How to create a financial forecast for a kenaf farm?
If you are serious about keeping visibility on your future cash flows, then you need to build and maintain a financial forecast for your kenaf farm.
Putting together a kenaf farm 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 kenaf farm.
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 kenaf farm?
The financial projections for your kenaf farm 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 kenaf farm'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 kenaf farm financial forecast?
A kenaf farm'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 kenaf farm.
If you are creating (or updating) the forecast of an existing kenaf farm, 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 kenaf farm 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 kenaf farm 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 kenaf farm's financial forecast.
The sales forecast for a kenaf farm
The sales forecast, also called topline projection, is normally where you will start when building your kenaf 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 kenaf farms), and consider the elements below:
- Weather conditions: As a kenaf farmer, you are aware that weather plays a crucial role in the growth and quality of your crops. Adverse weather conditions such as drought or excessive rain can affect the yield and overall quality of your kenaf, which may impact the average price and number of monthly transactions.
- Demand for sustainable products: With increasing awareness about sustainability and eco-friendliness, there has been a growing demand for products like kenaf, which are considered more environmentally friendly than traditional crops. This can potentially increase the average price of kenaf as consumers are willing to pay more for sustainable products.
- Government policies and subsidies: Government policies and subsidies can greatly impact the profitability of your kenaf farm. For instance, if the government implements policies that support the production and use of kenaf, it can increase the demand and price for your crop, leading to higher monthly transactions.
- Competition: The presence of other kenaf farms in your area can also affect your business's average price and number of monthly transactions. If there is high competition, it may drive down the average price as farmers try to undercut each other. On the other hand, if there is limited competition, you may be able to charge higher prices and have more monthly transactions.
- Crop diseases and pests: Just like any other crop, kenaf is susceptible to diseases and pests that can greatly impact its growth and quality. If your farm is affected by a disease or pest infestation, it can lead to a decrease in the average price and number of monthly transactions as consumers may be hesitant to purchase inferior quality kenaf.
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 kenaf farm
The next step is to estimate the costs you’ll have to incur to operate your kenaf farm.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your kenaf farm's operating expenses should normally include the following items:
- Staff costs: This includes salaries, wages, and benefits for all employees, including farm workers, administrative staff, and management.
- Accountancy fees: You may need to hire an accountant to assist with bookkeeping, tax filings, and other financial tasks related to your kenaf farm.
- Insurance costs: As with any business, it is important to have insurance coverage for your kenaf farm to protect against potential risks and liabilities.
- Software licenses: Depending on the size and complexity of your kenaf farm, you may need to purchase software licenses for accounting, inventory management, or other purposes.
- Banking fees: Your kenaf farm will likely have bank accounts for managing finances, and there may be fees associated with transactions, wire transfers, and other banking services.
- Seed and planting materials: This expense includes the cost of purchasing kenaf seeds and other materials needed for planting, such as fertilizer or soil amendments.
- Equipment: Your kenaf farm will require various types of equipment, such as tractors, harvesters, and irrigation systems, which can be a significant expense.
- Fuel and energy: Running equipment and irrigation systems will require fuel or electricity, which should be factored into your operating expenses.
- Maintenance and repairs: Regular maintenance and occasional repairs may be needed for equipment, buildings, and other structures on your kenaf farm.
- Transportation: You may need to transport kenaf crops or other materials to and from your farm, which can incur costs for fuel, vehicle maintenance, and other expenses.
- Labor: In addition to staff costs, there may be additional labor expenses for hiring temporary workers during peak harvesting times or for specific tasks.
- Marketing and advertising: To promote your kenaf farm and sell your crops, you may need to allocate funds for marketing and advertising efforts.
- Pest and disease control: To protect your kenaf crops from pests and diseases, you may need to purchase pesticides, herbicides, or hire professional services.
- Water usage: Depending on your location and irrigation methods, you may need to pay for water usage for your kenaf farm.
- Legal fees: There may be legal costs associated with starting and operating a kenaf farm, such as obtaining permits, contracts, or dealing with any legal issues that may arise.
This list is not exhaustive by any means, and will need to be tailored to your kenaf farm's specific circumstances.
What investments are needed to start or grow a kenaf farm?
Your kenaf 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 kenaf farm, these could include:
- Land and infrastructure: This includes the cost of purchasing or leasing land for your kenaf farm, as well as any necessary infrastructure such as irrigation systems, fencing, and storage facilities.
- Equipment and machinery: You will need various equipment and machinery for planting, harvesting, and processing your kenaf crop. This may include tractors, seed drills, harvesters, and balers.
- Greenhouse or shade structure: Depending on your location and climate, you may need to invest in a greenhouse or shade structure to protect your kenaf plants from extreme temperatures or weather conditions.
- Transportation vehicles: If you plan on selling your kenaf crop, you will need a reliable vehicle for transporting it to buyers or processing facilities. This could be a truck or trailer.
- Processing equipment: If you plan on processing your kenaf crop on-site, you may need to invest in equipment such as a decorticator or fiber separator. This will allow you to turn your raw kenaf into a marketable product.
Again, this list will need to be adjusted according to the size and ambitions of your kenaf 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 kenaf farm
The next step in the creation of your financial forecast for your kenaf 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 kenaf farm?
Now let's have a look at the main output tables of your kenaf farm's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your kenaf farm is likely to be in the years to come.
For your kenaf farm 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 kenaf farms, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.
The projected balance sheet
Your kenaf farm'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 kenaf farm'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 kenaf farm:
- 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 kenaf farm'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 kenaf farm'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 kenaf farm's financial forecast?
Creating your kenaf farm'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 kenaf 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
Enlisting the help of a consultant or accountant is also a good way to obtain a professional kenaf farm 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 kenaf farm's financial forecast?
Creating an accurate and error-free kenaf farm 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 projection templates for inspiration
The Business Plan Shop has dozens of financial forecasting templates available.
Our examples contain both the financial forecast, and a written business plan which presents, in detail, the company, the team, the strategy, and the medium-term objectives.
Whether you are just starting out or already have your own kenaf farm, looking at our template is always a good way to get ideas on how to model financial items and what to write when creating a business plan to secure funding.
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 kenaf farm 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 kenaf farm, 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 create a turnover forecast for a business?
- Example of financial forecast for business idea
Know someone who owns or is thinking of starting a kenaf farm? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
