How to create a financial forecast for a mushroom farm?

Creating a financial forecast for your mushroom 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 mushroom 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 mushroom farm?

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

A financial plan for a mushroom 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 mushroom 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 mushroom 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 mushroom farm financial forecast?

A mushroom 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 mushroom 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 mushroom 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 mushroom 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 mushroom farm's financial forecast.

The sales forecast for a mushroom farm

The sales forecast, also called topline projection, is normally where you will start when building your mushroom 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 mushroom farms), and consider the elements below:

After the sales forecast comes the operating expenses budget, which we will now look into in more detail.

The operating expenses for a mushroom farm

Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your mushroom farm 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 mushroom farm will include some of the following items:

This list will need to be tailored to the specificities of your mushroom farm, but should offer a good starting point for your budget.

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

Your mushroom 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 mushroom farm, these could include:

Again, this list will need to be adjusted according to the size and ambitions of your mushroom farm.

The financing plan of your mushroom farm

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

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

The projected profit & loss statement

The projected profit & loss shows how profitable your mushroom farm is likely to be in the years to come.

For your mushroom 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 mushroom 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 mushroom 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 forecast

Your mushroom 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 mushroom 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 mushroom 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 mushroom farm's financial plan - so that banks or investors can assess seasonal variation and ensure your business is appropriately capitalised.

Which tool should you use to create your mushroom farm's financial projections?

Building a mushroom farm financial forecast is not difficult provided that you use the right tool for the job. Let’s see what options are available below.

Using online financial forecasting software to build your mushroom 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 mushroom 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 mushroom farm's financial forecast?

Creating an accurate and error-free mushroom 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.

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 mushroom 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 mushroom farm

Takeaways

1. 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.
2. Tracking actuals vs. forecast and keeping your financial projections up-to-date is the only way to get a view on what your mushroom farm future cash flows may look like.
3. 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 mushroom farm, we hope you found it useful. Don't hesitate to contact us if you want to share your feedback or have any questions.

Also on The Business Plan Shop

• Example of financial forecast
• How to project revenues for a business?
• Financial forecast template for a business idea

Know someone who owns or is thinking of starting a mushroom farm? Share our forecasting guide with them!