How to create a financial forecast for a potato chips manufacturer?
Creating a financial forecast for your potato chips 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 potato chips 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 potato chips 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 potato chips manufacturing business becomes handy.
Creating a potato chips 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 potato chips 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 potato chips 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 potato chips 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 needed to build a potato chips 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 potato chips 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 potato chips 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 potato chips 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 potato chips manufacturing business's financial forecast.
The sales forecast for a potato chips manufacturing business
From experience, it is usually best to start creating your potato chips manufacturing business financial forecast by your sales forecast.
To create an accurate sales forecast for your potato chips manufacturing business, you will have to rely on the data collected in your market research, or if you're running an existing potato chips 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:
- The price of the raw materials used to make potato chips, such as potatoes, oil, and seasonings, can directly impact the average price of your chips. If the price of these materials increases, you may need to raise the price of your chips to maintain your profit margin.
- The demand for healthier snacking options can affect the number of monthly transactions for your potato chips. If consumers are more health-conscious, they may choose to purchase healthier snacks instead of traditional potato chips, resulting in a decrease in your sales.
- The availability of alternative snack options, such as popcorn or crackers, can also impact your sales. If there are more options available, customers may choose those over potato chips, resulting in a decrease in your monthly transactions.
- Seasonal fluctuations in potato supply can also affect your business. If there is a shortage of potatoes during a certain season, you may need to increase the price of your chips to make up for the increased cost of raw materials.
- The popularity of different flavors can also impact your average price and number of monthly transactions. If a certain flavor becomes more popular, you may be able to charge a higher price for it and see an increase in sales. On the other hand, if a flavor falls out of favor, you may need to discount it to move inventory.
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 potato chips manufacturing business
The next step is to estimate the costs you’ll have to incur to operate your potato chips manufacturing business.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your potato chips manufacturing business's operating expenses should normally include the following items:
- Staff Costs: This includes salaries, wages, benefits, and any other expenses related to your employees. As a potato chips manufacturing business, you will need a team to operate the production line, package the chips, and handle administrative tasks.
- Raw Materials: Potatoes, oil, seasoning, and packaging materials are all essential for your business. You will need to budget for the cost of purchasing these materials in bulk.
- Rent: If you are not operating from your own premises, you will need to budget for rent for your manufacturing facility and any additional storage space you may require.
- Utilities: Running a production line and keeping your facility clean requires a significant amount of electricity and water. Make sure to include these costs in your operating expenses forecast.
- Equipment Maintenance: Your production equipment will need regular maintenance to keep it functioning efficiently. This includes servicing, repairs, and replacement of parts.
- Packaging Design and Printing: In addition to the cost of packaging materials, you will also need to budget for the design and printing of your product packaging. This is important for creating a visually appealing and informative packaging for your potato chips.
- Marketing and Advertising: To reach your target market and promote your brand, you will need to allocate funds for marketing and advertising efforts, such as social media campaigns, print ads, and sponsorships.
- Accountancy Fees: As a business owner, you will need to hire an accountant to handle your financial records, tax filings, and any other compliance requirements.
- Insurance Costs: It is crucial to have insurance coverage for your manufacturing business to protect against any potential liabilities or losses. This may include general liability insurance, product liability insurance, and business property insurance.
- Software Licenses: To keep your business operations organized and efficient, you may need to purchase software licenses for accounting, inventory management, and other business processes.
- Transportation Costs: Whether you are sourcing raw materials or delivering your finished product to retailers, you will need to budget for transportation costs, including fuel, vehicle maintenance, and driver salaries.
- Banking Fees: As a business, you will have to deal with various banking fees, such as transaction fees, wire transfer fees, and overdraft charges. Make sure to include these costs in your operating expenses forecast.
- Legal Fees: It is essential to have a lawyer to review contracts, handle any legal disputes, and ensure compliance with regulations. Budget for legal fees to protect your business and avoid any potential legal issues.
- Training and Development: To ensure the quality of your potato chips, you may need to invest in employee training and development programs. This can include food safety training, equipment operation training, and leadership development.
- Office Supplies: Running an office requires various supplies, such as paper, ink, and stationary. Make sure to budget for these expenses to keep your business operations running smoothly.
This list is not exhaustive by any means, and will need to be tailored to your potato chips manufacturing business's specific circumstances.
What investments are needed to start or grow a potato chips manufacturing business?
Your potato chips 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 potato chips manufacturing business, these could include:
- Potato Chips Processing Equipment: This includes equipment such as peeling machines, slicers, fryers, and packaging machines. These are essential for the production of potato chips and will require a significant investment.
- Storage and Warehouse Facilities: As a potato chips manufacturing business, you will need to store raw materials, finished products, and packaging materials. Therefore, you will need to include the cost of purchasing or renting a storage space and equipping it with shelves, racks, and other necessary equipment.
- Delivery Vehicles: In order to distribute your potato chips to retailers and other customers, you will need to invest in delivery vehicles. These can include trucks or vans, depending on the size and scale of your business.
- Packaging Materials: Packaging is an important aspect of your potato chips business as it not only protects the product but also serves as a marketing tool. You will need to include the cost of purchasing packaging materials such as bags, boxes, labels, and any other materials needed for packaging your potato chips.
- Facility Renovations and Improvements: If you are starting your potato chips manufacturing business from scratch, you will need to consider the cost of renovating or improving your facility to meet the specific needs of your business. This can include installing ventilation systems, upgrading electrical and plumbing systems, and making necessary modifications to accommodate your equipment.
Again, this list will need to be adjusted according to the size and ambitions of your potato chips 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 potato chips manufacturing business
The next step in the creation of your financial forecast for your potato chips 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 potato chips manufacturing business?
Now let's have a look at the main output tables of your potato chips manufacturing business's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your potato chips manufacturing business's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a potato chips 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 potato chips 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 potato chips 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 potato chips 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 potato chips 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 potato chips 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 potato chips 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 potato chips manufacturing business's financial projections?
Building a potato chips 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 forecasting software to build your potato chips manufacturing business'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
Enlisting the help of a consultant or accountant is also a good way to obtain a professional potato chips 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 potato chips manufacturing business's financial forecast?
Creating an accurate and error-free potato chips 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 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 potato chips manufacturing business, 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 potato chips manufacturing business
Takeaways
- A financial forecast shows expected growth, profitability, and cash generation metrics for your potato chips manufacturing business.
- Tracking actuals vs. forecast and having an up-to-date financial forecast is key to maintaining visibility on your future cash flows.
- Using financial forecasting software is the modern way of creating and maintaining financial projections.
We hope that this guide helped you gain a clearer perspective on the steps needed to create the financial forecast for a potato chips manufacturing business. Don't hesitate to contact us if you 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
- Financial forecast example
- How to project sales for a business?
- Example of financial forecast for business idea
Know someone who runs a potato chips manufacturing business? Share our business guide with them!
Founder & CEO at The Business Plan Shop Ltd
