How to create a financial forecast for a water purification plant?
If you are serious about keeping visibility on your future cash flows, then you need to build and maintain a financial forecast for your water purification plant.
Putting together a water purification plant 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 water purification plant.
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 water purification 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 water purification plant becomes handy.
Creating a water purification 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 water purification 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 water purification 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 water purification 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 water purification plant financial forecast?
A water purification 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 water purification 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 water purification 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 water purification 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 water purification plant's financial forecast.
The sales forecast for a water purification plant
The sales forecast, also called topline projection, is normally where you will start when building your water purification plant 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 water purification plants), and consider the elements below:
- Water Quality Regulations: As stricter regulations on water quality are implemented, the demand for our water purification services may increase as more businesses and households seek to comply with these regulations.
- Population Growth: With a growing population, there may be an increase in demand for our services as more people require clean and safe drinking water.
- Natural Disasters: In the event of a natural disaster, our services may be in high demand as access to clean water may be compromised in affected areas.
- Industrial Development: As more industries are established in the area, there may be a greater need for our services to ensure that their operations comply with environmental regulations.
- Water Scarcity: As water scarcity becomes a growing issue, our services may be in high demand as individuals and businesses seek ways to conserve and purify water.
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 water purification plant
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your water purification plant 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 water purification plant will include some of the following items:
- Staff costs: This includes wages, benefits, and training for employees involved in the operation and maintenance of the water purification plant.
- Accountancy fees: You may need to hire an accountant to handle financial tasks such as budgeting, tax preparation, and financial reporting.
- Insurance costs: As with any business, you will need to have insurance to protect your water purification plant from potential risks and liabilities.
- Software licenses: You may need to purchase licenses for software programs used in the operation of the plant, such as water quality monitoring software.
- Banking fees: Your water purification plant will likely have various banking fees, such as transaction fees and account maintenance fees.
- Chemical costs: This includes the cost of purchasing and storing chemicals used in the purification process, such as chlorine and fluoride.
- Electricity costs: Running a water purification plant requires a significant amount of electricity, so this expense should not be overlooked.
- Maintenance and repair costs: Regular maintenance and repairs are necessary to keep the plant running smoothly and efficiently.
- Water testing costs: You will need to regularly test the water to ensure it meets quality standards, which can be an ongoing expense.
- Laboratory fees: If your plant does not have an on-site laboratory, you may need to outsource water testing to a third-party lab, which can incur fees.
- Permit and licensing fees: Operating a water purification plant requires various permits and licenses, which may need to be renewed periodically.
- Transportation costs: You may need to transport chemicals, equipment, and other materials to and from the plant, which can add up in costs.
- Office supplies: This includes items such as paper, printer ink, and other office supplies used in the day-to-day operations of the plant.
- Training and education: It is essential to continuously train and educate employees on new technologies and best practices in the water purification industry.
- Waste disposal fees: There may be costs associated with properly disposing of waste products generated during the purification process.
This list will need to be tailored to the specificities of your water purification plant, but should offer a good starting point for your budget.
What investments are needed to start or grow a water purification plant?
Your water purification plant 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 water purification plant, these could include:
- Water treatment equipment: This includes items such as filtration systems, chemical treatment systems, and disinfection equipment. These are essential for the purification process and can be a significant capital expenditure for a water purification plant.
- Pumping stations: In order to move water through the purification process, pumping stations are needed to transport water from one stage to the next. These can include pumps, pipes, valves, and other necessary equipment.
- Storage tanks: Water purification plants often require large storage tanks to hold the treated water before it is distributed to consumers. These tanks can be made of various materials such as concrete, steel, or fiberglass and can be a significant capital investment.
- Laboratory equipment: A water purification plant requires a well-equipped laboratory to conduct regular testing and analysis of the water quality. This can include equipment such as spectrophotometers, pH meters, and other specialized instruments.
- Control and monitoring systems: To ensure the efficient and effective operation of the plant, control and monitoring systems are necessary to track and regulate various processes. These can include sensors, meters, and computerized control systems.
Again, this list will need to be adjusted according to the size and ambitions of your water purification 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 water purification plant
The next step in the creation of your financial forecast for your water purification 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 water purification plant?
Now let's have a look at the main output tables of your water purification 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 water purification 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 water purification plant will look different than for a startup.
The projected balance sheet
Your water purification plant's projected balance sheet provides a snapshot of your business’s financial position at year-end.
It is composed of three types of elements: assets, liabilities and equity:
- Assets: represent what the business possesses including cash, equipment, and accounts receivable (money owed by clients).
- Liabilities: represent funds advanced to the business by lenders and other creditors. They include accounts payable (money owed to suppliers), taxes payable and loans from banks and financial institutions.
- 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 water purification 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 water purification 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 water purification 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 water purification 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 water purification plant's financial forecast?
Creating your water purification plant'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 water purification plant'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 water purification plant 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 water purification plant's financial forecast?
Creating an accurate and error-free water purification plant financial forecast on Excel (or any spreadsheet) is very technical and requires both a strong grasp of accounting principles and solid skills in financial modelling.
Most entrepreneurs lack the expertise required to create an accurate financial forecast using spreadsheet software like Excel or Google Sheets. As a result, it is unlikely anyone will trust your numbers.
The second reason is that it is inefficient. Building forecasts on spreadsheets was the only option in the 1990s and early 2000s, nowadays technology has advanced and software can do it much faster and much more accurately.
This is why professional forecasters all use software. With the rise of AI, software is also becoming smarter at helping us detect mistakes in our forecasts and helping us analyse the numbers to make better decisions.
Finally, like everything with spreadsheets, tracking actuals vs. forecasts and updating your forecast as the year progresses is manual, tedious, error-prone, and time-consuming. Whereas financial forecasting 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
- 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 water purification 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 water purification 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 write a business plan for a water purification plant
- 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 water purification plant? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
