How to create a financial forecast for a cowpea farm?
If you are serious about keeping visibility on your future cash flows, then you need to build and maintain a financial forecast for your cowpea farm.
Putting together a cowpea farm financial forecast may sound complex, but don’t worry, with the right tool, it’s easier than it looks, and The Business Plan Shop is here to guide you.
In this practical guide, we'll cover everything you need to know about building financial projections for your cowpea farm.
We will start by looking at why they are key, what information is needed, what a forecast looks like once completed, and what solutions you can use to create yours.
Let's dive in!
Why create and maintain a financial forecast for a cowpea farm?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your cowpea farm and ensure that it can be financially viable in the years to come.
A financial plan for a cowpea farm enables you to look at your business in detail - from income to operating costs and investments - to evaluate its expected profitability and future cash flows.
This gives you the visibility needed to plan future investments and expansion with confidence.
And, when your trading environment gets tougher, having an up to date cowpea farm forecast enables you to detect potential upcoming financing shortfalls in advance, enabling you to make adjustments or secure financing before you run out of cash.
It’s also important to remember that your cowpea farm's financial forecast will be essential when looking for financing. You can be 100% certain that banks and investors will ask to see your numbers, so make sure they’re set out accurately and attractively.
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 needed to build a cowpea farm financial forecast?
The quality of your inputs is key when it comes to financial modelling: no matter how good the model is, if your inputs are off, so will the forecast.
If you are building a financial plan to start a cowpea farm, you will need to have done your market research and have a clear picture of your sales and marketing strategies so that you can project revenues with confidence.
You will also need to have a clear idea of what resources will be required to operate the cowpea farm on a daily basis, and to have done your research with regard to the equipment needed to launch your venture (see further down this guide).
If you are creating a financial forecast of an existing cowpea farm, things are usually simpler as you will be able to use your historical accounting data as a budgeting base, and complement that with your team’s view on what lies ahead for the years to come.
Let's now zoom in on what will go in your cowpea farm's financial forecast.
The sales forecast for a cowpea farm
The sales forecast, also called topline projection, is normally where you will start when building your cowpea farm financial forecast.
Creating a coherent sales projection boils down to estimating two key drivers:
- The average price
- The number of monthly transactions
To do this, you will need to rely on historical data (for an existing business), market research data (for both new and existing cowpea farms), and consider the elements below:
- Your cowpea farm's geographical location can greatly impact the average price and number of monthly transactions. For example, if your farm is located in an area with high demand for cowpeas, you may be able to sell them at a higher price and have more frequent transactions.
- The weather conditions in your region can also affect your sales forecast. Cowpeas grow best in warm and dry climates, so if your area experiences excessive rain or extreme heat, it may result in lower crop yields and therefore fewer transactions.
- The quality and variety of cowpeas you offer can impact your average price and number of transactions. If you have a wide variety of high-quality cowpeas, you may be able to attract more customers and charge a premium price.
- The availability of labor can also play a role in your sales forecast. If you have enough skilled labor to tend to your cowpea farm, you may be able to increase your productivity and potentially lower your average price to remain competitive in the market.
- The demand for alternative crops can influence your cowpea sales. If there is a sudden increase in demand for a different crop, it may result in a decrease in demand for cowpeas and therefore impact your sales and average price.
After the sales forecast comes the operating expenses budget, which we will now look into in more detail.
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 a cowpea farm
The next step is to estimate the costs you’ll have to incur to operate your cowpea farm.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your cowpea farm's operating expenses should normally include the following items:
- Seeds: You will need to purchase cowpea seeds for each planting season. The cost of seeds will depend on the size of your farm and the quality of the seeds you choose.
- Fertilizers: Cowpeas require specific nutrients to grow and produce a good yield. You will need to purchase fertilizers to provide these nutrients to your crops.
- Pesticides and herbicides: To protect your cowpea plants from pests and weeds, you will need to invest in pesticides and herbicides. The type and amount of these products will depend on the size of your farm and the severity of pest and weed problems.
- Labor costs: Farming cowpeas will require manual labor for planting, weeding, and harvesting. You may also need to hire extra help during peak seasons. Make sure to budget for labor costs in your operating expenses.
- Irrigation: Cowpeas require consistent watering to grow and produce a good yield. If you do not have access to natural sources of water, you will need to invest in irrigation equipment and pay for the water supply.
- Fuel and maintenance: If you use machinery for planting, weeding, or harvesting, you will need to budget for fuel and maintenance costs.
- Storage: After harvesting, you will need to store your cowpeas until they are sold. You may need to invest in storage facilities or rent space in a warehouse.
- Transportation: You will also need to transport your cowpeas from your farm to the market. This will incur costs such as fuel, vehicle maintenance, and labor.
- Marketing and advertising: To attract buyers and sell your cowpeas, you may need to invest in marketing and advertising strategies. This can include creating flyers, attending farmer's markets, or advertising online.
- Accountancy fees: Keeping track of your farm's finances and taxes can be complex. You may need to hire an accountant to help you with bookkeeping and tax preparation.
- Insurance: Protect your farm and assets by investing in insurance. This can include crop insurance, liability insurance, and equipment insurance.
- Software licenses: There are many software programs available for farm management, accounting, and data analysis. You may need to purchase licenses for these programs to help you run your cowpea farm more efficiently.
- Banking fees: If you have a business bank account, you may incur fees for transactions, wire transfers, and other services. Make sure to budget for these fees in your operating expenses.
- Training and education: As a farmer, it is important to stay updated on the latest techniques and technologies in the industry. You may need to invest in training and education programs for yourself and your employees.
- Equipment rental: If you do not have the necessary equipment for farming cowpeas, you may need to rent or lease equipment such as tractors, plows, and harvesters.
This list is not exhaustive by any means, and will need to be tailored to your cowpea farm's specific circumstances.
What investments are needed to start or grow a cowpea farm?
Your cowpea farm financial forecast will also need to include the capital expenditures (aka investments in plain English) and initial working capital items required for the creation or development of your business.
For a cowpea farm, these could include:
- Farm land: You will need to purchase or lease land to grow your cowpeas. This will be a major capital expenditure, and the cost will depend on the location and size of the land you choose.
- Irrigation system: Cowpeas require consistent watering to grow, and a proper irrigation system will be necessary for your farm. This could include drip irrigation, sprinklers, or a water pump.
- Farm equipment: To plant, harvest, and maintain your cowpeas, you will need to invest in farm equipment such as tractors, plows, and sprayers. These will be essential for the success of your farm.
- Storage facilities: Once your cowpeas are harvested, you will need a place to store them. This could include a storage shed or silo, which will protect your crops from pests and weather elements.
- Greenhouse: Depending on your location and climate, you may need to invest in a greenhouse to grow your cowpeas. This will provide a controlled environment for your crops and extend your growing season.
Again, this list will need to be adjusted according to the size and ambitions of your cowpea farm.
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 cowpea farm
The next step in the creation of your financial forecast for your cowpea farm 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 cowpea farm?
Now let's have a look at the main output tables of your cowpea farm's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your cowpea farm is likely to be in the years to come.
For your cowpea farm to be financially viable, your projected P&L should ideally show:
- Sales growing above inflation (the higher the better)
- Profit margins which are stable or expanding (the higher the better)
- A net profit at the end of each financial year (the higher the better)
This is for established cowpea farms, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.
The projected balance sheet
The projected balance sheet gives an overview of your cowpea farm'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 cowpea farm. 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 cowpea farm 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 cowpea farm'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 cowpea farm 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 cowpea farm's financial forecast?
Creating your cowpea farm'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 cowpea farm'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.
Calling in a financial consultant or chartered accountant
Outsourcing the creation of your cowpea farm financial forecast is another possible solution.
This will cost more than using software as you can expect as your price will have to cover the accountant’s time, software cost, and profit margin.
Price can vary greatly based on the complexity of your business. For a small business, from experience, a simple three-year financial forecast (including a balance sheet, income statement, and cash flow statement) will start at around £700 or $1,000.
Bear in mind that this is for forecasts produced at a single point in time, updating or tracking your forecast against actuals will cost extra.
If you decide to outsource your forecasting:
- Make sure the professional has direct experience in your industry and is able to challenge your assumptions constructively.
- Steer away from consultants using sectorial ratios to build their client’s financial forecasts (these projections are worthless for a small business).
Why not use a spreadsheet such as Excel or Google Sheets to build your cowpea farm's financial forecast?
Creating an accurate and error-free cowpea farm 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.
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 cowpea farm, 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
- 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.
- Tracking actuals vs. forecast and keeping your financial projections up-to-date is the only way to get a view on what your cowpea farm future cash flows may look like.
- 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 cowpea farm, we hope you found it useful. Don't hesitate to contact us if you want to share your feedback or 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
- Example of financial forecast
- How to project revenues for a business?
- Example of financial forecast for business idea
Know someone who owns or is thinking of starting a cowpea farm? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
