Why you need to calculate Financial Projections ?

Every entrepreneur comes out with his set of ideas. And truly, Idea IS the catalyst for a business to take existence. However, it's continuous cash-flow/ profit awareness which makes the business succeed. For this, every business should get their Financial Projections done after the initial built up of Business Model Canvas.

What are financial projections, and why they are vital ?

An idea is an imagination. A Business Model Canvas is a little detailed imagination. Once you actually document the revenue-expenses on each of the component, it gives you a near-true picture as to where do you stand financially. So you can adjust factors.

How long should one project ?

Minimum 3 years and ideally 5 years. As any business is expected to go through some hi-lows during the period. After this passage, the business owner knows the tricks of the trade. I would recommend to make 5 year projections for 1-gen entrepreneur and 3 year projections for 2nd,3rd gen entrepreneurs.

Standardized Project Reports are useless

There are many available on the internet. However, I would suggest you to get it done from a chartered accountant who will need inputs from you, for your project. There can't be a standard project report for a 2000 LPH plant. True, it can give you a nearby cost, but finally your overheads are different. Other costs like distribution cost, admin expenses will be different in each area.

Myth of a standard "Per Bottle Costing"

 "What is the manufacturing and selling cost per bottle"

This is a usual question posted by so many people on youtube, since we have many videos on various aspects of packaged drinking water business. No fault of them. However, let me clarify this aspect through a post below :-

Manufacturing Costs are costs incurred while producing the packaged drinking water till a particular point in the whole business process. Let us assume that it starts with Groundwater extraction process and ends when the bottle is inspected for quality after producing & packaging in its required quantity, say 1 Ltr or 1/2 Ltr, and kept in ready condition for despatch.

Similar Way, Selling Costs are costs incurred right from leaving the factory, distribution through various points and ends when payment realizes in the account.

All the instances, where the business pays out something, is COST to the business.

Here, to calculate the exact, non-varying cost per bottle, we need following inputs :

1. How many bottles are produced in the time-cycle
2. What were the pay-outs during the same

In these cost components, certain are Fixed ( Indirect Expenses ) while certain are varying ( Direct Expenses ). Usually Indirect Expenses are constant irrespective of your production whereas direct expenses vary, change with the quantity of bottles produced.

To take an example; Admin/Office Expenses, Financial payouts are constant, whereas Preform, Label, Packaging Supplies payouts will change, vary as per the quantity of bottles produced during the day/ cycle/batch.

You may clearly understand that there is 1 component in the costing is non-varying, and another is varying. To match this cost, you will need :-

• A fix production plan ( irrespective whether you have own plant or get it done )
• This plan has to be flexible, which replies to changing market conditions
• A non-defying commitment to execute this plan till we achieve first set of results, say 1st quarter.

Otherwise this blanket rule of "Per bottle Cost" is a pure shallow market pulling myth.

What does the cost of bottled water include other than the Itself?

 The Cost of Bottled Water

If you observe the Packaged Drinking Water Bottle, you will observe the following visible cost components :-

1. The Water
2. The Bottle 
3. The Cap 
4. The Label
5. The ink which prints the Batch & Price Information

Besides these, there are other components, which are indirectly responsible for the produce of the Bottled Water & even reaching to the citizens like :-

• The Machinery & Equipment Cost, its investment cost (for the banker)
• The legal cost of the whole business as it is strictly regulated by Law.
• The Profit of the Business Owner while producing the water
• The Profit of the distribution Channel which makes you get the water at your doorstep

These all can be called as the Cost Components. A very close look at these factors can serve a great deal for any future plant setup. We do cover this in details inside our training sessions.