How to create a financial forecast for a farm feed manufacturer?
Creating a financial forecast for your farm feed manufacturing business, 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 feed manufacturing business 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 feed manufacturing business?
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 feed manufacturing business becomes handy.
Creating a farm feed manufacturing business 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 feed manufacturing business.
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 feed manufacturing business 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 feed manufacturing business'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 feed manufacturing business 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 feed manufacturing business, 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 feed manufacturing business 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 feed manufacturing business, 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 feed manufacturing business's financial forecast.
The sales forecast for a farm feed manufacturing business
From experience, it is usually best to start creating your farm feed manufacturing business financial forecast by your sales forecast.
To create an accurate sales forecast for your farm feed manufacturing business, you will have to rely on the data collected in your market research, or if you're running an existing farm feed manufacturing business, 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:
- Seasonal demand: As a farm feed manufacturing business, your sales may be affected by the seasons. For example, during the winter months, there may be a higher demand for feed as farmers prepare for their animals to be indoors. This could result in an increase in your average price and number of monthly transactions.
- Weather conditions: Adverse weather conditions, such as droughts or floods, can impact the availability and price of crops used in animal feed. This could result in a decrease in your average price or a delay in monthly transactions as farmers wait for better conditions.
- Changes in regulations: Any changes in regulations regarding animal feed, such as new labeling requirements or restrictions on certain ingredients, can affect your business's average price. For example, if a new regulation requires additional testing or certification, your costs may increase, leading to a higher average price.
- Competition: The presence of other farm feed manufacturers in your area can affect your business's average price and number of monthly transactions. If there are several competitors offering similar products at lower prices, you may need to adjust your prices or offer promotions to remain competitive.
- Technological advancements: Advancements in technology, such as automated feed production systems, can affect the efficiency and cost of producing feed. This could result in a decrease in your average price or an increase in monthly transactions as you are able to produce more feed in less time.
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 feed manufacturing business
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your farm feed manufacturing business 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 feed manufacturing business will include some of the following items:
- Staff costs: This includes the salaries, benefits, and training expenses for your employees, such as production workers, quality control technicians, and administrative staff.
- Accountancy fees: You may need to hire an accountant to help you with tax preparation, financial statements, and other financial tasks for your farm feed manufacturing business.
- Insurance costs: As a business owner, it is important to protect your assets and mitigate risks by having insurance coverage for your business, including liability insurance, property insurance, and worker's compensation insurance.
- Software licences: In order to efficiently manage your inventory, orders, and finances, you may need to invest in software licences for programs such as accounting software, inventory management software, and production planning software.
- Banking fees: You may incur fees for bank transactions, such as wire transfers, check processing, and account maintenance, as well as for credit card processing fees for customer payments.
- Raw materials: As a feed manufacturer, you will need to purchase raw materials such as grains, protein sources, and minerals to produce your feed products.
- Packaging materials: You will also need to purchase packaging materials, such as bags, containers, and labels, to package and label your feed products.
- Utilities: Running a manufacturing business requires a significant amount of energy and water, so you will need to budget for electricity, gas, and water bills.
- Maintenance and repairs: You will need to maintain and repair your equipment and machinery to ensure they are functioning properly and to avoid any costly breakdowns.
- Marketing and advertising: To attract customers and promote your feed products, you may need to allocate funds for marketing and advertising efforts, such as trade shows, print ads, and online marketing.
- Transportation costs: You will need to transport your raw materials and finished feed products to and from your facility, so you will need to budget for fuel, vehicle maintenance, and shipping fees.
- Rent or mortgage: If you do not own your manufacturing facility, you will need to cover the cost of rent or mortgage payments for your space.
- Taxes and licenses: As a business owner, you will need to pay taxes on your business income and obtain any necessary licenses and permits to operate legally.
- Training and development: To stay competitive and up-to-date with industry trends and advancements, you may need to invest in training and development programs for yourself and your employees.
- Waste disposal: As a manufacturing business, you will generate waste that needs to be disposed of properly, so you will need to budget for waste disposal services and fees.
This list will need to be tailored to the specificities of your farm feed manufacturing business, but should offer a good starting point for your budget.
What investments are needed to start or grow a farm feed manufacturing business?
Creating and expanding a farm feed manufacturing business also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a farm feed manufacturing business could include elements such as:
- Machinery and Equipment: This includes items such as mixers, grinders, pelletizers, and other equipment necessary for the production of farm feed. These are fixed assets that will be used for a long period of time and are essential for your business operations.
- Facility Renovations: In order to produce high-quality farm feed, you may need to make certain renovations to your facility. This could include building additional storage space, upgrading existing facilities, or installing new equipment. These renovations are necessary for your business to run efficiently and produce the best feed possible.
- Transportation Vehicles: As a farm feed manufacturing business, you will need to transport your products to your customers. This may require investing in vehicles such as trucks or trailers. These are fixed assets that will help you deliver your products and grow your customer base.
- Computer Systems: In today's digital age, having reliable and up-to-date computer systems is crucial for any business. As a farm feed manufacturer, you will need computers for tasks such as inventory management, customer orders, and financial transactions. These are fixed assets that you will use on a daily basis to run your business.
- Packaging and Labeling Equipment: In order to sell your farm feed products, you will need to package and label them properly. This may require investing in packaging and labeling equipment such as bags, labels, and printers. These are fixed assets that will help you market and sell your products effectively.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your farm feed manufacturing 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.
The financing plan of your farm feed manufacturing business
The next step in the creation of your financial forecast for your farm feed manufacturing business 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 feed manufacturing business?
Now let's have a look at the main output tables of your farm feed manufacturing business's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your farm feed manufacturing business's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a farm feed manufacturing business 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 feed manufacturing business'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 projected cash flow statement
A projected cash flow statement for a farm feed manufacturing business 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 farm feed manufacturing business'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 farm feed manufacturing 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 feed manufacturing business's financial forecast?
Using the right tool or solution will make the creation of your farm feed manufacturing business's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your farm feed manufacturing business'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
Outsourcing the creation of your farm feed manufacturing business 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 farm feed manufacturing business'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 farm feed manufacturing business 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 farm feed manufacturing business'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 forecast shows expected growth, profitability, and cash generation metrics for your farm feed manufacturing business.
- 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 feed manufacturing business. 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?
- Financial forecast template for a business idea
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