How to create a financial forecast for a post-harvest crop processing firm?
Developing and maintaining an up-to-date financial forecast for your post-harvest crop processing firm 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 post-harvest crop processing firm 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 post-harvest crop processing firm?
The financial projections for your post-harvest crop processing firm act as a financial blueprint to guide its growth with confidence and ensure its long-term financial viability.
To create them, you will need to look at your business in detail - from sales to operating costs and investments - to assess how much profit it can generate in the years to come and what will be the associated cash flows.
During challenging market conditions, maintaining an up-to-date financial forecast enables early detection of potential financial shortfalls, allowing for timely adjustments or securing financing before facing a cash crisis.
Your post-harvest crop processing firm's financial forecast will also prove invaluable when seeking financing. Banks and investors will undoubtedly request a thorough examination of your financial figures, making precision and presentation essential.
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 post-harvest crop processing firm financial forecast?
A post-harvest crop processing firm'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 post-harvest crop processing firm.
If you are creating (or updating) the forecast of an existing post-harvest crop processing firm, 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 post-harvest crop processing firm 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 post-harvest crop processing firm 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 post-harvest crop processing firm's financial forecast.
The sales forecast for a post-harvest crop processing firm
From experience, it is usually best to start creating your post-harvest crop processing firm financial forecast by your sales forecast.
To create an accurate sales forecast for your post-harvest crop processing firm, you will have to rely on the data collected in your market research, or if you're running an existing post-harvest crop processing firm, 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: As a post-harvest crop processing firm, you may experience fluctuations in demand depending on the time of year. For example, during the harvest season, when farmers are bringing in their crops, there may be a higher demand for your services, leading to an increase in average price and number of monthly transactions.
- Crop Prices: The price of crops can directly impact your business's average price and number of monthly transactions. If crop prices are high, farmers may be more willing to invest in post-harvest processing services, leading to an increase in your average price and number of transactions.
- Weather Conditions: Weather conditions can greatly affect the quality and quantity of crops, which in turn can impact your business. Severe weather events, such as droughts or floods, may lead to lower crop yields, resulting in a decrease in your average price and number of monthly transactions.
- Competition: The presence of other post-harvest crop processing firms in the same market can impact your business's average price and number of monthly transactions. If there is high competition, you may need to lower your prices to remain competitive, leading to a decrease in average price. Similarly, if there are few competitors, you may be able to charge higher prices and see an increase in average price and number of transactions.
- Government Policies: Changes in government policies, such as regulations on crop production or subsidies for farmers, can affect your business's average price and number of monthly transactions. For example, if the government implements policies that support sustainable farming practices, farmers may be more willing to invest in post-harvest processing services, leading to an increase in average price and number of transactions.
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.
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The operating expenses for a post-harvest crop processing firm
The next step is to estimate the costs you’ll have to incur to operate your post-harvest crop processing firm.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your post-harvest crop processing firm's operating expenses should normally include the following items:
- Staff costs: This includes salaries, benefits, and any other expenses related to your employees, such as training and development costs.
- Accountancy fees: You may need to hire an accountant to help with financial statements, taxes, and other financial matters.
- Insurance costs: This includes property insurance, liability insurance, and any other insurance policies necessary to protect your business from potential risks.
- Software licenses: You may need to purchase software licenses to manage inventory, track sales, and perform other essential tasks for your post-harvest crop processing firm.
- Banking fees: This includes fees for maintaining a business bank account, wire transfer fees, and other charges related to financial transactions.
- Raw materials: These are the materials needed to process crops, such as seeds, fertilizers, and pesticides.
- Packaging materials: This includes bags, boxes, and other materials needed to package and transport your processed crops.
- Utilities: This includes electricity, water, and other utilities needed to operate your processing facility.
- Transportation costs: This includes fuel, maintenance, and other expenses related to transporting your crops from the farm to your processing facility.
- Marketing and advertising: You may need to invest in marketing and advertising to promote your processed crops and attract customers.
- Rent/Lease: If you do not own your processing facility, you will need to pay rent or lease payments.
- Maintenance and repairs: This includes regular maintenance and any necessary repairs for your processing equipment and facility.
- Taxes and licenses: You will need to pay taxes and obtain necessary licenses to operate your post-harvest crop processing firm.
- Professional services: This may include legal services, consulting fees, or other professional services needed to run your business successfully.
- Training and development: You may need to invest in training and development programs for your employees to improve their skills and knowledge.
This list is not exhaustive by any means, and will need to be tailored to your post-harvest crop processing firm's specific circumstances.
What investments are needed to start or grow a post-harvest crop processing firm?
Your post-harvest crop processing firm 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 post-harvest crop processing firm, these could include:
- Machinery and Equipment: This includes the cost of purchasing and maintaining machinery and equipment used in the post-harvest crop processing process. Examples of machinery and equipment for a post-harvest crop processing firm may include grain dryers, sorting machines, and packaging equipment.
- Facility Improvements: As your business grows, you may need to make improvements to your processing facility to increase efficiency and accommodate larger volumes of crops. This can include building expansions, upgrades to processing equipment, and renovations to improve workflow.
- Transportation Vehicles: In order to transport crops from the field to your processing facility, you may need to invest in transportation vehicles such as trucks or trailers. These vehicles are essential for ensuring timely delivery of crops and maintaining the quality of the harvest.
- Storage Facilities: Proper storage facilities are crucial for post-harvest crop processing firms. This can include refrigerated storage for perishable crops, as well as dry storage for non-perishable crops. Investing in quality storage facilities can help reduce crop spoilage and improve overall efficiency.
- Technology and Software: In today's digital age, technology and software play a vital role in the success of any business. For a post-harvest crop processing firm, this could include investing in software for inventory management, data analysis, and quality control. It could also include hardware such as computers and tablets for employees to use in the processing facility.
Again, this list will need to be adjusted according to the size and ambitions of your post-harvest crop processing firm.
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 post-harvest crop processing firm
The next step in the creation of your financial forecast for your post-harvest crop processing firm 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 post-harvest crop processing firm?
Now let's have a look at the main output tables of your post-harvest crop processing firm's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your post-harvest crop processing firm is likely to be in the years to come.
For your post-harvest crop processing firm 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 post harvest crop processing firms, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.
The projected balance sheet
Your post-harvest crop processing firm'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 post-harvest crop processing firm'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 post-harvest crop processing firm:
- 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 post-harvest crop processing firm'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 post-harvest crop processing firm'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 post-harvest crop processing firm's financial forecast?
Using the right tool or solution will make the creation of your post-harvest crop processing firm's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial projection software to build your post-harvest crop processing firm'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 post-harvest crop processing firm 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 post-harvest crop processing firm'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 post-harvest crop processing firm 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 post-harvest crop processing firm'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.
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 post-harvest crop processing firm, 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 post-harvest crop processing firm
Takeaways
- A financial forecast shows expected growth, profitability, and cash generation metrics for your post-harvest crop processing firm.
- 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 post-harvest crop processing firm. 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 create a turnover forecast for a business?
- Example of financial forecast for business idea
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Founder & CEO at The Business Plan Shop Ltd
