How to create a financial forecast for a sewage treatment plant?
Developing and maintaining an up-to-date financial forecast for your sewage treatment plant 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 sewage treatment plant 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 sewage treatment plant?
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 sewage treatment plant becomes handy.
Creating a sewage treatment plant 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 sewage treatment plant.
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 sewage treatment plant 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 sewage treatment plant'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 sewage treatment plant financial forecast?
A sewage treatment plant'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 sewage treatment plant, 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 sewage treatment plant 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 sewage treatment plant 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 sewage treatment plant's financial forecast.
The sales forecast for a sewage treatment plant
From experience, it is usually best to start creating your sewage treatment plant financial forecast by your sales forecast.
To create an accurate sales forecast for your sewage treatment plant, you will have to rely on the data collected in your market research, or if you're running an existing sewage treatment plant, 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:
- Your location: The location of your sewage treatment plant can greatly affect your average price and number of monthly transactions. If your plant is located in a densely populated area with high demand for sewage treatment services, you may be able to charge a higher average price and have more monthly transactions compared to a plant located in a rural area with less demand.
- Regulatory requirements: Regulations set by government agencies can also impact your business's average price and number of monthly transactions. If there are stricter regulations in place for sewage treatment in your area, you may need to invest in more expensive equipment or processes, which can increase your average price. Additionally, if these regulations require more frequent or thorough treatment, you may see an increase in the number of monthly transactions.
- Population growth: The population growth in your area can also affect your business's sales forecast. As the population grows, the demand for sewage treatment services may increase, leading to more monthly transactions and potentially allowing you to charge a higher average price.
- Economic conditions: Economic conditions, such as a recession or economic boom, can also impact your business's average price and number of monthly transactions. During a recession, customers may be more price-sensitive and may be looking for more affordable sewage treatment options, leading to a decrease in your average price and number of monthly transactions. On the other hand, during an economic boom, customers may be more willing to invest in higher-quality sewage treatment services, allowing you to charge a higher average price and potentially increasing your number of monthly transactions.
- Competition: The level of competition in your area can also affect your business's sales forecast. If there are many other sewage treatment plants in your area, you may need to adjust your average price to remain competitive and attract customers. Additionally, if your competitors offer additional services or have a better reputation, you may see a decrease in your number of monthly transactions. However, if you are the only sewage treatment plant in your area, you may be able to charge a higher average price and have a larger number of monthly transactions.
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 sewage treatment plant
The next step is to estimate the costs you’ll have to incur to operate your sewage treatment plant.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your sewage treatment plant's operating expenses should normally include the following items:
- Staff costs: This includes the wages and benefits of employees who work at the sewage treatment plant, such as plant operators, maintenance workers, and administrative staff.
- Accountancy fees: These are the costs associated with hiring an accountant to manage the financial records and taxes for the sewage treatment plant.
- Insurance costs: You will need to have insurance for your sewage treatment plant to protect against any potential accidents or liabilities that may occur.
- Software licences: To efficiently manage and monitor the treatment process, you will need to purchase licences for specialized software.
- Banking fees: This includes any fees associated with banking transactions, such as wire transfers or credit card processing.
- Chemicals and supplies: These are the materials and substances needed for the treatment process, such as chlorine, ammonia, and other cleaning agents.
- Electricity and utilities: Running a sewage treatment plant requires a significant amount of energy, so you will need to budget for electricity and other utility costs.
- Equipment maintenance: To keep the treatment plant running smoothly, you will need to regularly maintain and repair equipment, such as pumps, filters, and pipes.
- Waste disposal: After the treatment process is complete, there will be leftover waste that needs to be disposed of properly, which may incur fees.
- Training and development: It's important to invest in ongoing training and development for employees to ensure they have the necessary skills and knowledge to operate the plant effectively.
- Permits and licenses: You will need to obtain various permits and licenses from local and state authorities to operate a sewage treatment plant.
- Contractor fees: Depending on the size of your plant, you may need to hire contractors for specialized services, such as construction or engineering work.
- Marketing and outreach: As a responsible sewage treatment plant operator, you may want to invest in marketing and outreach efforts to educate the community about your plant and its impact on the environment.
- Safety and security: To ensure the safety and security of employees and visitors, you may need to invest in measures such as security cameras, fencing, and safety training.
- Consulting fees: If you need expert advice or guidance on specific aspects of operating a sewage treatment plant, you may need to hire consultants for their expertise.
This list is not exhaustive by any means, and will need to be tailored to your sewage treatment plant's specific circumstances.
What investments are needed to start or grow a sewage treatment plant?
Creating and expanding a sewage treatment plant also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a sewage treatment plant could include elements such as:
- Equipment: This includes all the necessary machinery and tools needed for the sewage treatment plant to function, such as pumps, filters, and tanks. These are considered fixed assets as they are essential for the plant's operations and have a long lifespan.
- Infrastructure: This refers to the physical structures and facilities that make up the sewage treatment plant, including buildings, pipelines, and storage tanks. These are also considered fixed assets as they are necessary for the plant's operations and have a long lifespan.
- Land: The land on which the sewage treatment plant is built is also a capital expenditure. This is because it is a long-term asset and is essential for the plant's operations. It may also appreciate in value over time.
- Technology: As technology plays an important role in modern sewage treatment plants, any equipment or software used for monitoring and controlling the plant's operations would also be considered a capital expenditure. This can include sensors, computer systems, and data management software.
- Vehicles: Depending on the size and location of the sewage treatment plant, vehicles such as trucks or vans may be necessary for transporting materials and equipment. These are considered fixed assets as they are essential for the plant's operations and have a long lifespan.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your sewage treatment plant.
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 sewage treatment plant
The next step in the creation of your financial forecast for your sewage treatment plant 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 sewage treatment plant?
Now let's have a look at the main output tables of your sewage treatment plant'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 sewage treatment plant'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 sewage treatment plant will look different than for a startup.
The projected balance sheet
The projected balance sheet gives an overview of your sewage treatment plant'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 sewage treatment plant. 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 sewage treatment plant'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 sewage treatment plant:
- 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 sewage treatment plant'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 sewage treatment plant'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 sewage treatment plant's financial forecast?
Using the right tool or solution will make the creation of your sewage treatment plant's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your sewage treatment plant'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 sewage treatment plant 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 sewage treatment plant's financial forecast?
Creating an accurate and error-free sewage treatment plant 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 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 sewage treatment plant, 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 sewage treatment plant 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 sewage treatment plant, 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 create a turnover forecast for a business?
- Financial forecast for a business idea
Know someone who owns or is thinking of starting a sewage treatment plant? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
