How to create a financial forecast for a farm equipment rental company?
Creating a financial forecast for your farm equipment rental company, 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 farm equipment rental company 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 farm equipment rental company?
In order to prosper, your business needs to have visibility on what lies ahead and the right financial resources to grow. This is where having a financial forecast for your farm equipment rental company becomes handy.
Creating a farm equipment rental company financial forecast forces you to take stock of where your business stands and where you want it to go.
Once you have clarity on the destination, you will need to draw up a plan to get there and assess what it means in terms of future profitability and cash flows for your farm equipment rental company.
Having this clear plan in place will give you the confidence needed to move forward with your business’s development.
Having an up-to-date financial forecast for a farm equipment rental company is also useful if your trading environment worsens, as the forecast enables you to adjust to your new market conditions and anticipate any potential cash shortfall.
Finally, your farm equipment rental company's financial projections will also help you secure financing, as banks and investors alike will want to see accurate projections before agreeing to finance your business.
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 farm equipment rental company 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 farm equipment rental company, 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 farm equipment rental company 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 farm equipment rental company, 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 farm equipment rental company's financial forecast.
The sales forecast for a farm equipment rental company
From experience, it is usually best to start creating your farm equipment rental company financial forecast by your sales forecast.
To create an accurate sales forecast for your farm equipment rental company, you will have to rely on the data collected in your market research, or if you're running an existing farm equipment rental company, the historical data of the business, to estimate two key variables:
- The average price
- The number of monthly transactions
To get there, you will need to consider the following factors:
- Weather conditions: The weather can greatly affect the demand for farm equipment rentals. In times of drought, farmers may need to rent more irrigation equipment, while during wet seasons, they may need more tractors for plowing.
- Crop prices: Fluctuations in crop prices can impact the profitability of farming and, in turn, the demand for equipment rentals. Higher crop prices may lead to increased demand for rentals as farmers look to expand their operations.
- Government regulations: Changes in government regulations related to farming, such as restrictions on certain pesticides or subsidies for specific crops, can affect the types of equipment needed by farmers, and therefore, the demand for rentals.
- Technology advancements: Advances in farming technology can influence the types of equipment in demand by farmers. For example, the introduction of new precision farming tools may lead to an increase in demand for rentals of GPS-guided tractors.
- Local economic conditions: The overall economic health of the local community can impact the demand for farm equipment rentals. A struggling economy may lead to decreased demand as farmers cut back on expenses, while a thriving economy may lead to increased demand for rentals.
Once you have an idea of what your future sales will look like, it will be time to work on your overhead budget. Let’s see what this entails.
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 farm equipment rental company
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your farm equipment rental company on a daily basis.
Expenses normally vary based on how much revenue you anticipate (which is why, from experience, it is always better to start your forecast with the topline projection), and where your business is based.
Operating expenses for a farm equipment rental company will include some of the following items:
- Staff costs: This includes salaries, wages, and benefits for employees such as rental equipment technicians, customer service representatives, and administrative staff.
- Accountancy fees: You will need to hire an accountant to help you keep track of your financial records and ensure compliance with tax laws.
- Insurance costs: As a rental company, you will need insurance to protect your equipment, property, and employees in case of accidents or damages.
- Software licenses: You may need to purchase software licenses for programs such as accounting software, customer management systems, and equipment tracking software.
- Banking fees: This includes fees for maintaining a business bank account, processing credit card payments, and wire transfer fees.
- Advertising and marketing expenses: In order to attract customers, you will need to invest in advertising and marketing efforts such as online ads, flyers, and social media campaigns.
- Rent: If you are renting a physical location for your business, you will need to include rent expenses in your operating costs.
- Utilities: This includes expenses for electricity, water, and internet services for your rental office and equipment storage facilities.
- Maintenance and repair costs: As a rental company, you will need to regularly maintain and repair your equipment to ensure it is in good working condition for your customers.
- Fuel costs: You will need to budget for fuel expenses for equipment that requires it, such as tractors and harvesters.
- Vehicle expenses: If you have company vehicles for transporting equipment, you will need to include expenses for gas, insurance, and maintenance in your forecast.
- Taxes and licenses: As a business, you will need to pay taxes and obtain necessary licenses and permits to operate legally.
- Legal fees: You may need to consult with a lawyer for legal advice or representation in case of disputes or other legal matters.
- Office supplies: This includes expenses for items such as paper, pens, and printer ink for your rental office.
- Training and development: You may need to invest in training programs for your employees to ensure they have the necessary skills to operate and maintain equipment.
This list will need to be tailored to the specificities of your farm equipment rental company, but should offer a good starting point for your budget.
What investments are needed to start or grow a farm equipment rental company?
Creating and expanding a farm equipment rental company also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a farm equipment rental company could include elements such as:
- Farm Equipment: This includes the cost of purchasing or leasing farm equipment such as tractors, combines, plows, and other machinery used for planting, harvesting, and other farm operations.
- Storage Facilities: As a farm equipment rental company, you will need to invest in storage facilities to keep your equipment safe and protected from harsh weather conditions. This includes building or renting storage sheds, barns, or warehouses to store your equipment.
- Transportation Vehicles: In order to transport your farm equipment to different locations for rental, you will need to invest in transportation vehicles such as trucks, trailers, or flatbeds. These vehicles will also require maintenance and insurance costs.
- Maintenance and Repair: As with any machinery, farm equipment will require regular maintenance and repairs to ensure they are in good working condition. This may include purchasing spare parts, hiring mechanics, or investing in maintenance equipment such as tools and diagnostic devices.
- Technology Upgrades: In today's digital age, technology plays a crucial role in farm operations. As a farm equipment rental company, you may need to invest in technology upgrades such as GPS systems, precision farming tools, or software to manage your rental bookings and inventory.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your farm equipment rental company.
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 farm equipment rental company
The next step in the creation of your financial forecast for your farm equipment rental company 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 farm equipment rental company?
Now let's have a look at the main output tables of your farm equipment rental company's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your farm equipment rental company's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a farm equipment rental company should normally show:
- Sales growing above inflation
- Stable or expanding (ideally) profit margins
- A net profit
This will of course depend on the stage of your business: a new venture might be loss-making until it reaches its breakeven point in year 2 or 3, for example.
The projected balance sheet
Your farm equipment rental company's projected balance sheet provides a snapshot of your business’s financial position at year-end.
It is composed of three types of elements: assets, liabilities and equity:
- Assets: represent what the business possesses including cash, equipment, and accounts receivable (money owed by clients).
- Liabilities: represent funds advanced to the business by lenders and other creditors. They include accounts payable (money owed to suppliers), taxes payable and loans from banks and financial institutions.
- Equity: is the combination of what has been invested by the business owners and the cumulative profits and losses generated by the business 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 farm equipment rental company'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 farm equipment rental company:
- 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 farm equipment rental company'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 farm equipment rental company'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 farm equipment rental company's financial forecast?
Creating your farm equipment rental company'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 farm equipment rental company'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.
Hiring a financial consultant or chartered accountant
Hiring a consultant or chartered accountant is also an efficient way to get a professional farm equipment rental company financial projection.
As you can imagine, this solution is much more expensive than using software. From experience, the creation of a simple financial forecast over three years (including a balance sheet, income statement, and cash flow statement) is likely to start around £700 or $1,000 excluding taxes.
The indicative estimate above, is for a small business, and a forecast done as a one-off. Using a financial consultant or accountant to track your actuals vs. forecast and to keep your financial forecast up to date on a monthly or quarterly basis will naturally cost a lot more.
If you choose this solution, make sure your service provider has first-hand experience in your industry, so that they may challenge your assumptions and offer insights (as opposed to just taking your figures at face value to create the forecast’s financial statements).
Why not use a spreadsheet such as Excel or Google Sheets to build your farm equipment rental company's financial forecast?
Creating an accurate and error-free farm equipment rental company 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 forecast templates available.
Our examples contain a complete business plan with a financial forecast and a written presentation of the company, the team, the strategy, and the medium-term objectives.
Whether you are just starting out or already have your own farm equipment rental company, looking at our financial forecast template is a good way to:
- Understand what a complete business plan should look like
- Understand how you should model financial items for your farm equipment rental company
Takeaways
- A financial forecast shows expected growth, profitability, and cash generation metrics for your farm equipment rental company.
- Tracking actuals vs. forecast and having an up-to-date financial forecast is key to maintaining visibility on your future cash flows.
- Using financial forecasting software is the modern way of creating and maintaining financial projections.
We hope that this guide helped you gain a clearer perspective on the steps needed to create the financial forecast for a farm equipment rental company. Don't hesitate to contact us if you 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
- Financial forecast example
- How to create a sales forecast for a business?
- Example of financial forecast for business idea
Know someone who runs a farm equipment rental company? Share our business guide with them!
Founder & CEO at The Business Plan Shop Ltd
