How to create a financial forecast for a water treatment plant?
Developing and maintaining an up-to-date financial forecast for your water 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 water 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 water treatment plant?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your water treatment plant and ensure that it can be financially viable in the years to come.
A financial plan for a water treatment plant enables you to look at your business in detail - from income to operating costs and investments - to evaluate its expected profitability and future cash flows.
This gives you the visibility needed to plan future investments and expansion with confidence.
And, when your trading environment gets tougher, having an up to date water treatment plant forecast enables you to detect potential upcoming financing shortfalls in advance, enabling you to make adjustments or secure financing before you run out of cash.
It’s also important to remember that your water treatment plant's financial forecast will be essential when looking for financing. You can be 100% certain that banks and investors will ask to see your numbers, so make sure they’re set out accurately and attractively.
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 water treatment plant 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 water treatment plant, 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 water treatment plant 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 water treatment plant, 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 water treatment plant's financial forecast.
The sales forecast for a water treatment plant
From experience, it is usually best to start creating your water treatment plant financial forecast by your sales forecast.
To create an accurate sales forecast for your water treatment plant, you will have to rely on the data collected in your market research, or if you're running an existing water 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:
- Changes in water quality regulations: As the government increases regulations and requirements for clean water, your plant may need to invest in new equipment or processes to meet these standards. This could potentially drive up the average price of your services.
- Population growth in your area: If the population in your area is growing, the demand for clean water will also increase. This could lead to an increase in the number of monthly transactions as more people require your services.
- Droughts or water scarcity: During times of drought or water scarcity, your plant may need to ramp up production to meet the increased demand for clean water. This could potentially drive up the average price of your services as you may need to invest in additional resources to meet the demand.
- Technological advancements: New technologies are constantly emerging in the water treatment industry. Your plant may need to invest in these technologies to stay competitive and provide the best services to your customers. This could potentially affect both the average price and number of monthly transactions.
- Natural disasters: In the event of a natural disaster, such as a hurricane or flood, your plant may need to increase production to provide clean water to affected areas. This could potentially lead to an increase in the number of monthly transactions, but also an increase in costs for your plant.
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 water treatment plant
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your water treatment 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 treatment plant will include some of the following items:
- Staff Costs: This includes salaries, benefits, and training expenses for all employees working at the water treatment plant. This also includes any contractors or temporary staff hired for specific tasks.
- Accountancy Fees: You will need to hire an accountant or accounting firm to manage your financial records, prepare tax returns, and provide financial advice.
- Insurance Costs: It is important to have insurance coverage for your water treatment plant to protect against any potential risks or accidents.
- Software Licences: You will need to invest in software licenses for various programs used in water treatment processes, such as data management, monitoring, and analysis software.
- Banking Fees: You will need to pay fees for bank accounts, credit card processing, and other financial services used for managing the plant's finances.
- Chemicals and Supplies: This includes the cost of various chemicals and supplies used in the treatment process, such as chlorine, coagulants, and filters.
- Electricity and Water: Running a water treatment plant requires a significant amount of electricity and water, which will incur ongoing costs.
- Maintenance and Repairs: Regular maintenance and repairs are necessary to keep the plant running smoothly and efficiently.
- Waste Disposal: As a water treatment plant, you will need to properly dispose of any waste products, which may include sludge and other byproducts.
- Laboratory Testing: Regular testing of water samples is crucial to ensure that the treated water meets quality standards. This will incur ongoing costs for equipment and supplies.
- Equipment Leasing: If you cannot afford to purchase expensive equipment outright, you may need to lease it, which will incur ongoing costs.
- Training and Development: It is important to invest in training and development programs for your employees to keep them updated on the latest technologies and processes in water treatment.
- Transportation Costs: You may need to transport chemicals, supplies, and equipment to and from the water treatment plant, which will incur ongoing costs.
- Permits and Licenses: You will need to obtain permits and licenses from regulatory agencies to operate your water treatment plant, which may require ongoing fees.
- Marketing and Advertising: To attract new customers or clients, you may need to invest in marketing and advertising efforts, such as creating a website or attending industry conferences.
This list will need to be tailored to the specificities of your water treatment plant, but should offer a good starting point for your budget.
What investments are needed to start or grow a water treatment plant?
Your water treatment 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 treatment plant, these could include:
- Water Treatment Equipment: This includes all the necessary machinery and equipment needed for the treatment process such as pumps, filters, clarifiers, and disinfection systems.
- Pipelines and Storage Tanks: These are essential for transporting and storing the treated water. This can include pipes, valves, and tanks of various sizes and materials.
- Chemicals and Supplies: Water treatment plants require a variety of chemicals and supplies for the treatment process such as chlorine, coagulants, and pH adjusters. These items need to be regularly replenished and can be a significant expense.
- Electrical and Control Systems: A reliable and efficient electrical and control system is crucial for the operation of a water treatment plant. This can include generators, switchgear, and SCADA systems.
- Infrastructure and Buildings: In addition to the treatment process, a water treatment plant also requires infrastructure and buildings for administrative and maintenance purposes. This can include offices, laboratories, and storage facilities.
Again, this list will need to be adjusted according to the size and ambitions of your water 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 water treatment plant
The next step in the creation of your financial forecast for your water 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 water treatment plant?
Now let's have a look at the main output tables of your water treatment plant's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your water treatment plant's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a water treatment plant 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
Your water treatment plant'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 cash flow projection
The cash flow forecast of your water treatment plant will show how much cash the business is expected to generate or consume over the next three to five years.
There are multiple ways of presenting a cash flow forecast but from experience, it is better to organise it by nature in order to clearly show these elements:
- Operating cash flow: how much cash is generated by the water treatment plant's operations
- Investing cash flow: what is the business investing to expand or maintain its equipment
- Financing cash flow: is the business raising additional funds or repaying financiers (debt repayment, dividends)
Your cash flow forecast is the most important element of your overall financial projection and that’s where you should focus your attention to ensure that your water treatment plant is adequately funded.
Note: if you are preparing a financial forecast in order to try to secure funding, you will need to include both a yearly and monthly cash flow forecast in your water treatment plant's financial plan.
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 treatment plant's financial forecast?
Using the right tool or solution will make the creation of your water treatment plant's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your water 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 water 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 water treatment plant's financial forecast?
Creating an accurate and error-free water treatment 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 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 water 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 project sales for a business?
- Sample financial forecast for business idea
Know someone who owns or is thinking of starting a water treatment plant? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
