How to create a financial forecast for a microgreens company?
If you are serious about keeping visibility on your future cash flows, then you need to build and maintain a financial forecast for your microgreens company.
Putting together a microgreens company 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 microgreens company.
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 microgreens company?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your microgreens company and ensure that it can be financially viable in the years to come.
A financial plan for a microgreens company 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 microgreens company 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 microgreens company'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 microgreens company financial forecast?
A microgreens company'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 microgreens company, 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 microgreens company 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 microgreens company 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 microgreens company's financial forecast.
The sales forecast for a microgreens company
From experience, it is usually best to start creating your microgreens company financial forecast by your sales forecast.
To create an accurate sales forecast for your microgreens company, you will have to rely on the data collected in your market research, or if you're running an existing microgreens company, 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: The demand for microgreens may vary depending on the season. During the winter months, when fresh produce is scarce, the demand for microgreens may increase, leading to a potential increase in average price and number of monthly transactions.
- Cost of Seeds and Production: The cost of purchasing seeds and producing microgreens can affect the average price of the product. If the cost of seeds increases, it may result in a higher average price for microgreens, which could also impact the number of monthly transactions.
- Competition: The presence of other microgreens companies in the market can also impact your average price and monthly transactions. If there is high competition, you may need to lower your prices to stay competitive, potentially decreasing your average price. On the other hand, if there is less competition, you may have more control over your prices and potentially increase your average price.
- Consumer Preferences: As consumer preferences and trends change, it can impact the demand for certain types of microgreens. For example, if there is a growing trend for a particular type of microgreen, it may result in an increase in demand and potentially an increase in average price and number of monthly transactions.
- Distribution Channels: The way in which you distribute your microgreens can also impact the average price and number of monthly transactions. If you sell directly to consumers through a farmers market, you may have more control over your prices, whereas if you sell to restaurants or grocery stores, they may negotiate lower prices, potentially decreasing your average price.
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 microgreens company
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your microgreens company 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 microgreens company will include some of the following items:
- Staff costs: This includes salaries, wages, and benefits for all employees, including farmers, packagers, and administrative staff.
- Accountancy fees: You will need to hire an accountant to handle your financial records, tax filings, and other financial tasks.
- Insurance costs: As a microgreens company, you will need to have insurance policies in place to protect your business from potential risks and liabilities.
- Software licenses: You may need to purchase software licenses for programs such as accounting software, inventory management software, and marketing tools.
- Banking fees: You will incur fees for various banking services, such as wire transfers, check processing, and credit card processing.
- Rent: If you are leasing a space for your microgreens farm or office, you will need to include rent in your operating expenses.
- Utilities: This includes electricity, water, and gas for your farm and office space.
- Supplies: You will need to purchase various supplies for your microgreens production, such as seeds, soil, containers, and packaging materials.
- Marketing expenses: This includes costs for advertising, promotions, and other marketing efforts to promote your microgreens and attract customers.
- Transportation expenses: You will need to budget for transportation costs, such as fuel, vehicle maintenance, and delivery fees, to transport your microgreens to customers.
- Office expenses: This includes costs for office supplies, equipment, and furniture for your administrative tasks.
- Training and development: You may need to budget for training and development programs for your employees to improve their skills and knowledge.
- Professional fees: This includes fees for legal services, consulting services, and other professional services that you may need for your business.
- Taxes and licenses: You will need to pay various taxes and obtain necessary licenses to operate your microgreens company.
- Maintenance and repairs: You may need to budget for maintenance and repairs for your equipment, tools, and facilities to ensure smooth operations.
This list will need to be tailored to the specificities of your microgreens company, but should offer a good starting point for your budget.
What investments are needed to start or grow a microgreens company?
Your microgreens company 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 microgreens company, these could include:
- Greenhouse: This is a crucial fixed asset for a microgreens company as it provides a controlled environment for growing the crops. It is important to invest in a high-quality greenhouse that is durable and can withstand different weather conditions.
- Irrigation System: To ensure consistent and efficient watering of the microgreens, you will need to invest in an irrigation system. This could include drip irrigation, sprinklers, or other types of watering systems.
- Shelving and Lighting: To optimize space and promote healthy growth, you will need to invest in shelving and lighting for your microgreens. This will allow you to stack trays of microgreens and provide adequate lighting for photosynthesis.
- Packaging Equipment: Packaging is an important aspect of selling microgreens. You will need to invest in packaging equipment such as scales, bags, labels, and sealing machines to ensure your products are properly packaged and presented to customers.
- Refrigeration System: Depending on your business model, you may need to invest in a refrigeration system to store your microgreens and maintain their freshness. This is especially important if you are selling to restaurants or grocery stores.
Again, this list will need to be adjusted according to the size and ambitions of your microgreens company.
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 microgreens company
The next step in the creation of your financial forecast for your microgreens company 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 microgreens company?
Now let's have a look at the main output tables of your microgreens company'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 microgreens company'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 microgreens company will look different than for a startup.
The projected balance sheet
Your microgreens company'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 projected cash flow statement
A projected cash flow statement for a microgreens company 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 microgreens company'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 microgreens company 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 microgreens company's financial forecast?
Creating your microgreens company's financial forecast may sound fairly daunting, but the good news is that there are several ways to go about it.
Using online financial projection software to build your microgreens company's forecast
The modern and easiest way to build a forecast is to use professional financial projection 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.
Hiring a financial consultant or chartered accountant
Hiring a consultant or chartered accountant is also an efficient way to get a professional microgreens company financial projection.
As you can imagine, this solution is much more expensive than using software. From experience, the creation of a simple financial forecast over three years (including a balance sheet, income statement, and cash flow statement) is likely to start around £700 or $1,000 excluding taxes.
The indicative estimate above, is for a small business, and a forecast done as a one-off. Using a financial consultant or accountant to track your actuals vs. forecast and to keep your financial forecast up to date on a monthly or quarterly basis will naturally cost a lot more.
If you choose this solution, make sure your service provider has first-hand experience in your industry, so that they may challenge your assumptions and offer insights (as opposed to just taking your figures at face value to create the forecast’s financial statements).
Why not use a spreadsheet such as Excel or Google Sheets to build your microgreens company's financial forecast?
Creating an accurate and error-free microgreens company financial forecast on Excel (or any spreadsheet) is very technical and requires both a strong grasp of accounting principles and solid skills in financial modelling.
Most entrepreneurs lack the expertise required to create an accurate financial forecast using spreadsheet software like Excel or Google Sheets. As a result, it is unlikely anyone will trust your numbers.
The second reason is that it is inefficient. Building forecasts on spreadsheets was the only option in the 1990s and early 2000s, nowadays technology has advanced and software can do it much faster and much more accurately.
This is why professional forecasters all use software. With the rise of AI, software is also becoming smarter at helping us detect mistakes in our forecasts and helping us analyse the numbers to make better decisions.
Finally, like everything with spreadsheets, tracking actuals vs. forecasts and updating your forecast as the year progresses is manual, tedious, error-prone, and time-consuming. Whereas financial forecasting 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
- A financial forecast shows expected growth, profitability, and cash generation metrics for your microgreens company.
- 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 microgreens company. 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 revenues for a business?
- Financial forecast template for a business idea
Know someone who runs a microgreens company? Share our business guide with them!
Founder & CEO at The Business Plan Shop Ltd
