How to create a financial forecast for a timber evaluation company?
Developing and maintaining an up-to-date financial forecast for your timber evaluation company 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 timber evaluation company 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 timber evaluation company?
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 timber evaluation company becomes handy.
Creating a timber evaluation company 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 timber evaluation company.
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 timber evaluation company 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 timber evaluation company'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 timber evaluation company 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 timber evaluation company, 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 timber evaluation company 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 timber evaluation company, 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 timber evaluation company's financial forecast.
The sales forecast for a timber evaluation company
The sales forecast, also called topline projection, is normally where you will start when building your timber evaluation company 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 timber evaluation companies), and consider the elements below:
- Timber Market Trends: Changes in supply and demand for timber can greatly affect your business's average price and number of monthly transactions. If there is an oversupply of timber, prices may decrease and you may experience a decrease in transactions as buyers have more options to choose from. On the other hand, if there is a high demand for timber, prices may increase and you may see an increase in transactions as buyers are willing to pay more.
- Natural Disasters: Natural disasters such as wildfires, hurricanes, and floods can have a significant impact on the timber market. If your business operates in an area that is prone to these disasters, it can result in a decrease in supply and an increase in prices. This can lead to a decrease in monthly transactions as buyers may be hesitant to purchase timber from affected areas.
- Government Policies and Regulations: Changes in government policies and regulations related to the timber industry can affect your business's average price and number of monthly transactions. For example, new regulations on logging or environmental protection may increase costs for timber companies, leading to higher prices for buyers and potentially decreasing the number of transactions.
- Competition: The presence of other timber evaluation companies in your market can also impact your business's average price and number of monthly transactions. If there are many competitors offering similar services, buyers may have more bargaining power and this can result in lower prices and fewer transactions for your business.
- Economic Conditions: Economic conditions such as inflation, interest rates, and unemployment can also play a role in your business's sales forecast. In a strong economy, buyers may have more disposable income and be willing to pay higher prices for timber, leading to an increase in your average price and monthly transactions. On the other hand, in a weak economy, buyers may be more cautious with their spending and this can result in lower prices and fewer transactions.
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 timber evaluation company
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your timber evaluation company 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 timber evaluation company will include some of the following items:
- Staff costs: This includes salaries, benefits, and training expenses for the employees working in roles such as timber evaluators, research analysts, and administrative staff.
- Accountancy fees: You will need to hire an accountant or accounting firm to handle your company's financial statements, tax filings, and other related tasks.
- Insurance costs: This covers liability insurance, workers' compensation insurance, and property insurance for your company's office space, equipment, and vehicles.
- Software licenses: As a timber evaluation company, you will need to invest in software for data analysis, mapping, and project management.
- Banking fees: This includes fees for maintaining business bank accounts, wire transfers, and credit card processing fees.
- Travel expenses: You may need to travel to various locations for timber evaluation projects, and these expenses can include airfare, lodging, and transportation costs.
- Marketing and advertising: To attract new clients and promote your services, you may need to invest in marketing materials, digital marketing campaigns, and attending industry events.
- Professional memberships: Joining professional organizations and attending conferences can help you stay updated on industry trends and network with potential clients.
- Office supplies: This includes expenses for office essentials such as stationery, printer ink, and postage.
- Rent or lease: If you do not own your office space, you will need to budget for rent or lease payments.
- Utilities: This covers expenses for electricity, water, internet, and phone services for your office space.
- Legal fees: You may need to consult with a lawyer for contract reviews, intellectual property protection, and other legal matters.
- Professional development: Encouraging your employees to attend workshops, training programs, and conferences can help them stay updated on industry best practices.
- Office equipment: This includes expenses for computers, printers, and other necessary equipment for your office.
- Vehicle expenses: If your company owns vehicles for transportation and field work, you will need to budget for fuel, maintenance, and insurance costs.
This list will need to be tailored to the specificities of your timber evaluation company, but should offer a good starting point for your budget.
What investments are needed to start or grow a timber evaluation company?
Once you have an idea of how much sales you could achieve and what it will cost to run your timber evaluation company, it is time to look into the equipment required to launch or expand the activity.
For a timber evaluation company, capital expenditures and initial working capital items could include:
- Land and Timber Purchases: As a timber evaluation company, you will need to purchase land and timber in order to conduct assessments and evaluations. This could include purchasing standing timber, timber rights, or timberland. These purchases are considered fixed assets and will be included in your expenditure forecast.
- Equipment and Machinery: In order to efficiently and accurately evaluate timber, you will need to invest in various equipment and machinery. This could include chainsaws, measuring tools, vehicles for transportation, and other specialized equipment. These items will be considered fixed assets and should be included in your expenditure forecast.
- Office and Storage Facilities: As a timber evaluation company, you will need a physical location to store equipment, conduct administrative tasks, and potentially hold meetings with clients. This could include purchasing or leasing office space, storage facilities, and other related expenses. These costs should be included in your expenditure forecast.
- Computer Systems and Software: In today's digital age, it is essential for businesses to have reliable and up-to-date computer systems and software. As a timber evaluation company, you will likely need computers, printers, and specialized software for data collection and analysis. These items should be included in your expenditure forecast as fixed assets.
- Training and Certification: In order to ensure the accuracy and credibility of your evaluations, it is important for your team to receive proper training and certification. This could include attending workshops, conferences, or obtaining specific certifications. These expenses should be included in your expenditure forecast as they are essential for the success of your company.
Again, this list will need to be adjusted according to the specificities of your timber evaluation company.
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 timber evaluation company
The next step in the creation of your financial forecast for your timber evaluation company 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 timber evaluation company?
Now let's have a look at the main output tables of your timber evaluation company's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your timber evaluation company's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a timber evaluation company 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 timber evaluation company'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 timber evaluation company. 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 timber evaluation company 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 timber evaluation company'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 timber evaluation company 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 timber evaluation company's financial forecast?
Using the right tool or solution will make the creation of your timber evaluation company's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your timber evaluation company'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 timber evaluation company 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 timber evaluation company's financial forecast?
Creating an accurate and error-free timber evaluation company 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 timber evaluation company.
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 timber evaluation company. 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 project sales for a business?
- Sample financial forecast for business idea
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Founder & CEO at The Business Plan Shop Ltd
