How to create a financial forecast for a potato processing firm?
Creating a financial forecast for your potato processing firm, 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 processing firm 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 processing firm?
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 processing firm becomes handy.
Creating a potato processing firm 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 processing firm.
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 processing firm 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 processing firm'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 potato processing firm financial forecast?
A potato processing firm'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 potato processing firm, 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 potato processing firm 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 potato processing firm 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 potato processing firm's financial forecast.
The sales forecast for a potato processing firm
From experience, it usually makes sense to start your potato processing firm's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your potato processing firm (which can be used as a starting point for existing businesses) and the data collected in your market research (which both new ventures and existing businesses need to project their sales forward).
Your potato processing firm's sales forecast can be broken down into two key estimates:
- The average price
- The number of monthly transactions
To assess these variables accurately, you will need to consider the following factors:
- The price of potatoes in the global market (driver) - As a potato processing firm, you rely on purchasing potatoes from farmers at a reasonable price. Fluctuations in the global market can affect the price of potatoes, which in turn can impact your average price for processed potato products.
- New regulations on pesticide use (driver) - With increasing awareness about the harmful effects of pesticides on the environment and consumer health, governments may introduce new regulations on their use. This can lead to a decrease in the availability of pesticide-free potatoes, which may increase your production costs and ultimately affect your average price.
- Rise in demand for healthier snacks (driver) - As more consumers prioritize their health and wellness, the demand for healthier snack options is on the rise. This can create an opportunity for your potato processing firm to tap into this market and offer healthier potato products, potentially increasing your average price and number of transactions.
- Weather conditions affecting crop yield (driver) - Unpredictable weather patterns can impact the yield of potatoes, resulting in shortages and higher prices. As a potato processing firm, you may need to adjust your production and pricing strategies accordingly to maintain your average price and meet the demand of your customers.
- Changes in consumer preferences (driver) - Consumer preferences can shift quickly, and as a potato processing firm, you need to stay ahead of these changes to remain competitive. For example, a sudden increase in demand for sweet potato products may require you to adjust your processing and pricing strategies to cater to this trend.
Once you have a sales forecast in place, the next step will be to work on your overhead budget. Let’s have a look at that now.
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 processing firm
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your potato processing firm 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 potato processing firm will include some of the following items:
- Staff costs: This includes the salaries, wages, and benefits for all of your employees, including the processing plant workers, administrative staff, and management team.
- Accountancy fees: You will need to hire an accountant or accounting firm to help you with tax preparation, financial reporting, and other financial tasks specific to your potato processing business.
- Insurance costs: As a potato processing firm, you will need to have insurance to protect your business from potential risks, such as property damage, product liability, and workers' compensation.
- Software licenses: You may need to purchase software licenses for programs that are essential to your potato processing operations, such as inventory management, quality control, and accounting software.
- Banking fees: Your business will have various banking fees, such as transaction fees, wire transfer fees, and account maintenance fees.
- Raw materials: This includes the cost of purchasing potatoes from farmers, as well as any other ingredients or materials needed for your processing operations.
- Electricity: Processing potatoes requires a significant amount of electricity, so you will need to budget for this expense.
- Water: Water is also essential for potato processing, whether it's for washing, boiling, or cooling. You will need to consider the cost of water usage in your budget.
- Packaging materials: Your processed potatoes will need to be packaged before they can be sold, so you will need to purchase packaging materials, such as bags, boxes, or containers.
- Transportation costs: You will need to have a way to transport your processed potatoes to your customers, whether it's through your own delivery trucks or by hiring a shipping company.
- Maintenance and repairs: Your processing equipment, machinery, and vehicles will require regular maintenance and occasional repairs, so you will need to budget for these expenses.
- Rent or mortgage: If you do not own the property where your processing plant is located, you will need to pay rent or a mortgage for the space.
- Marketing and advertising: You will need to promote your potato processing business to attract customers, so you will need to budget for marketing and advertising expenses, such as website development, print ads, and social media advertising.
- Taxes and licenses: Your business will need to pay various taxes and obtain necessary licenses and permits to operate legally, so you will need to budget for these expenses.
- Training and development: As your business grows, you may need to provide training and development opportunities for your employees to improve their skills and knowledge.
This list will need to be tailored to the specificities of your potato processing firm, but should offer a good starting point for your budget.
What investments are needed to start or grow a potato processing firm?
Your potato processing firm 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 processing firm, these could include:
- Potato Processing Equipment: This includes the machinery and equipment necessary for processing potatoes, such as peelers, slicers, fryers, and packaging machines. These are essential fixed assets for a potato processing firm and their cost should be included in the expenditure forecast.
- Storage Facilities: A potato processing firm requires adequate storage facilities to store the potatoes before and after processing. This may include warehouses, cooling rooms, and refrigerated storage units. These fixed assets are necessary to maintain the quality of the potatoes and should be included in the expenditure forecast.
- Transportation Vehicles: A potato processing firm may need to invest in transportation vehicles to transport the potatoes from farms to the processing facility and then to the distribution centers. These fixed assets can include trucks, trailers, and vans and their cost should be included in the expenditure forecast.
- Packaging Materials: Packaging is an essential part of the potato processing industry, and a firm may need to invest in packaging materials such as bags, boxes, and labels. These fixed assets should be included in the expenditure forecast as they are necessary for the production and distribution of the processed potatoes.
- Maintenance and Repair Costs: As with any machinery and equipment, the potato processing equipment will require regular maintenance and occasional repairs. These costs should be included in the expenditure forecast to ensure that the firm is prepared for any unexpected expenses and can keep their equipment in good working condition.
Again, this list will need to be adjusted according to the size and ambitions of your potato processing firm.
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 processing firm
The next step in the creation of your financial forecast for your potato processing firm 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 processing firm?
Now let's have a look at the main output tables of your potato processing firm's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your potato processing firm's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a potato processing firm 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
Your potato processing firm'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 potato processing firm'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 processing firm:
- 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 processing firm'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 processing firm'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 processing firm's financial projections?
Building a potato processing firm 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 processing firm'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.
Calling in a financial consultant or chartered accountant
Outsourcing the creation of your potato processing firm 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 potato processing firm'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 potato processing firm 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 potato processing firm'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 potato processing firm, 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 processing firm
Takeaways
- A financial forecast shows expected growth, profitability, and cash generation metrics for your potato processing firm.
- 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 processing firm. 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?
- Financial forecast template for a business idea
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Founder & CEO at The Business Plan Shop Ltd
