How to create a financial forecast for a dairy farm?

Creating a financial forecast for your dairy farm, 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 dairy farm 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 dairy farm?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your dairy farm and ensure that it can be financially viable in the years to come.
A financial plan for a dairy 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 dairy 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 dairy 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 used as input to build a dairy farm financial forecast?
A dairy farm's financial forecast is only as good as the inputs used to build it.
If you are creating (or updating) the forecast of an existing dairy farm, then you mostly need your accounting information, key historical operating non-financial data, and your team’s input on what to expect for the coming years.
If you are building financial projections for a dairy farm startup, you will need to have done your research and have a clear picture of your competitive environment and go-to-market strategy so that you can forecast sales accurately.
For a new venture, you will also need a precise list of the resources needed to keep the dairy farm running on a day-to-day basis and a list of the equipment and expenditures required to start the business (more on that later).
Let's now take a closer look at the elements that make up your dairy farm's financial forecast.
The sales forecast for a dairy farm
The sales forecast, also called topline projection, is normally where you will start when building your dairy 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 dairy farms), and consider the elements below:
- Milk production: The amount of milk produced by your dairy farm each month can have a direct impact on your average price and number of transactions. If you have a higher milk production, you may be able to negotiate a better price with buyers, resulting in higher revenues. On the other hand, if you have a lower milk production, you may have to sell your milk at a lower price, leading to a decrease in revenues.
- Weather conditions: Weather can greatly affect the quality and quantity of milk produced by your cows. Extreme temperatures, drought, and heavy rainfall can all impact the health and productivity of your cows, ultimately affecting your average price and number of transactions. Keep a close eye on weather forecasts and take necessary precautions to mitigate any potential negative effects on your milk production.
- Grain prices: The cost of feed for your cows, such as grains and hay, can have a significant impact on your bottom line. If grain prices increase, your production costs will also increase, potentially leading to a decrease in your average price to remain competitive. This can also result in a decrease in your number of transactions as buyers may seek out cheaper options.
- Competition: The presence of other dairy farms in your area can affect your average price and number of transactions. If there is high competition in your area, you may have to adjust your prices to remain competitive, resulting in a decrease in your average price and potentially your number of transactions. On the other hand, if there is low competition, you may be able to charge a higher price for your milk and attract more buyers.
- Consumer preferences: Changes in consumer preferences can also impact your dairy farm's sales. For example, if there is a trend towards organic or locally sourced products, you may be able to charge a premium for your milk, resulting in a higher average price. However, if there is a decrease in demand for dairy products, you may have to lower your prices to attract buyers, leading to a decrease in your average price and number of transactions.
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 dairy farm
The next step is to estimate the expenses needed to run your dairy farm on a day-to-day basis.
These will vary based on the level of sales expected, and the location and size of your business.
But your dairy farm's operating expenses should include the following items at a minimum:
- Feed costs: This includes the cost of purchasing feed for your cows, such as hay, grain, and supplements.
- Labor costs: This includes the wages and benefits for the employees who work on your dairy farm.
- Utility costs: This includes the cost of electricity, water, and other utilities needed to operate your dairy farm.
- Equipment maintenance: This includes the cost of repairing and maintaining your farm equipment, such as tractors and milking machines.
- Veterinary expenses: This includes the cost of veterinary services, medicines, and vaccinations for your cows.
- Bedding costs: This includes the cost of purchasing bedding materials for your cows, such as straw or sawdust.
- Marketing and advertising: This includes the cost of promoting your dairy farm and products to potential customers.
- Accountancy fees: This includes the cost of hiring an accountant to help manage your finances and taxes.
- Insurance costs: This includes the cost of insuring your farm, equipment, and livestock.
- Software licenses: This includes the cost of purchasing and renewing any software licenses needed to manage your farm operations.
- Banking fees: This includes the cost of maintaining a bank account for your farm and any transaction fees.
- Fuel costs: This includes the cost of purchasing fuel for your farm vehicles and equipment.
- Building maintenance: This includes the cost of repairing and maintaining the buildings on your farm, such as barns and milking parlors.
- Waste disposal: This includes the cost of disposing of manure and other waste from your farm in a safe and environmentally friendly manner.
- Pest control: This includes the cost of controlling and preventing pests on your farm, such as rodents and insects.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small dairy farm might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow a dairy farm?
Your dairy 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 dairy farm, these could include:
- Dairy herd - This includes the purchase of cows, heifers, and bulls for your dairy farm. You may also need to invest in equipment such as milking machines and stanchions.
- Land and buildings - Dairy farms require a significant amount of land for grazing and building structures such as barns and milking parlors. You may also need to invest in renovation or construction costs for existing buildings.
- Milk storage and processing equipment - To ensure the safe and efficient handling of milk, you will need to invest in equipment such as bulk milk tanks, pasteurizers, and packaging machines.
- Feed and forage equipment - Dairy cows require a steady supply of feed and forage, which may include hay, silage, and grains. This may require investments in equipment such as tractors, hay balers, and forage harvesters.
- Utility and infrastructure improvements - Running a dairy farm requires significant energy and water usage. You may need to invest in upgrades to your utility systems, such as installing solar panels or upgrading water pumps and irrigation systems.
Again, this list will need to be adjusted according to the size and ambitions of your dairy 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 dairy farm
The next step in the creation of your financial forecast for your dairy 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 dairy farm?
Now let's have a look at the main output tables of your dairy farm'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 dairy farm'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 dairy farm will look different than for a startup.
The projected balance sheet
The projected balance sheet gives an overview of your dairy 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 dairy 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 cash flow forecast
Your dairy farm's cash flow forecast shows how much cash your business is expected to consume or generate in the years to come.

It is best practice to organise the cash flow forecast by nature to better explain where cash is used or generated by the dairy farm:
- Operating cash flow: shows how much cash is generated by the operating activities
- Investing cash flow: shows how much will be invested in capital expenditure to maintain or expand the business
- Financing cash flow: shows if the business is raising new capital or repaying financiers (debt repayment, dividends)
Keeping an eye on (and regularly updating) your dairy farm's cash flow forecast is key to ensuring that your business has sufficient liquidity to operate normally and to detect financing requirements as early as possible.
If you are trying to raise capital, you will normally be asked to provide a monthly cash flow forecast in your dairy farm's financial plan - so that banks or investors can assess seasonal variation and ensure your business 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 dairy farm's financial projections?
Building a dairy farm financial forecast is not difficult provided that you use the right tool for the job. Let’s see what options are available below.
Using online financial forecasting software to build your dairy farm'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 dairy farm 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 dairy farm's financial forecast?
You and your financial partners need numbers you can trust. Unless you have studied finance or accounting, creating a trustworthy and error-free dairy farm financial forecast on a spreadsheet is likely to prove challenging.
Financial modelling is very technical by nature and requires a solid grasp of accounting principles to be done without errors. This means that using spreadsheet software like Excel or Google Sheets to create accurate financial forecasts is out of reach for most business owners.
Creating forecasts in Excel is also inefficient nowadays:
- Software has advanced to the point where forecasting can be done much faster and more accurately than manually on a spreadsheet.
- With artificial intelligence, the software is capable of detecting mistakes and helping decision-making.
Spreadsheets are versatile tools but they are not tailor-made for reporting. Importing your dairy farm's accounting data in Excel to track actual vs. forecast is incredibly manual and tedious (and so is keeping forecasts up to date). It is much faster to use dedicated financial planning tools like The Business Plan Shop which are built specially 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 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
- A financial projection shows expected growth, profitability, and cash generation for your business over the next three to five years.
- Tracking actuals vs. forecast and keeping your financial forecast up-to-date is the only way to maintain visibility on future cash flows.
- Using financial forecasting software makes it easy to create and maintain up-to-date projections for your dairy farm.
You have reached the end of our guide. We hope you now have a better understanding of how to create a financial forecast for a dairy farm. Don't hesitate to contact our team if you have any questions or want to share your experience building forecasts!
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 projections
- How to create a turnover forecast for a business?
- Financial forecast for a business idea
Know someone who runs or wants to start a dairy farm? Share our financial projection guide with them!