How to create a financial forecast for a packaging company?
Creating a financial forecast for your packaging 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 packaging 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 packaging company?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your packaging company and ensure that it can be financially viable in the years to come.
A financial plan for a packaging 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 packaging 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 packaging 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 packaging company financial forecast?
A packaging 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 packaging company.
If you are creating (or updating) the forecast of an existing packaging 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 packaging 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 packaging 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 packaging company's financial forecast.
The sales forecast for a packaging company
From experience, it is usually best to start creating your packaging company financial forecast by your sales forecast.
To create an accurate sales forecast for your packaging company, you will have to rely on the data collected in your market research, or if you're running an existing packaging 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:
- Changes in raw material prices: As a packaging company, you rely on various raw materials to produce your products. Any fluctuations in the prices of these materials can directly impact your average price. For example, if the price of cardboard increases, you may need to adjust your prices to cover the additional cost.
- Competition in the market: The packaging industry is highly competitive, and new players may enter the market at any time. This can lead to increased competition, which may force you to lower your prices to stay competitive. On the other hand, if your competitors raise their prices, you may be able to increase your average price.
- Economic conditions: The state of the economy can greatly affect the demand for packaging products. During a recession, consumers may cut back on non-essential purchases, which can result in a decrease in your average number of transactions. Conversely, during a prosperous economy, people may be more willing to spend on packaging for their products, leading to an increase in your transactions.
- Changes in consumer preferences: As consumer preferences shift, so do their packaging needs. For example, if there is a growing trend towards eco-friendly packaging, you may need to invest in new materials and processes to meet these demands. This can result in a change in your average price or number of transactions.
- Government regulations: The packaging industry is subject to various regulations, such as environmental regulations and safety standards. Changes in these regulations can require you to make adjustments to your products, which can impact your average price. Additionally, new regulations may increase your costs, which may also affect your pricing strategy.
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 packaging company
The next step is to estimate the costs you’ll have to incur to operate your packaging company.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your packaging company's operating expenses should normally include the following items:
- Staff costs - including salaries, benefits, and payroll taxes for employees in roles such as packaging technicians, warehouse workers, and administrative staff.
- Accountancy fees - for services such as bookkeeping, tax preparation, and financial reporting to ensure compliance and accurate financial record-keeping.
- Insurance costs - for general liability, workers' compensation, and property insurance to protect against potential risks and losses.
- Software licences - for software used in packaging operations, such as inventory management systems, shipping software, and design programs for creating packaging designs.
- Banking fees - for services such as wire transfers, merchant account fees, and bank charges for maintaining business accounts.
- Raw materials - including the cost of materials such as cardboard, plastic, and other packaging materials used in production.
- Utilities - expenses for electricity, gas, water, and other utilities required to run production equipment and maintain the facility.
- Marketing and advertising - costs for promoting the company and its services, such as creating packaging samples, attending trade shows, and running digital or print ads.
- Packaging equipment maintenance - expenses for routine maintenance and repairs of packaging machinery to ensure smooth operations and prevent breakdowns.
- Freight and shipping costs - fees for shipping materials and finished products to and from suppliers, distribution centers, and customers.
- Professional development - expenses for training and development programs for employees to keep their skills and knowledge up to date.
- Rent or lease payments - for the facility used to conduct packaging operations, including warehouse space, office space, and equipment storage.
- Office supplies - costs for supplies such as paper, ink, and other materials used in day-to-day operations.
- Travel expenses - for business-related travel, such as visiting clients, attending conferences, or conducting market research.
- Contractor fees - for services provided by independent contractors, such as graphic designers, IT consultants, or packaging design specialists.
This list is not exhaustive by any means, and will need to be tailored to your packaging company's specific circumstances.
What investments are needed to start or grow a packaging company?
Once you have an idea of how much sales you could achieve and what it will cost to run your packaging company, it is time to look into the equipment required to launch or expand the activity.
For a packaging company, capital expenditures and initial working capital items could include:
- Packaging Machinery: This includes equipment such as packaging machines, labelers, and sealers that are essential for the production and packaging process.
- Warehouse Equipment: This includes items such as forklifts, pallet jacks, and shelving units that are necessary for storing and moving packaging materials and finished products.
- Transportation Vehicles: As a packaging company, you will need trucks or vans to transport your products to clients or distribution centers. These vehicles are considered fixed assets and should be included in your expenditure forecast.
- Packaging Materials: While not a traditional fixed asset, packaging materials such as boxes, tape, and labels are essential for your business and should be included in your expenditure forecast as they are a significant expense for a packaging company.
- Software and Technology: Packaging companies rely on software and technology for inventory management, production planning, and label design. These tools are considered fixed assets and should be included in your expenditure forecast.
Again, this list will need to be adjusted according to the specificities of your packaging 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 packaging company
The next step in the creation of your financial forecast for your packaging 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 packaging company?
Now let's have a look at the main output tables of your packaging company's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your packaging company is likely to be in the years to come.
For your packaging 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 packaging 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 packaging 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 cash flow forecast
Your packaging 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 packaging 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 packaging 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 packaging 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 packaging company's financial projections?
Building a packaging company 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 forecasting software to build your packaging 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.
Hiring a financial consultant or chartered accountant
Hiring a consultant or chartered accountant is also an efficient way to get a professional packaging 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 packaging 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 packaging 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 packaging 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 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 packaging 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 packaging 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 packaging 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 packaging 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 project sales for a business?
- Financial forecast for a business idea
Know someone who owns or is thinking of starting a packaging company? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
