How to create a financial forecast for a sewer construction company?

Creating a financial forecast for your sewer construction company, and ensuring it stays up to date, is the only way to maintain visibility on future cash flows. 

This might sound complex, but with the right guidance and tools, creating an accurate financial forecast for your sewer construction company is not that hard.

In this guide, we'll cover everything from the main goal of a financial projection, the data you need as input, to the tables that compose it, and the tools that can help you build a forecast efficiently.

Without further ado, let us begin!

Why create and maintain a financial forecast for a sewer construction company?

The financial projections for your sewer construction company act as a financial blueprint to guide its growth with confidence and ensure its long-term financial viability. 

To create them, you will need to look at your business in detail - from sales to operating costs and investments - to assess how much profit it can generate in the years to come and what will be the associated cash flows.

During challenging market conditions, maintaining an up-to-date financial forecast enables early detection of potential financial shortfalls, allowing for timely adjustments or securing financing before facing a cash crisis. 

Your sewer construction company's financial forecast will also prove invaluable when seeking financing. Banks and investors will undoubtedly request a thorough examination of your financial figures, making precision and presentation essential.

What information is used as input to build a sewer construction company financial forecast?

A sewer construction company'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 sewer construction company.

If you are creating (or updating) the forecast of an existing sewer construction company, 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 sewer construction company 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 sewer construction company 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 sewer construction company's financial forecast.

The sales forecast for a sewer construction company

From experience, it usually makes sense to start your sewer construction company's financial projection with the revenues forecast.

The inputs used to forecast your sales will include the historical trading data of your sewer construction company (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 sewer construction company'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:

• Regulatory Changes: Keep abreast of any updates or changes in local regulations related to sewer construction. New permits, environmental standards, or safety requirements can impact project timelines and costs, influencing your pricing strategy.
• Infrastructure Development Projects: Monitor planned public and private infrastructure projects in your target areas. Increased construction activities in the region can boost demand for sewer services, potentially allowing you to adjust your pricing and secure more projects.
• Technological Advancements: Stay updated on advancements in construction technologies and methodologies relevant to sewer projects. Embracing more efficient and innovative techniques can positively influence your competitiveness and potentially allow for adjustments in pricing.
• Environmental Initiatives: With a growing focus on environmental sustainability, there might be increased demand for sewer solutions that are eco-friendly. Highlighting your company's commitment to green practices could positively affect customer perception and, in turn, your pricing.
• Labor Market Conditions: Changes in the availability and cost of skilled labor in the construction industry can impact your overall project costs. Stay informed about labor market trends to assess potential effects on your pricing structure.

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. 

The operating expenses for a sewer construction company

The next step is to estimate the costs you’ll have to incur to operate your sewer construction company.

These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.). 

But your sewer construction company's operating expenses should normally include the following items:

• Staff Costs: Salaries, wages, and benefits for your construction team, including equipment operators, laborers, and project managers.
• Equipment Maintenance: Expenses related to the regular upkeep and repair of heavy machinery and specialized equipment used in sewer construction projects.
• Material Procurement: Costs associated with purchasing construction materials such as pipes, fittings, concrete, and other supplies required for sewer infrastructure projects.
• Transportation: Expenses for fuel, maintenance, and other costs related to the transportation of construction equipment and materials to and from job sites.
• Insurance Costs: Premiums for insurance coverage, including liability and worker's compensation insurance, to protect your business and employees during construction activities.
• Accountancy Fees: Fees paid to accounting professionals for financial management, tax preparation, and compliance services specific to your sewer construction business.
• Permit Fees: Costs associated with obtaining necessary permits and licenses required for sewer construction projects in different jurisdictions.
• Safety Equipment: Expenses for purchasing and maintaining safety gear, signage, and equipment to ensure a secure working environment for your construction team.
• Software Licences: Costs associated with licensing and maintaining construction management software for project planning, scheduling, and documentation.
• Communication Expenses: Costs for mobile phones, radios, and other communication tools essential for coordinating activities and ensuring efficient communication on construction sites.
• Training and Certification: Expenses for training programs and certifications to ensure that your team has the necessary skills and qualifications for sewer construction projects.
• Rent: Leasing costs for office space, storage facilities, or temporary job site offices used during sewer construction projects.
• Utilities: Expenses for office utilities, including electricity, water, and internet services for administrative functions related to your sewer construction business.
• Legal Fees: Costs associated with legal services, including contracts review, compliance advice, and any litigation matters specific to your sewer construction operations.
• Banking Fees: Charges for various banking services, including transaction fees and account maintenance specific to your business transactions.

This list is not exhaustive by any means, and will need to be tailored to your sewer construction company's specific circumstances.

What investments are needed to start or grow a sewer construction company?

Once you have an idea of how much sales you could achieve and what it will cost to run your sewer construction company, it is time to look into the equipment required to launch or expand the activity.

For a sewer construction company, capital expenditures and initial working capital items could include:

• Heavy Machinery: Acquiring specialized construction equipment such as excavators, trenchers, and pipe laying machines to enhance efficiency and capability in sewer construction projects.
• Fleet Vehicles: Investing in a fleet of vehicles designed for construction purposes, including trucks, vans, and utility vehicles, to transport personnel, tools, and materials to project sites.
• Pipeline Materials: Purchasing high-quality materials for sewer pipelines, such as durable pipes, fittings, and connectors, to ensure the longevity and reliability of the constructed infrastructure.
• Surveying Equipment: Investing in advanced surveying and mapping tools to accurately assess and plan sewer construction projects, contributing to precise execution and minimized rework.
• Safety Gear and Equipment: Allocating funds for safety-related capital expenditures, including personal protective equipment, signage, and other safety measures to create a secure work environment for your construction team.

Again, this list will need to be adjusted according to the specificities of your sewer construction company.

The financing plan of your sewer construction company

The next step in the creation of your financial forecast for your sewer construction 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 sewer construction company?

Now let's have a look at the main output tables of your sewer construction company'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 sewer construction company'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 sewer construction company will look different than for a startup.

The projected balance sheet

The projected balance sheet gives an overview of your sewer construction 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 sewer construction 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 sewer construction 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 sewer construction 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 sewer construction company is appropriately capitalised.

Which tool should you use to create your sewer construction company's financial forecast?

Creating your sewer construction company'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 sewer construction company'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 sewer construction 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 sewer construction company's financial forecast?

Creating an accurate and error-free sewer construction company 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.

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

1. 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.
2. Tracking actuals vs. forecast and keeping your financial projections up-to-date is the only way to get a view on what your sewer construction company future cash flows may look like.
3. 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 sewer construction company, we hope you found it useful. Don't hesitate to contact us if you want to share your feedback or have any questions.

Also on The Business Plan Shop

• Example of financial forecast
• How to project revenues for a business?
• Sample financial forecast for business idea

Know someone who owns or is thinking of starting a sewer construction company? Share our forecasting guide with them!