How to create a financial forecast for a farming equipment store?
If you are serious about keeping visibility on your future cash flows, then you need to build and maintain a financial forecast for your farming equipment store.
Putting together a farming equipment store 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 farming equipment store.
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 farming equipment store?
The financial projections for your farming equipment store act as a financial blueprint to guide its growth with confidence and ensure its long-term financial viability.
To create them, you will need to look at your business in detail - from sales to operating costs and investments - to assess how much profit it can generate in the years to come and what will be the associated cash flows.
During challenging market conditions, maintaining an up-to-date financial forecast enables early detection of potential financial shortfalls, allowing for timely adjustments or securing financing before facing a cash crisis.
Your farming equipment store's financial forecast will also prove invaluable when seeking financing. Banks and investors will undoubtedly request a thorough examination of your financial figures, making precision and presentation essential.
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 farming equipment store financial forecast?
A farming equipment store's financial forecast needs to be built on the right foundation: your assumptions.
The data required to create your assumptions will depend on whether you are a new or existing farming equipment store.
If you are creating (or updating) the forecast of an existing farming equipment store, then your main inputs will be historical accounting data and operating metrics, and your team’s view on what to expect for the next three to five years.
If you are building financial projections for a new farming equipment store startup, you will need to rely on market research to form your go-to-market strategy and derive your sales forecast.
For a new venture, you will also need an itemised list of resources needed for the farming equipment store to operate, along with a list of equipment required to launch the venture (more on that below).
Now that you understand what is needed, let’s have a look at what elements will make up your farming equipment store's financial forecast.
The sales forecast for a farming equipment store
The sales forecast, also called topline projection, is normally where you will start when building your farming equipment store 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 farming equipment stores), and consider the elements below:
- Local Weather Patterns: The variability of weather patterns in your local area can greatly impact the demand for farming equipment. For example, a particularly dry year may lead to an increase in sales of irrigation equipment, while a wet year may result in decreased demand for tractors and other machinery.
- Government Policies and Subsidies: Changes in government policies and subsidies can have a significant impact on the pricing and affordability of farming equipment. For instance, if the government introduces new subsidies for renewable energy, there may be an increase in demand for solar-powered farming equipment.
- Technological Advancements: Advancements in farming technology can affect the average price and number of monthly transactions for your store. For example, the introduction of precision farming technology may lead to higher-priced equipment but also an increase in sales due to its efficiency and effectiveness.
- Crop Prices: The prices of crops can also impact the sales of farming equipment. When crop prices are high, farmers may be more willing to invest in new machinery to increase their productivity and profits. On the other hand, low crop prices may result in a decrease in demand for farming equipment.
- Changes in Farming Practices: Changes in farming practices, such as a shift towards organic farming or no-till farming, can also affect the types of equipment that are in demand. It is important to stay updated on industry trends and adjust your inventory and pricing accordingly.
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 farming equipment store
The next step is to estimate the costs you’ll have to incur to operate your farming equipment store.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your farming equipment store's operating expenses should normally include the following items:
- Staff Costs: This includes salaries, wages, and benefits for all employees of your farming equipment store, including sales staff, mechanics, and office staff.
- Accountancy Fees: You may need to hire an accountant to help with bookkeeping, tax preparation, and financial forecasting for your farming equipment store.
- Insurance Costs: It is important to have insurance to protect your farming equipment store from potential risks such as theft, damage, or liability.
- Software Licences: You may need to purchase software licences for programs that help with inventory management, customer relations, or accounting for your farming equipment store.
- Banking Fees: This includes fees for maintaining a business bank account, processing credit card payments, and other banking services.
- Rent or Mortgage Payments: If you do not own the building where your farming equipment store is located, you will need to pay rent or a mortgage payment each month.
- Utilities: This includes electricity, water, and gas for your farming equipment store.
- Marketing and Advertising: You may need to invest in marketing and advertising efforts to promote your farming equipment store and attract customers.
- Inventory Costs: This includes the cost of purchasing and storing inventory, such as tractors, plows, and other farming equipment.
- Maintenance and Repairs: Farming equipment requires regular maintenance and occasional repairs, which can be a significant operating expense for your store.
- Office Supplies: This includes items such as paper, pens, printer ink, and other supplies needed to run your farming equipment store.
- Shipping and Delivery: If you offer delivery services to your customers, you will need to factor in the cost of shipping and delivery fees.
- Professional Services: You may need to hire outside professionals, such as lawyers or consultants, for specific tasks related to your farming equipment store.
- Taxes and Licences: As a business owner, you will need to pay various taxes and fees, such as income tax, sales tax, and business licences.
- Training and Development: It is important to invest in training and development for your employees to ensure they have the necessary skills and knowledge to effectively run your farming equipment store.
This list is not exhaustive by any means, and will need to be tailored to your farming equipment store's specific circumstances.
What investments are needed to start or grow a farming equipment store?
Creating and expanding a farming equipment store also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a farming equipment store could include elements such as:
- Tractors: As a farming equipment store, you will need to purchase tractors for your customers to use on their farms. Tractors are essential for plowing, planting, and harvesting crops, and they can range in price from a few thousand dollars to tens of thousands of dollars depending on the size and features.
- Harvesters: Harvesters are another major capital expenditure for your farming equipment store. These machines are used to efficiently gather crops from the fields, and they come in various sizes and types depending on the type of crop being harvested. They can cost anywhere from a few thousand dollars to hundreds of thousands of dollars.
- Sprayers: Sprayers are necessary for applying fertilizers, herbicides, and pesticides to crops. Your farming equipment store may offer a variety of sprayers, including handheld, backpack, and mounted sprayers. These can range in price from a few hundred dollars to several thousand dollars.
- Irrigation Systems: Depending on the type of farming your customers engage in, you may need to offer irrigation systems as a capital expenditure. These systems are used to deliver water to crops through pipes, sprinklers, and other methods. The cost of irrigation systems can vary greatly depending on the size and complexity of the system.
- Storage Facilities: Many farms require storage facilities for their equipment, tools, and harvested crops. As a farming equipment store, you may offer different types of storage options, such as barns, sheds, or grain silos. The cost of these structures can range from a few thousand dollars to hundreds of thousands of dollars.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your farming equipment store.
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 farming equipment store
The next step in the creation of your financial forecast for your farming equipment store 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 farming equipment store?
Now let's have a look at the main output tables of your farming equipment store's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your farming equipment store is likely to be in the years to come.
For your farming equipment store 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 farming equipment stores, 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 farming equipment store'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 farming equipment store. 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 farming equipment store'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 farming equipment store:
- 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 farming equipment store'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 farming equipment store'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 farming equipment store's financial forecast?
Creating your farming equipment store'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 farming equipment store'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 farming equipment store 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 farming equipment store's financial forecast?
Creating an accurate and error-free farming equipment store financial forecast with a spreadsheet is very technical and requires a deep knowledge of accounting and an understanding of financial modelling.
Very few business owners are financially savvy enough to be able to build a forecast themselves on Excel without making mistakes.
Lenders and investors know this, which is why forecasts created on Excel by the business owner are often frowned upon.
Having numbers one can trust is key when it comes to financial forecasting and to that end using software is much safer.
Using financial forecasting software is also faster than using a spreadsheet, and, with the rise of artificial intelligence, software is also becoming smarter at helping us analyse the numbers to make smarter decisions.
Finally, like everything with spreadsheets, tracking actuals vs. forecasts and keeping your projections up to date as the year progresses is manual, tedious, and error-prone. Whereas financial projection 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 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
- 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 farming equipment store 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 farming equipment store, 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
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Founder & CEO at The Business Plan Shop Ltd
