How to create a financial forecast for a sawmill?
If you are serious about keeping visibility on your future cash flows, then you need to build and maintain a financial forecast for your sawmill.
Putting together a sawmill 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 sawmill.
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 sawmill?
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 sawmill becomes handy.
Creating a sawmill 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 sawmill.
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 sawmill 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 sawmill'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 sawmill financial forecast?
A sawmill'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 sawmill, 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 sawmill 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 sawmill 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 sawmill's financial forecast.
The sales forecast for a sawmill
The sales forecast, also called topline projection, is normally where you will start when building your sawmill 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 sawmills), and consider the elements below:
- Timber Supply: The availability and cost of timber can greatly impact the average price of your sawmill's products. If there is a shortage of timber, the price may increase due to higher demand and limited supply. On the other hand, if there is an oversupply of timber, the price may decrease as you compete with other sawmills for customers.
- Technological Advancements: Advancements in technology can lead to improved efficiency and productivity in your sawmill, resulting in lower costs and potentially higher profits. However, if your competitors also adopt these advancements, it may lead to a decrease in the average price of your products as they become more widely available.
- Environmental Regulations: Changes in environmental regulations can significantly impact the costs of running your sawmill. For example, stricter regulations may require you to invest in new equipment or processes, which can increase your costs and ultimately affect your pricing strategy. On the other hand, if your sawmill is environmentally friendly, this may attract customers and allow you to charge a premium for your products.
- Demand for Wood Products: The overall demand for wood products can greatly influence your sawmill's average price and number of transactions. If there is a high demand for wood products, you may be able to charge higher prices and sell more products. However, if the demand is low, you may need to adjust your prices and potentially find new markets for your products.
- Economic Conditions: Economic conditions, such as inflation and interest rates, can impact the purchasing power of your customers and affect their willingness to buy your products. In a strong economy, customers may be more willing to pay a higher price for quality wood products. Conversely, during an economic downturn, customers may be more price-sensitive and may opt for cheaper alternatives.
After the sales forecast comes the operating expenses budget, which we will now look into in more detail.
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 sawmill
The next step is to estimate the costs you’ll have to incur to operate your sawmill.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your sawmill's operating expenses should normally include the following items:
- Staff Costs: This includes the salaries and benefits for all employees, including sawmill workers, supervisors, and administrative staff.
- Accountancy Fees: You will need to hire an accountant to help with financial tasks such as bookkeeping, tax preparation, and payroll processing.
- Insurance Costs: As a sawmill owner, you will need to have insurance coverage for your facility, equipment, and employees. This may include general liability, property, and workers' compensation insurance.
- Software Licences: To run your sawmill efficiently, you will need to invest in software licenses for programs such as inventory management, accounting, and production planning.
- Banking Fees: You will incur fees for various banking services, including wire transfers, check processing, and cash handling.
- Utilities: Running a sawmill requires a significant amount of electricity and water. You will need to budget for these ongoing expenses.
- Maintenance and Repairs: Regular maintenance and repairs are necessary to keep your sawmill equipment in good working condition. This may include costs for replacement parts and labor.
- Fuel Costs: If your sawmill uses gas or diesel-powered equipment, you will need to budget for fuel costs.
- Raw Materials: The main raw material for a sawmill is logs. You will need to purchase these from suppliers, and the cost may fluctuate depending on market conditions.
- Shipping and Transportation: If you sell lumber or other products, you will need to factor in the cost of shipping and transportation to get them to your customers.
- Safety Equipment: As an employer, you are responsible for providing safety equipment to your employees, such as hard hats, safety glasses, and protective gear.
- Marketing and Advertising: To attract new customers and promote your sawmill, you may need to invest in marketing and advertising efforts, such as creating a website or attending industry trade shows.
- Taxes and Licenses: You will need to pay taxes on your sawmill's profits and obtain any necessary licenses and permits to operate legally.
- Rent or Mortgage Payments: If you do not own your sawmill facility, you will need to budget for rent payments. If you own the facility, you may have a mortgage to pay off.
- Office Supplies: Running an office within your sawmill requires supplies such as paper, ink, and printer cartridges.
This list is not exhaustive by any means, and will need to be tailored to your sawmill's specific circumstances.
What investments are needed to start or grow a sawmill?
Creating and expanding a sawmill also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a sawmill could include elements such as:
- Sawmill equipment: This includes all the machinery and tools needed to operate a sawmill, such as saws, conveyors, and log loaders. These are essential fixed assets that are necessary for the day-to-day operations of a sawmill.
- Building and infrastructure: A sawmill requires a sturdy building to house the equipment and protect the raw materials from the elements. This could include construction costs for a new building or renovations to an existing one.
- Transportation vehicles: In order to transport logs and finished lumber, a sawmill may need to purchase trucks or other vehicles. These are necessary capital expenditures that allow for the efficient movement of materials.
- Safety equipment: Sawmills are inherently dangerous places, so it's important to invest in safety equipment such as fire extinguishers, first aid kits, and personal protective gear for employees. These are fixed assets that help ensure the safety of your workers and protect your business from potential liabilities.
- Maintenance and repair: As with any machinery, sawmill equipment will need to be regularly maintained and repaired to keep it in good working condition. This could include costs for replacement parts, routine maintenance services, and repairs from unexpected breakdowns.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your sawmill.
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 sawmill
The next step in the creation of your financial forecast for your sawmill 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 sawmill?
Now let's have a look at the main output tables of your sawmill'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 sawmill'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 sawmill will look different than for a startup.
The projected balance sheet
Your sawmill'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 projected cash flow statement
A projected cash flow statement for a sawmill 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 sawmill'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 sawmill 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 sawmill's financial forecast?
Creating your sawmill's financial forecast may sound fairly daunting, but the good news is that there are several ways to go about it.
Using online financial forecasting software to build your sawmill'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
Enlisting the help of a consultant or accountant is also a good way to obtain a professional sawmill 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 sawmill's financial forecast?
Creating an accurate and error-free sawmill financial forecast with a spreadsheet is very technical and requires a deep knowledge of accounting and an understanding of financial modelling.
Very few business owners are financially savvy enough to be able to build a forecast themselves on Excel without making mistakes.
Lenders and investors know this, which is why forecasts created on Excel by the business owner are often frowned upon.
Having numbers one can trust is key when it comes to financial forecasting and to that end using software is much safer.
Using financial forecasting software is also faster than using a spreadsheet, and, with the rise of artificial intelligence, software is also becoming smarter at helping us analyse the numbers to make smarter decisions.
Finally, like everything with spreadsheets, tracking actuals vs. forecasts and keeping your projections up to date as the year progresses is manual, tedious, and error-prone. Whereas financial projection 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 forecast templates for inspiration
The Business Plan Shop has dozens of financial forecast examples available.
Our templates contain both a financial forecast and a written business plan which presents, in detail, the company, the team, the strategy, and the medium-term objectives.
Our templates are a great source of inspiration, whether you just want to see what a complete business plan looks like, or are looking for concrete examples of how you should model financial elements in your own forecast.
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 sawmill.
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 sawmill. 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 sawmill? Share our financial projection guide with them!
Founder & CEO at The Business Plan Shop Ltd
