How to create a financial forecast for a margarine manufacturer?
Creating a financial forecast for your margarine manufacturing business, 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 margarine manufacturing business 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 margarine manufacturing business?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your margarine manufacturing business and ensure that it can be financially viable in the years to come.
A financial plan for a margarine manufacturing business 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 margarine manufacturing business 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 margarine manufacturing business'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 needed to build a margarine manufacturing business 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 margarine manufacturing business, 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 margarine manufacturing business 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 margarine manufacturing business, 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 margarine manufacturing business's financial forecast.
The sales forecast for a margarine manufacturing business
From experience, it usually makes sense to start your margarine manufacturing business's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your margarine manufacturing business (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 margarine manufacturing business'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:
- Fluctuations in butter prices: As a margarine manufacturing business, your prices and sales may be affected by the cost of butter, which is a key ingredient in margarine production. If butter prices increase, your production costs will also increase, which may lead to a rise in the average price of your margarine products. This could potentially affect the number of monthly transactions as some customers may seek out cheaper alternatives.
- Changes in consumer preferences: Consumer preferences for healthier and more natural products may affect the demand for margarine, as it is often seen as a less healthy alternative to butter. If there is a shift towards natural and organic products, your average price and number of monthly transactions may be impacted. You may need to adjust your product offerings and marketing strategies to meet changing consumer demands.
- Government regulations: Government regulations and policies related to food safety and labeling can also have an impact on your business. For example, if there are stricter regulations on the ingredients used in margarine production, your production costs may increase, which could result in a higher average price for your products. This may also lead to a decrease in the number of monthly transactions if customers are deterred by the higher prices.
- Competitor actions: The actions of your competitors can also affect your business's average price and number of monthly transactions. If a competitor introduces a new, similar product at a lower price, it may lead to a decrease in your sales and possibly a decrease in your average price to remain competitive. On the other hand, if a competitor exits the market, you may have the opportunity to increase your prices and potentially attract more customers.
- Changes in the economy: Economic factors such as inflation, interest rates, and consumer spending can also have an impact on your business. During times of economic downturn, consumers may be more price-sensitive and opt for cheaper alternatives, which could result in a decrease in both your average price and number of monthly transactions. On the other hand, during times of economic growth, consumers may be more willing to spend on premium products, which could potentially increase your average price and number of transactions.
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.
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The operating expenses for a margarine manufacturing business
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your margarine manufacturing business 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 margarine manufacturing business will include some of the following items:
- Raw materials: As a margarine manufacturing business, one of your biggest operating expenses will be the cost of raw materials such as vegetable oils, emulsifiers, and preservatives.
- Labor costs: You will need to pay salaries and benefits to your production staff, including machine operators, quality control technicians, and packaging workers.
- Utilities: Running a margarine manufacturing facility will require significant amounts of electricity, water, and gas, which will be reflected in your monthly utility bills.
- Rent or mortgage: If you do not own the facility where your business operates, you will need to factor in the cost of rent or mortgage payments in your operating expenses.
- Transportation costs: To distribute your margarine to retail stores and other customers, you will need to cover the expenses of transportation, whether it is through your own delivery vehicles or hiring a third-party logistics company.
- Insurance: Protecting your business from potential risks and liabilities is crucial, so you will need to include the cost of insurance premiums in your operating expenses.
- Accounting fees: As a business owner, you will likely need to hire an accountant to help you with bookkeeping, tax compliance, and financial planning, which will come with a cost.
- Marketing and advertising: To promote your margarine brand and attract customers, you will need to invest in marketing and advertising strategies, such as social media ads, print ads, and sponsorships.
- Packaging materials: Your margarine will need to be packaged in containers or wrappers, which will require you to purchase supplies and materials on a regular basis.
- Software licenses: To streamline your business operations, you may need to purchase software licenses for accounting, inventory management, and other business processes.
- Banking fees: As a business, you will need to maintain bank accounts for managing finances, which will come with fees for transactions, wire transfers, and other banking services.
- Maintenance and repairs: Regular maintenance and occasional repairs of your production equipment and facilities will also be part of your operating expenses.
- Professional fees: You may need to hire lawyers, consultants, or other professionals for legal, regulatory, or other business-related matters, which will come with a cost.
- Taxes: As a business, you will need to pay various taxes, including income tax, sales tax, property tax, and payroll tax, which will be part of your operating expenses.
- Training and development: To maintain a skilled and knowledgeable workforce, you may need to invest in training and development programs for your employees, which will have a cost.
This list will need to be tailored to the specificities of your margarine manufacturing business, but should offer a good starting point for your budget.
What investments are needed to start or grow a margarine manufacturing business?
Once you have an idea of how much sales you could achieve and what it will cost to run your margarine manufacturing business, it is time to look into the equipment required to launch or expand the activity.
For a margarine manufacturing business, capital expenditures and initial working capital items could include:
- Production Equipment: This includes machinery such as mixers, blenders, and packaging equipment that are necessary for the production of margarine. These are typically large, fixed assets that require a significant investment.
- Storage and Refrigeration Units: Margarine manufacturing businesses require specialized storage and refrigeration units to store and preserve the finished product. These units can be expensive and need to be included in the expenditure forecast.
- Facility Renovations: If you are starting a new margarine manufacturing business, you may need to renovate or build a new facility to meet production requirements. This can include things like building walls, installing flooring, and updating plumbing and electrical systems.
- Lab Equipment: Quality control is crucial in the margarine manufacturing process, so you will need to invest in lab equipment such as testing equipment, scales, and thermometers to ensure your product meets industry standards.
- Transportation Vehicles: As your business grows, you may need to invest in transportation vehicles to distribute your product to retailers. These can include delivery trucks, vans, or even specialized refrigerated trucks for temperature-sensitive products.
Again, this list will need to be adjusted according to the specificities of your margarine manufacturing 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.
The financing plan of your margarine manufacturing business
The next step in the creation of your financial forecast for your margarine manufacturing business 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 margarine manufacturing business?
Now let's have a look at the main output tables of your margarine manufacturing business's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your margarine manufacturing business's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a margarine manufacturing business should normally show:
- Sales growing above inflation
- Stable or expanding (ideally) profit margins
- A net profit
This will of course depend on the stage of your business: a new venture might be loss-making until it reaches its breakeven point in year 2 or 3, for example.
The projected balance sheet
The projected balance sheet gives an overview of your margarine manufacturing business'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 margarine manufacturing business. 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 projected cash flow statement
A projected cash flow statement for a margarine manufacturing business 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 margarine manufacturing business'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 margarine manufacturing 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 margarine manufacturing business's financial projections?
Building a margarine manufacturing business financial forecast is not difficult provided that you use the right tool for the job. Let’s see what options are available below.
Using online financial projection software to build your margarine manufacturing business'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
Enlisting the help of a consultant or accountant is also a good way to obtain a professional margarine manufacturing business financial forecast.
The downside of this solution is its cost. From experience, obtaining a simple financial forecast over three years (including a balance sheet, income statement, and cash flow statement) is likely to cost a minimum of £700 or $1,000.
The indicative cost above, is for a small business, and a forecast is done as a one-shot exercise. Using a consultant or accountant to track your actuals vs. forecast and to keep your financial projections up to date on a monthly or quarterly basis will cost a lot more.
If you opt for this solution, make sure your accountant has in-depth knowledge of your industry, so that they may challenge your figures and offer insights (as opposed to just taking your assumptions at face value to create the forecast).
Why not use a spreadsheet such as Excel or Google Sheets to build your margarine manufacturing business'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 margarine manufacturing business 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 margarine manufacturing business'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 margarine manufacturing business, 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 margarine manufacturing business 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 margarine manufacturing business, 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 project revenues for a business?
- Example of financial forecast for business idea
Know someone who owns or is thinking of starting a margarine manufacturing business? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
