How to create a financial forecast for an edibles brand?
Developing and maintaining an up-to-date financial forecast for your edibles brand is key in order to maintain visibility on your business’s future cash flows.
If you feel overwhelmed at the thought of putting together an edibles brand 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 an edibles brand?
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 edibles brand becomes handy.
Creating an edibles brand 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 edibles brand.
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 an edibles brand 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 edibles brand'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 an edibles brand financial forecast?
A edibles brand's financial forecast needs to be built on the right foundation: your assumptions.
The data required to create your assumptions will depend on whether you are a new or existing edibles brand.
If you are creating (or updating) the forecast of an existing edibles brand, then your main inputs will be historical accounting data and operating metrics, and your team’s view on what to expect for the next three to five years.
If you are building financial projections for a new edibles brand startup, you will need to rely on market research to form your go-to-market strategy and derive your sales forecast.
For a new venture, you will also need an itemised list of resources needed for the edibles brand to operate, along with a list of equipment required to launch the venture (more on that below).
Now that you understand what is needed, let’s have a look at what elements will make up your edibles brand's financial forecast.
The sales forecast for an edibles brand
From experience, it usually makes sense to start your edibles brand's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your edibles brand (which can be used as a starting point for existing businesses) and the data collected in your market research (which both new ventures and existing businesses need to project their sales forward).
Your edibles brand's sales forecast can be broken down into two key estimates:
- The average price
- The number of monthly transactions
To assess these variables accurately, you will need to consider the following factors:
- Product Quality: The quality of your edibles can greatly impact the average price and number of monthly transactions. If your products are consistently of high quality, customers may be willing to pay a higher price and return for more purchases. On the other hand, if the quality is lacking, customers may be less likely to make repeat purchases or may not be willing to pay a high price.
- Competition: The level of competition in the edibles market can also affect your average price and number of transactions. If there are many other similar brands offering edibles at lower prices, this may put pressure on you to lower your prices in order to remain competitive. On the other hand, if there is less competition, you may be able to charge a higher price and attract more customers.
- Legalization: The legalization of cannabis in more states or countries can greatly impact the demand for edibles. With more people having access to these products, there may be an increase in both the average price and number of transactions. As the market grows, you may also face more competition, which could affect your pricing strategy.
- Seasonal Demand: The demand for edibles may vary depending on the time of year. For example, there may be a higher demand during holidays or special events where people may be more likely to consume these products. This can affect the average price as well as the number of monthly transactions, as you may need to adjust your prices to meet the increased demand.
- Product Innovation: Introducing new and innovative edibles to the market can also impact your sales forecast. If you are able to create unique and desirable products, this may lead to higher prices and increased transactions. However, if your competitors are also innovating, you may need to continually update and improve your products to stay ahead, which could also affect your pricing strategy.
Once you have a sales forecast in place, the next step will be to work on your overhead budget. Let’s have a look at that now.
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 an edibles brand
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your edibles brand 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 an edibles brand will include some of the following items:
- Staff costs: Includes salaries, benefits, and payroll taxes for employees working in production, sales, marketing, and administration.
- Accountancy fees: Expenses related to hiring a professional accountant to manage your financial records, tax returns, and other financial activities.
- Insurance costs: Includes liability insurance, product liability insurance, and property insurance to protect your business from potential risks and losses.
- Software licenses: Expenses for purchasing and renewing software licenses for accounting, inventory management, customer relationship management, and other essential business operations.
- Banking fees: Includes charges for maintaining a business bank account, wire transfers, and credit card processing fees.
- Packaging costs: Expenses for designing and producing packaging materials for your edibles, such as jars, bags, and labels.
- Ingredients and raw materials: Costs for purchasing high-quality ingredients and raw materials to make your edibles.
- Rent or lease: Expenses for renting or leasing a commercial space for your production, storage, or retail operations.
- Marketing and advertising: Includes expenses for promoting your edibles brand through social media, print ads, influencer partnerships, and other marketing channels.
- Utilities: Costs for electricity, water, and internet services for your business location.
- Professional fees: Expenses for hiring consultants, lawyers, or other professionals for specialized services, such as legal advice or branding consultation.
- Research and development: Costs for experimenting with new flavors and product varieties, as well as conducting market research to identify consumer preferences and trends.
- Licenses and permits: Expenses for obtaining necessary licenses and permits to operate your edibles business legally.
- Travel expenses: Includes costs for attending trade shows, conferences, and other industry events to network and promote your edibles brand.
- Distribution costs: Expenses for shipping, delivery, and distribution of your edibles to retailers or directly to customers.
This list will need to be tailored to the specificities of your edibles brand, but should offer a good starting point for your budget.
What investments are needed to start or grow an edibles brand?
Creating and expanding an edibles brand also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for an edibles brand could include elements such as:
- You will need to purchase equipment such as ovens, mixers, and packaging machines for your edibles brand. These are necessary for producing your products in large quantities and at a consistent quality.
- To ensure food safety and compliance with regulations, you may need to invest in a commercial kitchen or a dedicated production facility. This can include items such as ventilation systems, stainless steel countertops, and specialized flooring.
- Investing in a delivery vehicle or hiring a distributor to transport your products can also be a capital expenditure for your edibles brand. This will allow you to efficiently and safely transport your products to dispensaries or retail locations.
- In order to establish a strong brand identity, you may need to invest in branding and packaging materials. This can include items such as logo design, packaging design, and labels. These materials will help your products stand out on dispensary shelves and attract customers.
- You may also need to purchase intellectual property such as patents or trademarks for your unique recipes or product names. This will protect your brand and give you a competitive advantage in the market.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your edibles brand.
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 edibles brand
The next step in the creation of your financial forecast for your edibles brand 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 an edibles brand?
Now let's have a look at the main output tables of your edibles brand's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your edibles brand's expected growth and profitability over the next three to five years.
A financially viable P&L statement for an edibles brand 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 edibles brand'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 an edibles brand 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 edibles brand'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 edibles brand 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 edibles brand's financial projections?
Building an edibles brand financial forecast is not difficult provided that you use the right tool for the job. Let’s see what options are available below.
Using online financial forecasting software to build your edibles brand'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 edibles brand 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 edibles brand's financial forecast?
Creating an accurate and error-free edibles brand 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 edibles brand, 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
- A financial forecast shows expected growth, profitability, and cash generation metrics for your edibles brand.
- Tracking actuals vs. forecast and having an up-to-date financial forecast is key to maintaining visibility on your future cash flows.
- Using financial forecasting software is the modern way of creating and maintaining financial projections.
We hope that this guide helped you gain a clearer perspective on the steps needed to create the financial forecast for an edibles brand. Don't hesitate to contact us if you 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
- Financial forecast example
- How to create a sales forecast for a business?
- Example of financial forecast for business idea
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Founder & CEO at The Business Plan Shop Ltd
