How to create a financial forecast for a forest tree nursery?
Creating a financial forecast for your forest tree nursery, 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 forest tree nursery 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 forest tree nursery?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your forest tree nursery and ensure that it can be financially viable in the years to come.
A financial plan for a forest tree nursery 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 forest tree nursery 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 forest tree nursery'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 forest tree nursery financial forecast?
A forest tree nursery'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 forest tree nursery, 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 forest tree nursery 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 forest tree nursery 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 forest tree nursery's financial forecast.
The sales forecast for a forest tree nursery
The sales forecast, also called topline projection, is normally where you will start when building your forest tree nursery 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 forest tree nurseries), and consider the elements below:
- Seasonal demand: As a forest tree nursery owner, you are aware that the demand for trees is highly seasonal and varies throughout the year. The number of monthly transactions may be affected by the changing needs of customers during different seasons, such as planting season, harvesting season, and holiday season.
- Weather conditions: The success of your tree nursery business depends heavily on weather conditions. Extreme weather events, such as droughts, floods, and storms, can affect the growth and health of your trees, which in turn can impact your average price and number of monthly transactions.
- Regulations and permits: Depending on your location, there may be certain regulations and permits that you need to obtain before selling your trees. These regulations may require extra fees and paperwork, which can affect your average price and number of monthly transactions.
- Competition: The presence of other tree nurseries in your area can also impact your business. If there are many competitors offering similar types of trees, you may need to adjust your average price and marketing strategies to remain competitive and attract customers.
- Disease and pests: Trees are susceptible to diseases and pests, which can spread quickly and damage your entire nursery. If your trees become infected, you may need to lower your average price or even halt sales until the issue is resolved, which can affect your number of monthly transactions.
After the sales forecast comes the operating expenses budget, which we will now look into in more detail.
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The operating expenses for a forest tree nursery
The next step is to estimate the costs you’ll have to incur to operate your forest tree nursery.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your forest tree nursery's operating expenses should normally include the following items:
- Staff Costs: This includes salaries, benefits, and any other related expenses for your staff members, such as training and development.
- Accountancy Fees: You will need to hire an accountant to help you manage your financial records, file taxes, and provide financial advice.
- Insurance Costs: It is important to have insurance to protect your nursery from any potential risks, such as damage to your trees or property.
- Software Licences: You will need to purchase software licences for any programs that you use to manage your nursery, such as inventory and sales software.
- Banking Fees: You will incur fees for bank transactions, such as deposits, withdrawals, and wire transfers.
- Seed and Seedling Costs: This includes the cost of purchasing seeds and seedlings to grow your trees.
- Fertilizer and Pesticide Costs: You will need to purchase fertilizer and pesticides to maintain the health and growth of your trees.
- Water and Electricity Costs: These are essential utilities that you will need to pay for to keep your nursery running.
- Equipment Maintenance: This includes the costs of repairing and maintaining any equipment used in your nursery, such as tractors and irrigation systems.
- Rent or Mortgage Payments: If you do not own the land where your nursery is located, you will need to pay rent or mortgage payments.
- Marketing and Advertising Expenses: You will need to invest in marketing and advertising to promote your nursery and attract customers.
- Transportation Costs: This includes the cost of transporting your trees to customers or to other nurseries.
- Packaging Materials: You will need to purchase packaging materials, such as pots and bags, to package and sell your trees.
- Office Supplies: This includes the cost of purchasing supplies for your office, such as paper, pens, and printer ink.
- Professional Memberships and Subscriptions: You may need to pay for memberships or subscriptions to professional organizations or publications to stay updated on industry trends and best practices.
This list is not exhaustive by any means, and will need to be tailored to your forest tree nursery's specific circumstances.
What investments are needed to start or grow a forest tree nursery?
Creating and expanding a forest tree nursery also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a forest tree nursery could include elements such as:
- Land and Site Preparation: This includes the cost of purchasing or leasing the land for your forest tree nursery, as well as any necessary site preparation such as clearing, grading, and installing irrigation systems.
- Greenhouse or Shade Structure: Depending on the types of trees you plan to grow, you may need to invest in a greenhouse or shade structure to provide the right growing conditions. This can include the cost of materials, labor, and any necessary permits or inspections.
- Equipment and Tools: To efficiently operate your forest tree nursery, you will need certain equipment and tools such as tractors, pruning shears, and wheelbarrows. These fixed assets should be included in your expenditure forecast.
- Nursery Supplies: This includes any materials needed for growing and caring for your trees, such as pots, soil, fertilizer, and plant labels. It's important to estimate these costs accurately to ensure you have enough supplies to meet demand.
- Office and Storage Facilities: While not directly related to growing trees, having an office and storage facilities on-site can greatly improve the efficiency of your nursery operations. This can include the cost of constructing or leasing a building, as well as any necessary furnishings or equipment.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your forest tree nursery.
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 forest tree nursery
The next step in the creation of your financial forecast for your forest tree nursery 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 forest tree nursery?
Now let's have a look at the main output tables of your forest tree nursery'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 forest tree nursery'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 forest tree nursery will look different than for a startup.
The projected balance sheet
Your forest tree nursery'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 forest tree nursery'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 forest tree nursery:
- 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 forest tree nursery'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 forest tree nursery'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 forest tree nursery's financial forecast?
Using the right tool or solution will make the creation of your forest tree nursery's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your forest tree nursery'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 forest tree nursery 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 forest tree nursery'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 forest tree nursery 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 forest tree nursery'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 forest tree nursery.
- 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 forest tree nursery. 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 turnover forecast for a business?
- Financial forecast template for a business idea
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Founder & CEO at The Business Plan Shop Ltd
