How to create a financial forecast for a pigeon pea farm?
Creating a financial forecast for your pigeon pea 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 pigeon pea 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 pigeon pea farm?
In order to prosper, your business needs to have visibility on what lies ahead and the right financial resources to grow. This is where having a financial forecast for your pigeon pea farm becomes handy.
Creating a pigeon pea farm financial forecast forces you to take stock of where your business stands and where you want it to go.
Once you have clarity on the destination, you will need to draw up a plan to get there and assess what it means in terms of future profitability and cash flows for your pigeon pea farm.
Having this clear plan in place will give you the confidence needed to move forward with your business’s development.
Having an up-to-date financial forecast for a pigeon pea farm is also useful if your trading environment worsens, as the forecast enables you to adjust to your new market conditions and anticipate any potential cash shortfall.
Finally, your pigeon pea farm's financial projections will also help you secure financing, as banks and investors alike will want to see accurate projections before agreeing to finance your business.
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 pigeon pea farm financial forecast?
A pigeon pea 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 pigeon pea farm.
If you are creating (or updating) the forecast of an existing pigeon pea 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 pigeon pea 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 pigeon pea 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 pigeon pea farm's financial forecast.
The sales forecast for a pigeon pea farm
The sales forecast, also called topline projection, is normally where you will start when building your pigeon pea 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 pigeon pea farms), and consider the elements below:
- The weather conditions in your region can greatly impact the production and quality of your pigeon peas. Droughts or excessive rainfall can decrease the supply of pigeon peas, leading to a potential increase in price to meet demand.
- The demand for plant-based protein is on the rise as more consumers are looking for healthier and sustainable food options. This can result in an increase in both price and number of transactions for your pigeon peas.
- The exchange rate can also affect your business as pigeon pea exports may become more or less competitive depending on the strength of your local currency against other countries. A weaker currency can make your pigeon peas more affordable for international buyers, potentially increasing sales.
- The availability of labor can also impact your business as pigeon pea farming requires manual labor for planting and harvesting. A shortage of labor can lead to higher labor costs, potentially affecting the price of your pigeon peas.
- The government policies and regulations related to agriculture and trade can also affect your business. Changes in import and export laws or subsidies can directly impact the price of your pigeon peas and the demand for them.
After the sales forecast comes the operating expenses budget, which we will now look into in more detail.
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The operating expenses for a pigeon pea farm
The next step is to estimate the expenses needed to run your pigeon pea farm on a day-to-day basis.
These will vary based on the level of sales expected, and the location and size of your business.
But your pigeon pea farm's operating expenses should include the following items at a minimum:
- Seed and Fertilizer Costs: These are essential expenses for a pigeon pea farm as they directly impact the yield and quality of your crop.
- Labor Costs: You will need to hire farm workers to plant, maintain, and harvest the pigeon peas. Make sure to include their wages, benefits, and any other related costs in your forecast.
- Machinery and Equipment Costs: Pigeon pea farming requires specialized equipment such as tractors, ploughs, and harvesters. You may also need to budget for repairs and maintenance of these machines.
- Irrigation Costs: Pigeon peas need consistent watering, especially during dry spells. Consider the cost of installing and maintaining an irrigation system in your forecast.
- Pest and Disease Control Costs: Pigeon peas are susceptible to various pests and diseases, which can significantly impact your yield. Budget for pesticides, fungicides, and other control methods in your forecast.
- Storage and Transportation Costs: After harvest, you will need to store and transport your pigeon peas to the market or processing plant. This may include costs for storage facilities, packaging materials, and transportation fees.
- Accounting and Bookkeeping Fees: It's crucial to keep track of your farm's financial records, and you may need to hire an accountant or bookkeeper to help with this. Include their fees in your forecast.
- Insurance Costs: Protecting your farm and its assets is essential. Consider the cost of insurance for your farm, equipment, and crops in your forecast.
- Software Licenses: You may need to purchase software for record-keeping, crop management, or financial analysis. Include the cost of these licenses in your forecast.
- Marketing and Advertising Expenses: To sell your pigeon peas, you may need to invest in marketing and advertising efforts. This may include creating a website, attending trade shows, or printing marketing materials.
- Training and Education Costs: As a pigeon pea farmer, it's essential to stay updated on the latest farming techniques and technologies. Budget for training and education costs in your forecast.
- Utilities: You will need to pay for electricity, water, and other utilities for your farm. Consider these costs in your forecast.
- Banking Fees: You may incur fees for bank transactions, credit card processing, and loans. Include these costs in your forecast.
- Taxes: Don't forget to account for income taxes and property taxes in your forecast.
- Miscellaneous Expenses: There may be other miscellaneous expenses that are unique to your pigeon pea farm, such as membership fees for farming associations or legal fees for contracts. Make sure to include these in your forecast.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small pigeon pea farm might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow a pigeon pea farm?
Creating and expanding a pigeon pea farm also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a pigeon pea farm could include elements such as:
- Land: This is a major capital expenditure for a pigeon pea farm as it is necessary to have a suitable plot of land to grow the crop. You will need to consider the size, location, and fertility of the land when determining the cost.
- Irrigation System: Pigeon pea plants require consistent watering to thrive, and a proper irrigation system is crucial for a successful harvest. This can include equipment such as pumps, sprinklers, and pipes.
- Machinery and Equipment: Depending on the scale of your pigeon pea farm, you may need to invest in machinery and equipment such as tractors, plows, and harvesters. These tools will help with planting, maintaining, and harvesting the crop.
- Storage Facilities: Once harvested, pigeon peas need to be stored in a dry and clean location to maintain their quality. This can include building or purchasing a storage shed or silo.
- Greenhouse: In colder climates or areas with shorter growing seasons, a greenhouse may be necessary for growing pigeon peas. This will require the cost of construction, as well as ongoing maintenance.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your pigeon 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 pigeon pea farm
The next step in the creation of your financial forecast for your pigeon 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 pigeon pea farm?
Now let's have a look at the main output tables of your pigeon pea farm's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your pigeon pea farm is likely to be in the years to come.
For your pigeon pea 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 pigeon pea farms, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.
The projected balance sheet
The projected balance sheet gives an overview of your pigeon 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 pigeon 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 projection
The cash flow forecast of your pigeon pea 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 pigeon pea 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 pigeon pea 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 pigeon pea farm's financial plan.
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 pigeon pea farm's financial forecast?
Using the right tool or solution will make the creation of your pigeon pea farm's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your pigeon 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.
Hiring a financial consultant or chartered accountant
Hiring a consultant or chartered accountant is also an efficient way to get a professional pigeon pea farm 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 pigeon pea farm's financial forecast?
Creating an accurate and error-free pigeon pea 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 pigeon pea 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 pigeon pea 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 pigeon pea 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 project revenues for a business?
- Financial forecast for a business idea
Know someone who owns or is thinking of starting a pigeon pea farm? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
