock of where your business stands and where you want it to go.
Once you have clarity on the destination, you will need to draw up a plan to get there and assess what it means in terms of future profitability and cash flows for your logistics company.
Having this clear plan in place will give you the confidence needed to move forward with your business’s development.
Having an up-to-date financial forecast for a logistics company is also useful if your trading environment worsens, as the forecast enables you to adjust to your new market conditions and anticipate any potential cash shortfall.
Finally, your logistics company's financial projections will also help you secure financing, as banks and investors alike will want to see accurate projections before agreeing to finance your business.
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 logistics company financial forecast?
A logistics 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 logistics company.
If you are creating (or updating) the forecast of an existing logistics 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 logistics 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 logistics 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 logistics company's financial forecast.
The sales forecast for a logistics company
The sales forecast, also called topline projection, is normally where you will start when building your logistics 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 logistics companies), and consider the elements below:
- Economic Conditions: Economic conditions such as inflation, interest rates, and consumer spending can greatly impact the average price and number of monthly transactions for a logistics company. Inflation can increase the cost of goods and services, leading to higher prices for customers, while changes in interest rates can affect the company's borrowing costs. Additionally, if consumer spending decreases, there may be a decrease in demand for logistics services.
- Fuel Prices: As a logistics company, you rely heavily on transportation to deliver goods to your customers. Fluctuations in fuel prices can greatly affect your operating costs, which can in turn impact your average price and number of monthly transactions. Higher fuel prices can lead to increased prices for customers or a decrease in the number of transactions as customers may look for cheaper alternatives.
- Technology Advancements: With the rise of e-commerce and advancements in technology, customers now expect faster and more efficient delivery of their goods. This can put pressure on logistics companies to invest in new technology and equipment, which can increase costs and potentially impact the average price and number of monthly transactions.
- Weather Events: Weather events such as storms, hurricanes, or extreme temperatures can disrupt supply chains and cause delays in deliveries. These disruptions can lead to increased costs for the company and potentially impact the average price and number of monthly transactions as customers may seek more reliable options.
- Trade Policies: Changes in trade policies, such as tariffs or trade agreements, can greatly impact the cost of importing and exporting goods. This can directly affect the prices of goods and services for customers and potentially impact the number of monthly transactions as companies may adjust their supply chains to avoid additional costs.
After the sales forecast comes the operating expenses budget, which we will now look into in more detail.
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 logistics company
The next step is to estimate the expenses needed to run your logistics company on a day-to-day basis.
These will vary based on the level of sales expected, and the location and size of your business.
But your logistics company's operating expenses should include the following items at a minimum:
- Staff costs: This includes salaries, wages, benefits, and training expenses for your team of employees, which are essential for the day-to-day operations of your logistics company.
- Accountancy fees: As a logistics company, you will need to hire an accountant to keep track of your financial records, prepare tax returns, and provide financial advice.
- Insurance costs: To protect your business from potential risks and liabilities, you will need to pay for various insurance policies, such as liability insurance, cargo insurance, and vehicle insurance.
- Software licenses: As technology plays a crucial role in the logistics industry, you will need to invest in software licenses for tracking shipments, managing inventory, and processing orders.
- Banking fees: Your logistics company will have various banking needs, such as processing payments, managing cash flow, and obtaining financing, which will incur fees and charges.
- Fuel and maintenance: With a fleet of vehicles and equipment, your logistics company will have significant fuel and maintenance expenses to keep them running smoothly.
- Rent and utilities: You will need a warehouse or office space to store and manage your inventory, which will come with rent and utility costs.
- Marketing and advertising: To attract new customers and retain existing ones, you will need to invest in marketing and advertising efforts, such as print and online ads, trade shows, and sponsorships.
- Training and development: To stay competitive in the constantly evolving logistics industry, you will need to provide ongoing training and development opportunities for your employees.
- Legal fees: As a logistics company, you may encounter legal issues, such as contract disputes or employment law matters, which will require the services of a lawyer.
- Office supplies and equipment: From paper and pens to computers and printers, you will need to purchase office supplies and equipment to keep your business running efficiently.
- Freight and shipping costs: As a logistics company, you will incur freight and shipping costs when transporting goods for your clients.
- Taxes and licenses: Your logistics company will need to pay various taxes, such as income tax and sales tax, as well as obtain necessary licenses and permits to operate legally.
- Travel expenses: Depending on the scope of your operations, you may need to travel for business purposes, which will incur expenses such as airfare, accommodation, and meals.
- Repairs and maintenance: To keep your warehouse, vehicles, and equipment in good working condition, you will need to budget for repairs and maintenance expenses.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small logistics company might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow a logistics company?
Your logistics company 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 logistics company, these could include:
- Warehouse Equipment: This includes items such as forklifts, pallet jacks, and shelving units that are necessary for the storage and movement of goods in a warehouse.
- Transportation Vehicles: Logistics companies often need to purchase trucks, vans, and other vehicles to transport goods from one location to another.
- Technology and Software: As technology plays a crucial role in the logistics industry, capital expenditures may include investments in transportation management systems, warehouse management systems, and other software to improve efficiency and accuracy.
- Infrastructure Improvements: This can include renovations or upgrades to existing facilities, such as expanding warehouse space or installing new loading docks, to accommodate growing business needs.
- Maintenance Equipment: Logistics companies may need to invest in equipment for maintaining their vehicles, such as tire changers, diagnostic tools, and oil changing equipment, to ensure their fleet runs smoothly.
Again, this list will need to be adjusted according to the size and ambitions of your logistics 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 logistics company
The next step in the creation of your financial forecast for your logistics 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 logistics company?
Now let's have a look at the main output tables of your logistics company'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 logistics company'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 logistics company will look different than for a startup.
The projected balance sheet
The projected balance sheet gives an overview of your logistics company's financial structure at the end of the financial year.
It is composed of three categories of items: assets, liabilities and equity:
- Assets: are what the business possesses and uses to produce cash flows. It includes resources such as cash, buildings, equipment, and accounts receivable (money owed by clients).
- Liabilities: are the debts of your logistics company. They include accounts payable (money owed to suppliers), taxes due and bank loans.
- Equity: is the combination of what has been invested by the business owners and the cumulative profits 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 logistics company 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 logistics company'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 logistics company 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 logistics company'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 logistics company's financial forecast?
Creating your logistics 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 logistics company'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
Outsourcing the creation of your logistics 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 logistics 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 logistics 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 logistics 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 forecasting templates available.
Our examples contain both the financial forecast, and a written business plan which presents, in detail, the company, the team, the strategy, and the medium-term objectives.
Whether you are just starting out or already have your own logistics company, looking at our template is always a good way to get ideas on how to model financial items and what to write when creating a business plan to secure funding.
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 logistics 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 logistics 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?
- Example of financial forecast for business idea
Know someone who owns or is thinking of starting a logistics company? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
