How to create a financial forecast for a packaging design company?
Developing and maintaining an up-to-date financial forecast for your packaging design company is key in order to maintain visibility on your business’s future cash flows.
If you feel overwhelmed at the thought of putting together a packaging design company financial forecast then don’t worry as this guide is here to help you.
We'll cover everything from: the main objectives of a financial forecast, the data you need to gather before starting, to the tables that compose it, and the tools that will help you create and maintain your forecast efficiently.
Let's get started!
Why create and maintain a financial forecast for a packaging design company?
The financial projections for your packaging design company 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 packaging design company'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 packaging design company financial forecast?
A packaging design company's financial forecast is only as good as the inputs used to build it.
If you are creating (or updating) the forecast of an existing packaging design company, then you mostly need your accounting information, key historical operating non-financial data, and your team’s input on what to expect for the coming years.
If you are building financial projections for a packaging design company startup, you will need to have done your research and have a clear picture of your competitive environment and go-to-market strategy so that you can forecast sales accurately.
For a new venture, you will also need a precise list of the resources needed to keep the packaging design company running on a day-to-day basis and a list of the equipment and expenditures required to start the business (more on that later).
Let's now take a closer look at the elements that make up your packaging design company's financial forecast.
The sales forecast for a packaging design company
The sales forecast, also called topline projection, is normally where you will start when building your packaging design 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 packaging design companies), and consider the elements below:
- Economic factors: Changes in the economy can greatly impact the average price of your packaging design services. For example, if the economy is experiencing a downturn, businesses may be more likely to cut costs and opt for lower-priced packaging options, resulting in a decrease in your average price.
- Competition: The level of competition in your industry can also affect your average price. If there is a lot of competition in your area, clients may have more bargaining power and be able to negotiate lower prices. On the other hand, if there is less competition, you may be able to charge higher prices for your services.
- Technological advancements: As technology continues to evolve, it can also impact the average price of your packaging design services. For example, if new software or equipment is released that streamlines the design process, you may be able to offer your services at a lower price to stay competitive.
- Industry trends: Keeping up with industry trends is crucial for a packaging design company. For example, if there is a growing demand for sustainable packaging, you may need to invest in eco-friendly materials, which could potentially increase your average price.
- Customer preferences: The preferences and needs of your target customers can also affect your average price. For instance, if your clients are primarily small businesses with limited budgets, you may need to offer more affordable options to attract and retain their business.
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 packaging design company
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your packaging design company 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 packaging design company will include some of the following items:
- Staff costs: This includes salaries, benefits, and any other expenses related to your employees, such as training and development.
- Accountancy fees: As a packaging design company, you will need to hire an accountant to manage your financial records, prepare taxes, and provide financial advice.
- Insurance costs: You will need to invest in various types of insurance to protect your business, such as liability insurance, property insurance, and workers' compensation insurance.
- Software licenses: To run your business efficiently, you will need to purchase licenses for design software, project management tools, and any other software necessary for your operations.
- Banking fees: As a business, you will have various banking needs, such as setting up a business account, processing payments, and obtaining loans. These services often come with fees that you need to budget for.
- Rent: If you plan on having a physical office or studio space, rent will be a significant expense for your packaging design company.
- Office supplies: This includes items like paper, pens, printer ink, and other materials necessary to keep your office running smoothly.
- Marketing and advertising: To attract new clients and promote your services, you will need to allocate a budget for marketing and advertising expenses.
- Utilities: Your packaging design company will have regular expenses for electricity, internet, and other utilities necessary for daily operations.
- Professional development: As a design company, it is essential to stay updated with the latest trends and techniques. Budget for attending conferences, workshops, and other professional development opportunities.
- Travel expenses: If you have clients in other locations or need to attend design events, you will need to budget for travel expenses, including airfare, accommodations, and meals.
- Legal fees: As a business owner, you may need to consult with a lawyer for various legal matters, such as contracts, trademark registrations, or intellectual property issues.
- Office equipment: This includes items like computers, printers, and furniture necessary for your office space.
- Telephone and internet: To communicate with clients and manage your business, you will need to budget for telephone and internet expenses.
- Taxes: You will need to pay various taxes, such as income tax, sales tax, and payroll tax, as a packaging design company.
This list will need to be tailored to the specificities of your packaging design company, but should offer a good starting point for your budget.
What investments are needed to start or grow a packaging design company?
Creating and expanding a packaging design company also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a packaging design company could include elements such as:
- Packaging Design Software: This is an essential tool for any packaging design company. It allows you to create and edit designs, work with 3D models, and create mockups for presentations to clients. Investing in high-quality design software will ensure that your company produces top-notch designs and stays competitive in the market.
- Printing Equipment: As a packaging design company, you will need to print your designs on different packaging materials. This could include printers, laminators, and cutting machines. Investing in high-quality printing equipment will ensure that your designs are accurately reproduced and look professional.
- Packaging Materials: In addition to printing equipment, you will also need to invest in packaging materials such as boxes, bags, labels, and other materials specific to your clients' needs. These materials will be used to create physical prototypes of your designs and will need to be restocked regularly.
- Design Studio/Office Space: Your packaging design company will need a dedicated space for your team to work on designs, meet with clients, and store equipment and materials. This could include renting or purchasing office space, as well as furnishing and decorating the space to create a professional and creative environment.
- Packaging Testing Equipment: Depending on the type of packaging designs your company specializes in, you may need to invest in testing equipment to ensure that your designs meet industry standards and are safe for use. This could include drop testers, compression testers, and other specialized equipment.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your packaging design 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 design company
The next step in the creation of your financial forecast for your packaging design 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 design company?
Now let's have a look at the main output tables of your packaging design company's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your packaging design company's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a packaging design company 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 packaging design 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 packaging design 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 forecast
Your packaging design 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 design 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 design 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 design 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 design company's financial forecast?
Using the right tool or solution will make the creation of your packaging design company's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your packaging design company's projections
The modern and easiest way is to use an online financial forecasting tool 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 projection 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 design 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 design 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 design 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 design 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 design 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 design company
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 packaging design 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 packaging design 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 revenues for a business?
- Example of financial forecast for business idea
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Founder & CEO at The Business Plan Shop Ltd
