How to create a financial forecast for a pulp manufacturer?
Creating a financial forecast for your pulp 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 pulp 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 pulp manufacturing business?
The financial projections for your pulp manufacturing business 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 pulp manufacturing business'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.
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What information is used as input to build a pulp manufacturing business financial forecast?
A pulp 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 pulp manufacturing business.
If you are creating (or updating) the forecast of an existing pulp 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 pulp 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 pulp 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 pulp manufacturing business's financial forecast.
The sales forecast for a pulp manufacturing business
From experience, it usually makes sense to start your pulp manufacturing business's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your pulp manufacturing business (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 pulp manufacturing business'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:
- Changes in the demand for pulp-based products in the market may affect the average price and number of monthly transactions for your business. For example, if there is a decrease in demand for paper products due to the shift towards digital media, you may need to lower your average price and expect a decrease in monthly transactions.
- The availability and cost of raw materials, such as wood and chemicals, can greatly impact your business's average price and number of monthly transactions. If the cost of raw materials increases, you may need to raise your average price to maintain profitability, which could result in a decrease in monthly transactions as customers may seek alternative, cheaper options.
- Changes in government regulations and environmental policies can also affect your business's average price and number of monthly transactions. For example, if new regulations require you to implement more environmentally-friendly production methods, this could lead to an increase in average price and a decrease in monthly transactions as it may be more costly to produce pulp.
- The state of the economy can also have an impact on your business's sales forecast. During times of economic downturn, customers may be more price-sensitive and opt for lower-priced pulp products, resulting in a decrease in your average price and monthly transactions. On the other hand, during economic growth, customers may be willing to pay higher prices for quality pulp products, leading to an increase in your average price and monthly transactions.
- Changes in technology can also affect your business's average price and number of monthly transactions. For instance, if new technology is developed that allows for more efficient and cost-effective pulp production, you may be able to lower your average price and increase your monthly transactions as you can offer competitive prices and meet higher demand.
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.
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The operating expenses for a pulp manufacturing business
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your pulp manufacturing business 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 pulp manufacturing business will include some of the following items:
- Raw materials: As a pulp manufacturing business, your largest operating expense will likely be the cost of raw materials such as wood chips, recycled paper, and chemicals used in the pulping process.
- Labor costs: Your employees are essential to the production and operation of your pulp manufacturing business. This includes wages, salaries, benefits, and payroll taxes.
- Utilities: Running a pulp manufacturing facility requires a significant amount of energy. You will need to budget for expenses such as electricity, gas, and water.
- Maintenance: Keeping your equipment and machinery in good working condition is crucial for the efficiency and productivity of your business. This includes regular maintenance, repairs, and replacement of parts.
- Transportation costs: As you produce and distribute your pulp products, you will incur expenses for shipping and transportation. This includes fuel, trucking fees, and maintenance of your delivery vehicles.
- Packaging and labeling: Your pulp products will need to be packaged and labeled before they can be sold to customers. This may involve purchasing materials such as bags, boxes, and labels.
- Marketing and advertising: To attract customers and promote your business, you may need to invest in marketing and advertising efforts. This can include expenses for online and print advertising, trade shows, and promotional materials.
- Accounting and bookkeeping fees: Keeping accurate financial records is essential for any business. You may need to hire an accountant or bookkeeper to help you manage your finances and ensure compliance with tax laws.
- Insurance: As a business owner, you need to protect your assets and employees in case of accidents or unforeseen events. This may include expenses for general liability insurance, property insurance, and workers' compensation insurance.
- Software licenses: Your pulp manufacturing business may rely on various software programs for tasks such as inventory management, accounting, and order processing. You will need to budget for the cost of purchasing and renewing these licenses.
- Banking fees: Maintaining a business bank account and processing transactions will incur fees from your bank. These may include monthly maintenance fees, transaction fees, and wire transfer fees.
- Rent or mortgage: If you do not own your manufacturing facility, you will need to budget for rent payments. If you have purchased your facility, you will need to budget for mortgage payments.
- Legal fees: As a business owner, you may need to seek legal advice or representation for matters such as contracts, intellectual property rights, and employment issues. These services come at a cost and should be included in your operating expenses.
- Taxes: Your pulp manufacturing business will be subject to various taxes, including income tax, property tax, and sales tax. Make sure to budget for these expenses to avoid any surprises at tax time.
- Safety and compliance: As a business owner, you have a responsibility to provide a safe and compliant work environment for your employees. This may involve expenses for safety training, equipment, and compliance with environmental regulations.
This list will need to be tailored to the specificities of your pulp manufacturing business, but should offer a good starting point for your budget.
What investments are needed to start or grow a pulp manufacturing business?
Creating and expanding a pulp manufacturing business also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a pulp manufacturing business could include elements such as:
- Machinery and Equipment: This includes the cost of purchasing or leasing machinery and equipment necessary for the production of pulp, such as chippers, grinders, and pulp presses.
- Building and Infrastructure: This includes the cost of purchasing or constructing buildings and infrastructure needed for the pulp manufacturing process, such as mills, storage facilities, and waste treatment plants.
- Transportation Vehicles: This includes the cost of purchasing or leasing vehicles for transporting raw materials and finished pulp products, such as trucks and forklifts.
- Technology and Automation: This includes the cost of implementing technology and automation systems to improve efficiency and productivity in the pulp manufacturing process, such as computerized control systems and robotic machinery.
- Land and Property: This includes the cost of purchasing or leasing land and property for the pulp manufacturing business, such as land for tree plantations or office space for administrative purposes.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your pulp 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 pulp manufacturing business
The next step in the creation of your financial forecast for your pulp 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 pulp manufacturing business?
Now let's have a look at the main output tables of your pulp manufacturing business's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your pulp manufacturing business is likely to be in the years to come.
For your pulp manufacturing business to be financially viable, your projected P&L should ideally show:
- Sales growing above inflation (the higher the better)
- Profit margins which are stable or expanding (the higher the better)
- A net profit at the end of each financial year (the higher the better)
This is for established pulp manufacturers, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.
The projected balance sheet
The projected balance sheet gives an overview of your pulp 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 pulp 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 projected cash flow statement
A projected cash flow statement for a pulp manufacturing business 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 pulp manufacturing business'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 pulp manufacturing 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 pulp manufacturing business's financial forecast?
Using the right tool or solution will make the creation of your pulp manufacturing business's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your pulp 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.
Hiring a financial consultant or chartered accountant
Hiring a consultant or chartered accountant is also an efficient way to get a professional pulp manufacturing business 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 pulp manufacturing business'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 pulp manufacturing business 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 pulp manufacturing business'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 pulp 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
- Having a financial forecast enables you to visualise the expected growth, profitability, and cash generation for your business over the next three to five years.
- Tracking actuals vs. forecast and keeping your financial projections up-to-date is the only way to get a view on what your pulp manufacturing business future cash flows may look like.
- Using financial forecasting software is the mordern and easy way to create and maintain your forecasts.
This is the end of our guide on how to build the financial forecast for a pulp manufacturing business, we hope you found it useful. Don't hesitate to contact us if you want to share your feedback or 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
- Example of financial forecast
- How to project sales for a business?
- Financial forecast template for a business idea
Know someone who owns or is thinking of starting a pulp manufacturing business? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
