How to create a cash flow forecast for a food van

How to Create a Cash Flow Forecast for a Food Van Business

Whether you’re an established food truck/van owner or you’ve just got the seed of an idea, you’ll know that it’s necessary to create a cash flow forecast if you want a chance at success.

Simply put, a cash flow forecast is a forecast of the cash “flowing” in and out of your business for a specific period of time. 

But it’s so much more than that, it’s your guide to the coming weeks, months & years. Helping you approach investors with confidence, achieve your business goals and navigate the path ahead.

A useful tool then.

So, why is such a useful tool so often neglected?

There are several reasons why a business might not effectively forecast their cash flow, but one of the biggest reasons is it is time-consuming and has the notion of being difficult!

That’s why we’ve created this guide, as well as several other business-specific guides on our blog.

Right now, we’re in times where markets are volatile, making it absolutely essential to have a cash flow forecast to help you plan the path forward.

In this article we’ll go through the steps to create a cash flow forecast for a food van business and build a plan together at the end. Whether you’re just getting started, or are forecasting an existing business, you’ll find this useful.

By the end of this article, you’ll go from this:

To this:


The elements to any successful cash flow forecast

Traditionally, a cash flow forecast contains 4 main elements:

  1. The length of time you’ll forecast for
  2. How much your costs are
  3. The sales forecast
  4. The timing of payments

How long should a cash flow forecast for a food van be?

A typical cash flow forecast can range from weeks to months to years.

The length of your forecast really depends on your goals, what’s the reason for you creating a forecast?

Are you:

  1. Monitoring cash over the short term, ensuring your business stays afloat during tricky periods?
  2. Looking to the future and planning strategic growth?
  3. Creating a business plan for investment

Your answer could be one, two, or mixture of the three.

If your answer is monitoring short term cash, then you’ll want a shorter forecast, 13 weeks is a great length – we wrote an article all about why, here.

If your answer is to plan your strategic growth or look for investment, then you’ll need a longer forecast. 

Investors and banks like 3-5 years as a minimum, as it outlines how you plan to grow and eventually give them a return on investment. 

If you’re looking to plan your company’s growth then you’ll need to look at least 3 years ahead. This is so you’re able to see when you can make the financial decisions that impact your growth.

For example, your success might depend having a revenue of 100,000 but this isn’t possible without hiring 8 people. You need to plan for the long term to see the impact of hiring these 20 people.

Remember that the further out into the future you go, the less accurate your forecast will be.

Accuracy isn’t the be-all and end-all of forecasting, we’re talking about predictions here, and as 2020 proved, no prediction can be truly accurate! 

What forecasting let’s you do is ask questions about the future, to help you better prepare for it. 

It’s highly unlikely that all your predictions will come true, but if one does, you’ll be prepared!

So there’s not really a right or wrong answer here, but typically we’d suggest a forecast of 3-5 years, broken down into months. 

Focus on creating an accurate plan for the first 12 months. Beyond that, the accuracy will drop off. But provided you are basing your forecast off solid research and assumptions then this keeps it as grounded in reality as possible allowing you to still plot out your long term goals.


The next step is to list out all your costs.


Costs associated with a food van business

In this section you’ll need to list out every cost associated with your business, everything from stock purchases to gas and electric. Everything.

It’s easy to forget things so go through each area of your business in isolation.

Existing businesses have it easy here, you only need to look at past bank statements or accounts to understand the costs.

Now, if you’re a startup it’s slightly more tricky, you’ll have more costs and you don’t have past data to look back at!

I’ll get you started, here’s a list of typical costs for a Startup Food Van:

One off costs

  • Van: £20,000
  • Custom conversion: £5000
  • Branding: £2500
  • Coffee machines: £2000
  • Fridges: £500 x2
  • Initial stock purchase: £1200
  • Blackboard sandwich board: £50

Insurance & licenses- Paid Annually

  • Public Liability Insurance: £324.30
  • Car insurance: £950
  • Road tax: £150
  • Street food license: £200

Marketing – Paid Monthly

  • Social media ads: £50
  • Print adverts: £25

Ongoing costs –  Monthly

  • Utilities: £100

There are obviously more than the ones I’ve listed here, but this should help you along!

Once you’ve got your costs listed, you should have an idea of the minimum amount you need to generate each month in sales to cover your costs. This will help guide you through the next section, the sales forecast.


Planning a sales forecast for a Food Van business

Once again, if you are an existing business, you’ll have a head start here over startups.

You’ll have some past data to look back on, which you can use as a base guide. 

You can then factor in the effect of the activities you introduce to increase sales growth. 

For example if you run a marketing campaign that has a conversion rate of 2%, you know that that month you can increase sales 2% from the benchmarks you set in the prior year.

Startups don’t have the luxury of this previous data.

Past data is a huge benefit, but it doesn’t mean Startups have to pull values out of thin air, a lot of the information you need is available and can be derived from your market research.

Read more: How to create a financial forecast with no historical data

If you’ve read my original article on starting a food van business, you’ll know we created a hypothetical coffee van, we did a lot of research about competitors and actually based pricing off those competitors.

In fact, starting with assumptions based on your competitors is a great place to start. You can plug these figures into a financial model and see how many products at your competitors prices you’d have to sell to cover your costs.

You can then tinker with your pricing and create some best, worst and base case scenarios based on your confidence levels.

Naturally we do have a more detailed guide on planning a sales forecast, check it out here.

The timing of payments

The timing of payments is often overlooked. It’s hugely important in understanding your cash flow forecast. 

It’s all very well and good having sales of £100k in one month but if that money doesn’t hit your bank until next month, what happens? Will you have enough cash to cover your costs whilst you wait?

Thankfully, as a food van, you’ll be likely taking payments by cash and card, in fact, it is not uncommon for businesses of this type to only take cash payments.

Having this cash available straight away takes away one of the biggest headaches business owners have. 

That does mean you don’t have to plan or understand the timing of payments.

Every line on the cash flow needs to be thought about, sales might be cash in hand but what about everything else?

Here’s some examples of items you need to reserve cash for:

  • Stock that you buy will need to be purchased in advance and possibly could expire
  • When will you pay sales tax / VAT?
  • When will you need to pay licenses & insurance? Monthly or annually?

Understanding when each and every payment comes out of your bank will allow you to stay on top of your cash flow more easily and help avoid those nasty surprises!


Building your Food Van Cash Flow Forecast

Now we understand the theory, and have some details to hand, we can start to actually build a forecast.

For this section, I’ll be building my cash flow forecast in a Brixx plan. 

Brixx is a financial forecasting and business modelling tool – allowing you to forecast Cash Flow, P&L and Balance Sheet up to 10 years in the future.

You can follow along by starting a free 7 day trial or with a free template.

With that out of the way, let’s get cracking.

Step 1) Plan creation 

When starting a plan in Brixx, you’ll get the following screen.

Title your plan as you’d like, in this example I’ve decided to go with a coffee van idea. 

Enter your forecast start date and ensure currency is on. Tax is up to you, depends on how hopeful you are (as of writing, in the UK, VATis only required for businesses with a turnover greater than £85k)

Now hit create plan.

The next screen you’ll see is this:

In the centre is your Cash Flow Dashboard, which creates automatically from your inputs.

You enter your data in “components” which you can see here on the left hand side. These are categorised data type:

  • Income
  • Expenditure
  • Asset 
  • Finance

You use these components as the building blocks of your business.

Alright, let’s start entering this business into Brixx.

Step 2) Entering your income forecast

This is where you need to use the information you derived in the sales forecast section earlier.

You need to know or have a rough idea of what kind of products you’re selling, and break them down as much as possible. 

For example, in this coffee van business, instead of just having one income component for “coffee”, you might break it down into lattes, mochas, cappuccino, americano etc.

I’ve demonstrated this below by adding a few products – Lattes and Americanos under ‘Coffee Sales’, as well as two different types of cake under my ’Cake Sales’ group.

So, on my Brixx plan, I click “add component” and then I get a screen like the image above – I select “income”.

You can either enter the expected total revenue per month, or as income per unit. 

In this example, I’ve chosen income per unit, entered my sale price at £2.50 and expected 600 sales a month – see how I arrived at these figures in my original article. 

Keep your sales steady each month if you want to test whether your business model is viable.

But what’s a business owner without ambition? 

Let’s forecast some growth – I’ve set my 600 sales to increase 5% a month each month until the end of year, where I’ve set it to 3% growth a month.

I can do this easily in Brixx by entering my units as a table then selecting the “Fill” option. In Excel you can use a formula to get a similar result.

This represents standard % growth over 3 years, but real life isn’t quite that straight forward.

You’ll encounter fluctuations due to seasonality and market shifts. 

For example, right now at the time of writing (Feb 2021!), more people are out walking as we’re in the middle of a lockdown.

What happens when people have more options for spending their leisure time? You might want to predict a downturn or uptick in sales over the summer to reflect this.


Cost of Sales

You might have noticed I had a “cost of sales” component linked to each of my income components in the image above. 

Brixx cleverly allows you to link these together and does the calculations on your revenue automatically.

In the image below you can see there’s 3 options available, I’ve chosen “cost per unit sold” here, this makes the most sense as I’ve added my income as “income per unit”.

Brixx will automatically calculate total costs of sales based on your sales forecast – so varying your sales forecast will automatically vary cost of sales at the same time.

Step 3) Operational Costs

Operational costs are anything that contributes to the continued running of your business, this could be insurance, marketing costs, licenses, training…the list goes on.

They’re nicely predictable. You know how much you’ll pay any staff, you can get quotes for insurance and licenses etc.

You’ll need to remember that while they are not directly linked, when your sales increase, your operational costs might too.

For example, you might reach a point where you might need an extra pair of hands, so you’ll need to spend more on staffing.

We can use the costs I listed earlier and enter them into the plan:

Insurance & licenses- Paid Annually

  • Public Liability Insurance: £324.30
  • Car insurance: £950
  • Road tax: £150
  • Street food license: £200

Marketing – Paid Monthly

  • Social media ads: £50
  • Print adverts: £25

Ongoing costs –  Monthly

  • Utilities: £100

I’ve split costs into the relevant categories, and entered them as either monthly or annual payments.

Step 4) Assets

Assets are a big part of your food van business, as they do literally include your van itself!

Typically assets are either bought outright, financed or leased. The difference between financing and leasing is whether you own the asset at the end. 

Assets will also depreciate (lose value) over time, you can read more about how to depreciate your assets here.

Brixx will calculate depreciation for you. It won’t have an impact on your cash flow as there is no transfer of cash involved. It’s just a change in value of your asset. This will impact your cash flow if you ever need to sell assets at a later date for it’s depreciated value. 

In your forecast, you’ll need to factor these large, potentially upfront costs into your growth. Will you be able to afford them? Or will you need to take out a loan to do so?

Whether you’re a startup or existing business, you’ll also need to be aware that most of your assets are critical to your business. If things like your coffee machine, grills, fryers and fridges break, can you still work?

If your equipment does break down, will you have enough cash to either repair or replace them? As well as weather the lost sales in your downtime?

Questions like these can all be answered if you’ve forecasted well and run these scenarios in your model (Brixx can handle this really well by simply toggling components on or off to test simple scenarios).

Here’s what a cash flow forecast might look like after entering income, cost of sales, operating costs and assets…

Now, unless you’ve got a lot of cash in savings, you need to think about financing these costs. If you’re an existing business, you can skip ahead to the next section about growth.


Financing your Food Van Startup

Startups can find their list of costs a little overwhelming, depending on your sector, costs can be in the six figure range. 

Then there’s the depressing fact that very few startups will turn a profit in the first year, let alone first months.

Now – unless you’ve got lots of cash sitting in savings, or a converted van lying around, you’ll likely need to find some money!

Very small amounts of cash often do not require business plans and forecasts. But larger amounts normally require you to apply for funding in a more traditional sense.

There are several different types of investor that you can approach for funding, or you can get a business loan – it’s up to you.

Whichever you go with, factoring in your loan and/or dividend payments into your plan are an absolute necessity.

In my example plan I’ve set up a business loan for £22,500, which covers the cost of the van and conversion.

You can see in the image above, I’ve set it up for 3 years at 5% interest.

You can also set capital or equity payments in Brixx, allowing you complete flexibility.

This completes your forecast! But don’t go anywhere yet, we’re just about to get onto the most important section!


Growing your Food Van(s!)

I’ll start this section by saying that if you’re quite content with having your food van as a side business or just a hobby, then that’s completely fine! 

Not every business owner has dreams of world domination.

But, many do! At the same time, many don’t realise that a great cash flow forecast is one of the best tools in your arsenal to help you achieve that.

This is where tools like Brixx really shine, allowing you to easily model the future of your business with modular components that represent real parts of your business, rather than complex, formulae based spreadsheets.

So, with a bright future in mind, let’s model an expansion to the coffee van in Brixx.

This coffee van startup is looking to expand by adding a second van in a city centre.

I’m going to set my plan length to 5 years to give myself more time to model the expansion.

I have duplicated my income and cost of sales components as the new van will be selling the same products – sales have been adjusted as I expect city centre footfall to be greater.

I’ve also duplicated the costs associated with running my food van – such as insurance, utilities etc.

I’ll also create a two separate components for 2 staff members which will run the second van.


I anticipate a ramp up period for the second van, so the van can run on one staff member for the first few months, bringing in the second around a typically busy Christmas period. 

I also need to take out an extra loan for a second van and for more branding. I’ll be doing this with a business loan again – I’ve set this to start earlier than my second van purchase as I need time to procure the van and arrange the branding.

You’ll see in the images above I’ve used the Timeline feature in Brixx to tentatively start my second van activities in mid 2022. 

I can use this timeline to quickly move groups or individual components back or forwards which makes it ideal for testing scenarios like expanding a business.

So, how do you get an idea of when you can expand?

There’s a couple of things that we need to see happening in the cash flow forecast before we can look at expanding.

  • Income from my current van needs to be steady each month
  • Must be able to afford extra monthly payments for a new van and extra staff

The way I have gone about this is to add in my extra components with the costs associated with the new van. I can then see the impact on my cash flow each month.

By then using the timeline feature, I can move each group of components back until I reach a point where my cash flow turns green (the Closing Bank Position line on the Cash Flow) and I can afford the costs.

This method only works if your cash flow is built upon good assumptions – if you’re not confident in your forecast then you can’t be confident in your growth.

Typically business owners create 3 scenarios, their best, worst and base case scenarios, if your plans work in your worst case, then it’s probably a good move – again provided you are forecasting sensibly!

Naturally, circumstances change, unpredictable events happen, you might have a fire in your van or you might need to purchase a new coffee machine which sets you back a few months.

This is where Brixx is great, the Timeline allows you to quickly move expansion plans back or adding in a replacement asset if one is damaged, taking into account new circumstances.

You can also track progress towards your goals by comparing your actuals vs your forecasts in Brixx too, keeping you on the right path.


Conclusion

A long term cash flow forecast can help you plan activities that help achieve your growth – they tell you when you might be able to invest cash as well as model the impact of that cash.

This is why returning to your forecast regularly is key to efficient growth.

Tracking your actuals against your forecasts helps you keep on track and monitor how each part of your business is working. But not only this – it’ll give you real data to base your future forecasts off, making your predictions for the future even more realistic.

Modeling answers to key “what-if” scenarios will help you get ahead of the curve, simulating problems and opportunities before they occur. This will help you stress test your business and understand how sensitive it is to internal and external market forces. 

Here’s some examples of scenarios you might want to run:

  • When you can hire more staff
  • When you can buy another van
  • What would happen if there was a 20% drop in footfall?
  • If my supplier puts up prices 20% will I need to increase my prices?

The list is endless, modelling the answer to as many questions as you possibly can will help you prepare for every feasible event and ultimately, help you plan your growth.

Start modelling your business’ future today with a free 7 day trial of Brixx.

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