How to create a financial forecast for a pea farm?
Developing and maintaining an up-to-date financial forecast for your pea farm is key in order to maintain visibility on your business’s future cash flows.
If you feel overwhelmed at the thought of putting together a pea farm financial forecast then don’t worry as this guide is here to help you.
We'll cover everything from: the main objectives of a financial forecast, the data you need to gather before starting, to the tables that compose it, and the tools that will help you create and maintain your forecast efficiently.
Let's get started!
Why create and maintain a financial forecast for a pea farm?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your pea farm and ensure that it can be financially viable in the years to come.
A financial plan for a pea 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 pea 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 pea 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.
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 pea farm financial forecast?
A pea 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 pea 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 pea 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 pea 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 pea farm's financial forecast.
The sales forecast for a pea farm
From experience, it usually makes sense to start your pea farm's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your pea 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 pea 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:
- Weather conditions: As a pea farmer, you know that the weather can greatly impact your crop yield and quality. Unfavorable weather such as droughts or heavy rainfall can lead to lower production and potentially affect your average price per pea.
- Competition: The pricing and demand for peas can be affected by the presence of other pea farms in your area. If there is high competition, you may have to lower your prices to stay competitive and attract customers.
- Consumer trends: The demand for peas may fluctuate based on changing consumer preferences and trends. For example, if there is a growing trend towards plant-based diets, there may be an increase in demand for peas, leading to higher prices and more transactions for your farm.
- Government policies and regulations: Changes in government policies and regulations, such as tariffs or subsidies, can have a significant impact on the price and demand for peas. Stay informed about any potential changes that may affect your business.
- Crop diseases and pests: Pea crops are susceptible to various diseases and pests, which can significantly reduce your yield and quality. This can lead to lower prices and fewer transactions as customers may opt for healthier and pest-free options.
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.
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 pea farm
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your pea 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 pea farm will include some of the following items:
- Staff Costs: This includes employee salaries, wages, and benefits such as health insurance and retirement plans. As a pea farm, you will need to hire workers for planting, harvesting, packaging, and other tasks.
- Accountancy Fees: You may need to hire an accountant or bookkeeper to help manage the financial aspects of your pea farm. This can include services such as tax preparation, payroll, and financial reporting.
- Insurance Costs: It is important to have insurance to protect your pea farm from potential risks such as crop damage, liability claims, and property damage. The cost of insurance will depend on the size and type of your farm.
- Software Licenses: In order to keep track of inventory, sales, expenses, and other important data, you may need to purchase software specifically designed for farming operations.
- Banking Fees: As a business, you will need to have a business bank account and may incur fees for services such as check deposits, wire transfers, and account maintenance.
- Fertilizers and Pesticides: These are necessary for maintaining healthy pea crops and preventing damage from pests and diseases. The cost of fertilizers and pesticides will depend on the size and type of your farm.
- Seed Costs: You will need to purchase high-quality pea seeds for planting, and the cost will vary depending on the type and quantity of seeds needed.
- Fuel and Maintenance: As a pea farm, you will need to use equipment such as tractors, harvesters, and irrigation systems. You will need to budget for fuel and regular maintenance to keep these machines in good working condition.
- Packaging Materials: In order to sell your peas, you will need to package them in bags or containers. The cost of packaging materials, such as bags, boxes, and labels, should be included in your operating expenses.
- Marketing and Advertising: To attract customers and increase sales, you may need to invest in marketing and advertising efforts, such as creating a website, attending farmers' markets, or running social media campaigns.
- Rent or Property Taxes: If you do not own the land for your pea farm, you will need to budget for rent payments. If you do own the land, you will still need to pay property taxes annually.
- Utilities: Running a pea farm requires electricity and water for irrigation, as well as potentially other utilities such as internet and phone services. These costs should be accounted for in your operating expenses.
- Transportation Costs: You will need to transport your peas from the farm to buyers or markets. This may involve hiring a trucking company or using your own vehicle, which will incur costs for fuel and maintenance.
- Training and Education: In order to stay up-to-date with industry practices and regulations, you may need to attend workshops, conferences, or training programs. These costs should be included in your operating expenses.
- Legal and Professional Fees: As a business, you may need to seek legal advice or hire consultants for various aspects of your pea farm. These fees should be accounted for in your operating expenses.
This list will need to be tailored to the specificities of your pea farm, but should offer a good starting point for your budget.
What investments are needed to start or grow a pea farm?
Once you have an idea of how much sales you could achieve and what it will cost to run your pea farm, it is time to look into the equipment required to launch or expand the activity.
For a pea farm, capital expenditures and initial working capital items could include:
- Tractor: As a pea farmer, you will need a reliable tractor to plow the fields and prepare the soil for planting. This is a crucial investment that will help increase your efficiency and productivity.
- Irrigation System: Peas require consistent watering to ensure healthy growth and a good harvest. Investing in an irrigation system, such as drip irrigation or sprinklers, will save you time and effort in manually watering the crops.
- Harvesting Equipment: Harvesting peas is a labor-intensive task, and having the right equipment can make a significant difference in your farm's profitability. Consider investing in a pea harvester or picker to speed up the process and reduce manual labor costs.
- Storage Facility: Peas need to be stored in a cool, dry place to maintain their quality and prevent spoilage. Building or purchasing a storage facility, such as a silo or warehouse, will allow you to store your harvest until you can sell it at a higher price.
- Greenhouse: Depending on your location and climate, a greenhouse can be a valuable investment for growing peas. It provides a controlled environment that can extend your growing season and protect your crops from pests and harsh weather conditions.
Again, this list will need to be adjusted according to the specificities of your pea 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 pea farm
The next step in the creation of your financial forecast for your pea 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 pea farm?
Now let's have a look at the main output tables of your pea farm'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 pea farm'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 pea farm will look different than for a startup.
The projected balance sheet
The projected balance sheet gives an overview of your pea farm's financial structure at the end of the financial year.
It is composed of three categories of items: assets, liabilities and equity:
- Assets: are what the business possesses and uses to produce cash flows. It includes resources such as cash, buildings, equipment, and accounts receivable (money owed by clients).
- Liabilities: are the debts of your pea farm. They include accounts payable (money owed to suppliers), taxes due and bank loans.
- Equity: is the combination of what has been invested by the business owners and the cumulative profits 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 pea 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 pea 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 pea 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 pea 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 pea farm's financial forecast?
Creating your pea 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 pea farm's projections
The modern and easiest way is to use professional online financial forecasting 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
Enlisting the help of a consultant or accountant is also a good way to obtain a professional pea 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 pea farm's financial forecast?
Creating an accurate and error-free pea farm 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 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 pea 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 pea farm
Takeaways
- A financial forecast shows expected growth, profitability, and cash generation metrics for your pea farm.
- 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 pea farm. 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 sales for a business?
- Financial forecast for a business idea
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Founder & CEO at The Business Plan Shop Ltd
