How to create a financial forecast for a pharmaceutical wholesaler?
Developing and maintaining an up-to-date financial forecast for your pharmaceutical wholesaler 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 pharmaceutical wholesaler 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 pharmaceutical wholesaler?
The financial projections for your pharmaceutical wholesaler 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 pharmaceutical wholesaler'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 pharmaceutical wholesaler financial forecast?
A pharmaceutical wholesaler'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 pharmaceutical wholesaler, 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 pharmaceutical wholesaler 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 pharmaceutical wholesaler 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 pharmaceutical wholesaler's financial forecast.
The sales forecast for a pharmaceutical wholesaler
The sales forecast, also called topline projection, is normally where you will start when building your pharmaceutical wholesaler 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 pharmaceutical wholesalers), and consider the elements below:
- Changes in drug regulations: As a pharmaceutical wholesaler, you are heavily dependent on the regulations set by government agencies and health organizations. Any changes in these regulations, such as stricter control over certain drugs or new requirements for distribution, can affect the average price and number of monthly transactions for your business.
- Introduction of new drugs: The introduction of new drugs into the market can have a significant impact on your business. With the addition of new products, you may have to adjust your pricing strategy and may also see an increase in the number of monthly transactions as customers seek out these new drugs.
- Generic competition: The availability of generic versions of drugs can significantly affect the average price and number of monthly transactions for your business. As generic drugs are usually cheaper, customers may opt for these instead of the branded versions, leading to a decrease in your average price and potentially, a decrease in the number of monthly transactions.
- Natural disasters: Natural disasters, such as hurricanes or earthquakes, can disrupt supply chains and lead to shortages of certain drugs. This can result in an increase in the average price of these drugs and may also cause a decrease in the number of monthly transactions as customers may delay purchasing until the supply stabilizes.
- Changes in healthcare policies: Changes in healthcare policies, such as the implementation of universal healthcare or changes in insurance coverage, can impact the average price and number of monthly transactions for your business. For example, if there is an increase in the number of people with insurance coverage, you may see an increase in the number of monthly transactions as more people have access to healthcare, but this could also lead to a decrease in the average price as insurance companies negotiate lower prices for drugs.
After the sales forecast comes the operating expenses budget, which we will now look into in more detail.
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The operating expenses for a pharmaceutical wholesaler
The next step is to estimate the costs you’ll have to incur to operate your pharmaceutical wholesaler.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your pharmaceutical wholesaler's operating expenses should normally include the following items:
- Staff Costs: This includes salaries, benefits, and any other expenses related to your employees. As a pharmaceutical wholesaler, you will need to have a team of staff to handle tasks such as inventory management, order processing, and customer service.
- Accountancy Fees: You will need to hire an accountant or use accounting software to manage your financial records, prepare taxes, and ensure compliance with regulations.
- Insurance Costs: As a pharmaceutical wholesaler, you will need to have insurance to protect your business from potential risks, such as product liability, property damage, or employee injuries.
- Software Licences: To effectively manage your business operations, you will need to invest in software licences for inventory management, accounting, and customer relationship management.
- Banking Fees: You will incur fees for various banking services, such as wire transfers, online banking, and merchant account services, to manage your financial transactions.
- Rent: You will need to pay rent for your warehouse or office space to store and distribute pharmaceutical products.
- Utilities: This includes expenses for electricity, water, and other utilities needed to run your warehouse or office.
- Transportation Costs: You will need to cover the costs of shipping and delivering pharmaceutical products to your customers.
- Marketing and Advertising: To attract new customers and promote your business, you will need to invest in marketing and advertising efforts, such as creating a website, attending trade shows, and running ad campaigns.
- Professional Fees: You may need to hire consultants or lawyers to assist with legal, regulatory, or business strategy matters.
- Office Supplies: You will need to purchase office supplies, such as paper, pens, and printer ink, to keep your business running smoothly.
- Maintenance and Repairs: You will need to maintain and repair any equipment or vehicles used in your business, such as forklifts, delivery trucks, or computers.
- Employee Training: To ensure your staff is knowledgeable and up-to-date with industry regulations and best practices, you may need to invest in training programs.
- Taxes: As a business, you will need to pay various taxes, such as income tax, sales tax, and property tax.
- Legal and Compliance Costs: You may incur expenses for legal and compliance services, such as obtaining necessary licenses and permits, conducting audits, and implementing safety protocols.
This list is not exhaustive by any means, and will need to be tailored to your pharmaceutical wholesaler's specific circumstances.
What investments are needed to start or grow a pharmaceutical wholesaler?
Your pharmaceutical wholesaler 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 pharmaceutical wholesaler, these could include:
- You need to budget for purchasing new pharmaceutical inventory, which includes prescription drugs, over-the-counter medication, and medical supplies.
- You will also need to factor in the cost of purchasing and maintaining necessary equipment such as refrigeration units, storage shelves, and computer software for inventory management.
- Another potential capital expenditure is investing in a delivery vehicle or contracting with a transportation company to ensure timely and efficient delivery of products to your customers.
- Building or renovating a warehouse or storage facility for your inventory is another important expense to consider.
- Lastly, you may need to allocate funds for purchasing or leasing office space and equipment, such as desks, chairs, and computers, for your administrative and sales staff.
Again, this list will need to be adjusted according to the size and ambitions of your pharmaceutical wholesaler.
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 pharmaceutical wholesaler
The next step in the creation of your financial forecast for your pharmaceutical wholesaler 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 pharmaceutical wholesaler?
Now let's have a look at the main output tables of your pharmaceutical wholesaler'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 pharmaceutical wholesaler'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 pharmaceutical wholesaler will look different than for a startup.
The projected balance sheet
The projected balance sheet gives an overview of your pharmaceutical wholesaler'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 pharmaceutical wholesaler. 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 pharmaceutical wholesaler 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 pharmaceutical wholesaler'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 pharmaceutical wholesaler 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 pharmaceutical wholesaler's financial forecast?
Using the right tool or solution will make the creation of your pharmaceutical wholesaler's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your pharmaceutical wholesaler'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.
Calling in a financial consultant or chartered accountant
Outsourcing the creation of your pharmaceutical wholesaler 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 pharmaceutical wholesaler'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 pharmaceutical wholesaler 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 pharmaceutical wholesaler'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 pharmaceutical wholesaler, 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 pharmaceutical wholesaler.
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 pharmaceutical wholesaler. 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 write a pharmaceutical wholesaler business plan
- How to create a turnover forecast for a business?
- Financial forecast template for a business idea
Know someone who runs or wants to start a pharmaceutical wholesaler? Share our financial projection guide with them!
Founder & CEO at The Business Plan Shop Ltd
