How to create a financial forecast for a flax farm?
Creating a financial forecast for your flax 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 flax 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 flax farm?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your flax farm and ensure that it can be financially viable in the years to come.
A financial plan for a flax 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 flax 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 flax 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 flax farm financial forecast?
A flax 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 flax 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 flax 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 flax 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 flax farm's financial forecast.
The sales forecast for a flax farm
The sales forecast, also called topline projection, is normally where you will start when building your flax 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 flax farms), and consider the elements below:
- Weather conditions: Flax growth and yield can be significantly affected by weather conditions, such as extreme heat or cold, drought, or heavy rain. This can impact the overall supply and quality of flax, which in turn can affect the average price and number of transactions for your business.
- Government policies and regulations: Changes in government policies and regulations related to agriculture, land use, or environmental protection can have a direct impact on your flax farm. For example, new regulations on water usage or land conservation may require you to make changes to your farming practices, which can affect your production and ultimately your sales forecast.
- Competition: The presence of other flax farms in the market can affect the supply and demand for your product. If there are many competitors in your area, this could drive down prices and decrease the number of transactions for your farm. On the other hand, if your farm is one of the few in the market, you may be able to charge a higher price and increase your sales.
- Pest and disease outbreaks: Flax crops are susceptible to various pests and diseases that can significantly reduce yield and quality. If there is an outbreak in your area, you may experience a decrease in supply, leading to a potential increase in price. However, if these outbreaks are widespread, it could also lead to a decrease in demand for flax products.
- Consumer trends and preferences: Consumer demand for flax products can be influenced by trends and preferences. For example, an increase in popularity of plant-based diets may lead to a higher demand for flax products, while a shift towards alternative fibers or materials may decrease demand. Keeping an eye on these trends can help you adjust your sales forecast 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 flax farm
The next step is to estimate the costs you’ll have to incur to operate your flax farm.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your flax farm's operating expenses should normally include the following items:
- Staff costs: This includes the salaries and wages of your farm workers, as well as any employee benefits such as health insurance or retirement plans.
- Accountancy fees: You may need to hire an accountant to help with bookkeeping, tax preparation, and other financial tasks related to your flax farm.
- Insurance costs: It's important to have insurance coverage to protect your flax farm from any potential risks, such as crop damage, equipment breakdown, or liability claims.
- Software licenses: As technology becomes more prevalent in agriculture, you may need to invest in software for tasks like record keeping and crop management.
- Banking fees: You may incur fees for services such as checking accounts, credit card processing, and wire transfers for your flax farm.
- Seed and fertilizer: These are essential inputs for growing flax and will need to be purchased regularly.
- Pest and weed control: Controlling pests and weeds is crucial for a successful flax crop, and you may need to purchase pesticides and herbicides.
- Fuel and energy costs: Running machinery and equipment, as well as powering irrigation systems, will contribute to your energy costs.
- Equipment maintenance and repairs: Regular maintenance and repairs for farm equipment, such as tractors and harvesters, are necessary to keep your farm running smoothly.
- Transportation expenses: You may need to transport your flax crop to market or deliver supplies to your farm, which will incur transportation costs.
- Marketing and advertising: To attract buyers for your flax, you may need to invest in marketing and advertising efforts.
- Water usage: Depending on your location, you may need to pay for water usage for irrigation or other purposes on your flax farm.
- Rent or land lease: If you do not own the land you are farming on, you may need to pay rent or a lease agreement for use of the land.
- Labor costs: In addition to staff costs, you may also need to hire seasonal or temporary labor for tasks like planting and harvesting.
- Taxes and permits: As a business owner, you will need to pay taxes on your flax farm, as well as obtain any necessary permits for operating.
This list is not exhaustive by any means, and will need to be tailored to your flax farm's specific circumstances.
What investments are needed to start or grow a flax farm?
Your flax 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 flax farm, these could include:
- Land: The cost of purchasing or leasing land to establish your flax farm.
- Equipment: This includes tractors, plows, seeders, and other necessary tools for planting, harvesting, and processing flax.
- Irrigation System: The installation and maintenance of an irrigation system to ensure proper water supply for your flax crops.
- Storage Facilities: Building or purchasing storage facilities such as barns or silos to store your harvested flax before it is sold.
- Processing Machinery: The cost of purchasing or leasing machinery for cleaning, drying, and processing flax for market.
Again, this list will need to be adjusted according to the size and ambitions of your flax 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 flax farm
The next step in the creation of your financial forecast for your flax 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 flax farm?
Now let's have a look at the main output tables of your flax 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 flax 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 flax farm will look different than for a startup.
The projected balance sheet
Your flax farm's forecasted balance sheet enables you to assess your financial structure and working capital requirements.
It is composed of three types of elements: assets, liabilities and equity:
- Assets: represent what the business owns and uses to produce cash flows. It includes resources such as cash, equipment, and accounts receivable (money owed by clients).
- Liabilities: represent funds advanced to the business by lenders and other creditors. It includes items such as accounts payable (money owed to suppliers), taxes due and loans.
- 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 projection
The cash flow forecast of your flax farm will show how much cash the business is expected to generate or consume over the next three to five years.
There are multiple ways of presenting a cash flow forecast but from experience, it is better to organise it by nature in order to clearly show these elements:
- Operating cash flow: how much cash is generated by the flax farm's operations
- Investing cash flow: what is the business investing to expand or maintain its equipment
- Financing cash flow: is the business raising additional funds or repaying financiers (debt repayment, dividends)
Your cash flow forecast is the most important element of your overall financial projection and that’s where you should focus your attention to ensure that your flax farm is adequately funded.
Note: if you are preparing a financial forecast in order to try to secure funding, you will need to include both a yearly and monthly cash flow forecast in your flax farm's financial plan.
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 flax farm's financial forecast?
Using the right tool or solution will make the creation of your flax farm's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your flax 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 flax 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 flax 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 flax 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 flax 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 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 flax farm, 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 flax farm
Takeaways
- A financial forecast shows expected growth, profitability, and cash generation metrics for your flax farm.
- 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 flax farm. 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 project sales for a business?
- Financial forecast template for a business idea
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Founder & CEO at The Business Plan Shop Ltd
