Financial Plan Modeling for New Bakery Startups
Financial Plan Modeling is core to New Bakery Business Plans
One of the most overlooked areas of a new bakery business plan is the financial analysis section. The primary reason most people skim over it is because they don’t understand finance and/or know someone with a finance degree that understands the food business. A second reason is that a lot of simple financial analysis models provide very little information that a new bakery owner can use to predict future success with a high degree of probability. This process is called sensitivity analysis, which needs to be included in every financial model for new startup businesses. A new startup bakery owner will increase his/her chances up to 5 times for obtaining outside investor money by demonstrating a comprehensive financial analysis. If you don’t believe me, just watch a few episodes of Shark Tank and The Profit to see how many people spectacularly pitch their innovative new products, but can’t explain the probability of financial success.
What Makes the Bakery Industry Unique to Financial Planning?
New bakery business startups have several unique characteristics that must be factored into their financial plan modeling. The food and beverage industry is first and foremost a highly regulated industry, like the pharmaceutical industry, and many of its ingredients, as well as the finished products, have a limited shelf-life.
New Bakery Financial Planning Information Requirements
So, before you begin working with your financial consultant, be prepared to provide the best information possible in the following areas. A bakery financial consultant can help you arrive at best estimates – so don’t worry!
Menu detail – first and foremost – and a menu plan-o-gram would be helpful.
- Projected trade area
- Initial investment requirements ($) – includes production equipment, tables, scales, shelving, etc.
- Net Operating WC (weighted cost)/Sales projection
- First Year Sales Projections in # of deals (sales transactions)
- Value of each deal or sales transaction
- Variable Cost of each deal or sales transaction (average value)
- Growth rate projection of sales deals or transactions
- Projected Tax rate
- WACC or Weighted Average Cost of Capital
- Inflation: Growth Rate per Sales Price
- Inflation: VC (variable cost) per Deal or Transaction
- Inflation: Growth in Fixed Costs
- List of available fixed costs (annualized)
- List of available variable costs (annualized)
Bakery Financial Analysis Solutions
A comprehensive new bakery start-up financial analysis should include the following OUTPUTS:
Scenario Analysis of best case, worst case, and base case of restaurant performance success:
- MIRR or Modified Internal Rate of Return
- IRR or Internal Rate of Return value
- NPV or Net Present Value
- Business Viability Conclusion (BVC) prior to Risk Analysis
- 5 Year Payback based on Cumulative Cash Flow
- Payback Year or PY
- Payback Found Value or PFV
- Capital Rationing adjusted for risk with a new WACC
- Sensitivity Analysis (SA): A sensitivity analysis should be completed in the following areas:
- WACC or Weighted Average Cost of Capital Sensitivity Analysis
- Year 1 Sales Sensitivity Analysis
- Variable Cost Sensitivity Analysis
- Growth Rate (units) Sensitivity Analysis
- Sales Price Sensitivity Analysis
- Fixed Cost Sensitivity Analysis
- Probability Density Sensitivity Analysis
- Graphing Sensitivity Linear Regression for the following:
- Sales Price
- Variable Costs, Growth Rate
- Units Sold
- Fixed Cost
In summary, by preparing a detailed financial ‘what-if’ or sensitivity analysis you can predict your future business to a higher degree – and monitor it on a weekly basis to ensure you never slide backwards.
For more information on developing a new bakery financial plan for both large and small bakeries, contact Dr. Darrel Suderman for a consultation.