How to create a financial forecast for a paper and paperboard manufacturer?
If you are serious about keeping visibility on your future cash flows, then you need to build and maintain a financial forecast for your paper and paperboard manufacturing business.
Putting together a paper and paperboard manufacturing business financial forecast may sound complex, but don’t worry, with the right tool, it’s easier than it looks, and The Business Plan Shop is here to guide you.
In this practical guide, we'll cover everything you need to know about building financial projections for your paper and paperboard manufacturing business.
We will start by looking at why they are key, what information is needed, what a forecast looks like once completed, and what solutions you can use to create yours.
Let's dive in!
Why create and maintain a financial forecast for a paper and paperboard manufacturing business?
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 paper and paperboard manufacturing business becomes handy.
Creating a paper and paperboard manufacturing business 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 paper and paperboard manufacturing business.
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 paper and paperboard manufacturing business 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 paper and paperboard manufacturing business'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 paper and paperboard manufacturing business financial forecast?
A paper and paperboard manufacturing business'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 paper and paperboard manufacturing business.
If you are creating (or updating) the forecast of an existing paper and paperboard manufacturing business, 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 paper and paperboard manufacturing business 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 paper and paperboard manufacturing business 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 paper and paperboard manufacturing business's financial forecast.
The sales forecast for a paper and paperboard manufacturing business
From experience, it is usually best to start creating your paper and paperboard manufacturing business financial forecast by your sales forecast.
To create an accurate sales forecast for your paper and paperboard manufacturing business, you will have to rely on the data collected in your market research, or if you're running an existing paper and paperboard manufacturing business, 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:
- Raw material prices: As the owner of a paper and paperboard manufacturing business, you are aware that the cost of raw materials can greatly impact your average price and number of monthly transactions. Fluctuations in the prices of wood pulp, chemicals, and other materials used in the production of paper and paperboard can affect your profit margins and the overall demand for your products.
- Economic conditions: The state of the economy can also have a significant impact on your business's sales forecast. During times of economic downturn, consumers may be less willing to spend money on non-essential items such as paper products. On the other hand, a strong economy may lead to increased demand for paper and paperboard products, resulting in higher prices and more transactions for your business.
- Environmental regulations: Changes in environmental regulations can also affect your average price and number of monthly transactions. For example, stricter regulations on the use of chemicals in paper production may lead to higher production costs, which can in turn lead to higher prices for your products. Additionally, regulations on the disposal of paper waste may impact your production processes and potentially reduce your overall output.
- Competition: The level of competition in the paper and paperboard manufacturing industry can also have a significant impact on your business's sales forecast. If there are many other businesses producing similar products, you may need to adjust your prices to remain competitive, which can affect your average price and number of transactions. Alternatively, if you have a unique niche in the market, you may be able to charge higher prices and attract more customers.
- Technological advancements: Advancements in technology can also play a role in your sales forecast. For example, the development of more efficient production processes or new machinery can lower your production costs, allowing you to offer lower prices to customers. On the other hand, if your competitors adopt new technologies before you do, they may have a competitive advantage and impact your sales.
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 paper and paperboard manufacturing business
The next step is to estimate the costs you’ll have to incur to operate your paper and paperboard manufacturing business.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your paper and paperboard manufacturing business's operating expenses should normally include the following items:
- Staff Costs: This includes the salaries, wages, and benefits of all your employees, including production workers, administrative staff, and management.
- Raw Materials: These are the materials needed to produce paper and paperboard, such as wood pulp, chemicals, and dyes.
- Electricity and Utilities: Your paper and paperboard manufacturing process requires a significant amount of electricity and water, which can be a major operating expense.
- Maintenance and Repairs: Keeping your equipment and machinery in good working condition is crucial for a smooth production process, and this involves regular maintenance and occasional repairs.
- Accountancy Fees: As a business owner, you will need to hire an accountant to help you with bookkeeping, taxes, and financial planning.
- Insurance Costs: To protect your business from potential risks and liabilities, you will need to pay for various types of insurance, such as property insurance, liability insurance, and workers' compensation.
- Transportation and Shipping: If your business involves shipping paper and paperboard products to customers, you will need to budget for transportation costs, including fuel, vehicle maintenance, and shipping fees.
- Software Licenses: Depending on the size and complexity of your business, you may need to purchase software licenses for accounting, inventory management, and other business operations.
- Marketing and Advertising: To attract customers and promote your products, you will need to invest in marketing and advertising strategies, such as print ads, online ads, and trade show participation.
- Banking Fees: As a business owner, you will likely have a business bank account to manage your finances, and this may involve fees for transactions, wire transfers, and other banking services.
- Rent and Utilities: If you operate your paper and paperboard manufacturing business in a physical location, you will need to pay rent or mortgage payments, as well as utilities such as electricity, water, and internet.
- Legal Fees: To protect your business legally and comply with regulations, you may need to hire a lawyer for various services, such as contract review, patent applications, and trademark registration.
- Training and Development: Investing in the training and development of your employees can improve their skills and productivity, but it also comes with a cost.
- Office Supplies: Running a paper and paperboard manufacturing business requires various office supplies, such as paper, ink, pens, and printer toner.
- Taxes: As a business owner, you will need to pay various taxes, including income tax, property tax, and sales tax, which can be a significant operating expense.
This list is not exhaustive by any means, and will need to be tailored to your paper and paperboard manufacturing business's specific circumstances.
What investments are needed to start or grow a paper and paperboard manufacturing business?
Your paper and paperboard manufacturing business 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 paper and paperboard manufacturing business, these could include:
- Machinery and Equipment: This includes purchasing and maintaining machinery and equipment used in the production of paper and paperboard, such as paper machines, cutting machines, and packaging equipment.
- Facility Renovations: As a paper and paperboard manufacturing business, you may need to invest in renovating your facility to improve production efficiency, upgrade technology, or meet safety and regulatory standards.
- Transportation Vehicles: In order to transport your products to customers, you may need to purchase trucks or other vehicles to transport materials and finished goods.
- Land and Buildings: If you are starting a new paper and paperboard manufacturing business, you will need to purchase or lease land and buildings for your production facility. If you already have a facility, you may need to invest in expanding or upgrading it.
- Software and Technology: In today's digital age, investing in software and technology is crucial for the success of any business. This may include purchasing software for inventory management, accounting, or production planning.
Again, this list will need to be adjusted according to the size and ambitions of your paper and paperboard 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 paper and paperboard manufacturing business
The next step in the creation of your financial forecast for your paper and paperboard 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 paper and paperboard manufacturing business?
Now let's have a look at the main output tables of your paper and paperboard manufacturing business'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 paper and paperboard manufacturing business'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 paper and paperboard manufacturing business will look different than for a startup.
The projected balance sheet
The projected balance sheet gives an overview of your paper and paperboard 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 paper and paperboard 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 cash flow forecast
Your paper and paperboard manufacturing business'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 paper and paperboard manufacturing business:
- 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 paper and paperboard manufacturing business'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 paper and paperboard manufacturing business'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 paper and paperboard manufacturing business's financial forecast?
Using the right tool or solution will make the creation of your paper and paperboard manufacturing business's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial projection software to build your paper and paperboard 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 paper and paperboard 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 paper and paperboard manufacturing business's financial forecast?
Creating an accurate and error-free paper and paperboard manufacturing business 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 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 paper and paperboard 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
- 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 paper and paperboard manufacturing business.
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 paper and paperboard manufacturing business. 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 create a sales forecast for a business?
- Financial forecast for a business idea
Know someone who runs or wants to start a paper and paperboard manufacturing business? Share our financial projection guide with them!
Founder & CEO at The Business Plan Shop Ltd
