How to create a financial forecast for a mixed 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 mixed farm.

Putting together a mixed 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 mixed 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 mixed farm?

Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your mixed farm and ensure that it can be financially viable in the years to come.

A financial plan for a mixed 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 mixed 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 mixed 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.

What information is used as input to build a mixed farm financial forecast?

A mixed 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 mixed farm.

If you are creating (or updating) the forecast of an existing mixed 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 mixed 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 mixed 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 mixed farm's financial forecast.

The sales forecast for a mixed farm

From experience, it usually makes sense to start your mixed farm's financial projection with the revenues forecast.

The inputs used to forecast your sales will include the historical trading data of your mixed farm (which can be used as a starting point for existing businesses) and the data collected in your market research (which both new ventures and existing businesses need to project their sales forward).

Your mixed farm's sales forecast can be broken down into two key estimates: 

• The average price 
• The number of monthly transactions

To assess these variables accurately, you will need to consider the following factors:

Once you have a sales forecast in place, the next step will be to work on your overhead budget. Let’s have a look at that now. 

The operating expenses for a mixed farm

The next step is to estimate the costs you’ll have to incur to operate your mixed farm.

These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.). 

But your mixed farm's operating expenses should normally include the following items:

This list is not exhaustive by any means, and will need to be tailored to your mixed farm's specific circumstances.

What investments are needed to start or grow a mixed farm?

Creating and expanding a mixed farm also requires investments which you need to factor into your financial forecast.

Capital expenditures and initial working capital items for a mixed farm could include elements such as:

Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your mixed farm.

The financing plan of your mixed farm

The next step in the creation of your financial forecast for your mixed 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 mixed farm?

Now let's have a look at the main output tables of your mixed farm's financial forecast.

The profit & loss forecast

The forecasted profit & loss statement will enable you to visualise your mixed farm's expected growth and profitability over the next three to five years.

A financially viable P&L statement for a mixed farm should normally show:

• Sales growing above inflation
• Stable or expanding (ideally) profit margins
• A net profit

This will of course depend on the stage of your business: a new venture might be loss-making until it reaches its breakeven point in year 2 or 3, for example.

The projected balance sheet

Your mixed 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 projection

The cash flow forecast of your mixed 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 mixed 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 mixed 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 mixed farm's financial plan. 

Which tool should you use to create your mixed farm's financial forecast?

Using the right tool or solution will make the creation of your mixed farm's financial forecast much easier than it sounds. Let’s explore the main options.

Using online financial projection software to build your mixed farm'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.

Calling in a financial consultant or chartered accountant

Outsourcing the creation of your mixed 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 mixed 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 mixed 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 mixed 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.

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

1. A financial forecast shows expected growth, profitability, and cash generation metrics for your mixed farm.
2. Tracking actuals vs. forecast and having an up-to-date financial forecast is key to maintaining visibility on your future cash flows.
3. 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 mixed farm. Don't hesitate to contact us if you have any questions!

Also on The Business Plan Shop

• Financial forecast example
• How to create a sales forecast for a business?
• Sample financial forecast for business idea

Know someone who runs a mixed farm? Share our business guide with them!