How to create a financial forecast for a prawn farm?
Developing and maintaining an up-to-date financial forecast for your prawn 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 prawn 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 prawn 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 prawn farm becomes handy.
Creating a prawn 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 prawn 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 prawn 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 prawn 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 needed to build a prawn farm financial forecast?
The quality of your inputs is key when it comes to financial modelling: no matter how good the model is, if your inputs are off, so will the forecast.
If you are building a financial plan to start a prawn farm, you will need to have done your market research and have a clear picture of your sales and marketing strategies so that you can project revenues with confidence.
You will also need to have a clear idea of what resources will be required to operate the prawn farm on a daily basis, and to have done your research with regard to the equipment needed to launch your venture (see further down this guide).
If you are creating a financial forecast of an existing prawn farm, things are usually simpler as you will be able to use your historical accounting data as a budgeting base, and complement that with your team’s view on what lies ahead for the years to come.
Let's now zoom in on what will go in your prawn farm's financial forecast.
The sales forecast for a prawn farm
The sales forecast, also called topline projection, is normally where you will start when building your prawn 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 prawn farms), and consider the elements below:
- Aquaculture practices: As a prawn farm owner, you have to constantly monitor and improve your aquaculture practices to ensure the health and growth of your prawns. Changes in water temperature, pH levels, and stocking density can affect the growth rate and overall quality of your prawns, which in turn can impact the average price you can charge for them.
- Weather conditions: The weather can have a significant impact on the availability and price of prawns. Extreme weather events such as hurricanes or droughts can disrupt the supply of prawns, leading to fluctuations in price. Additionally, changes in seasonal weather patterns can also affect the demand for prawns, which can impact your monthly transactions.
- Disease outbreaks: Disease outbreaks can have a devastating impact on a prawn farm. If your farm is hit with a disease, it can lead to high mortality rates, lower production, and increased costs for treatment and prevention. This can result in a decrease in the average price of your prawns and a decrease in the number of monthly transactions as customers may turn to alternative suppliers.
- Market demand: The demand for prawns can be affected by various factors such as consumer preferences, changes in dietary trends, and economic conditions. For example, if there is a sudden increase in the popularity of prawns in a specific region, you may be able to charge a higher price for your prawns. On the other hand, a decline in the economy may lead to a decrease in demand and a decrease in your average price and monthly transactions.
- Competitor activity: As a prawn farm owner, you need to keep a close eye on your competitors and their activities. If there is a new entrant in the market or a competitor introduces a new, more affordable product, it can impact your average price and monthly transactions. Additionally, changes in your competitors' marketing strategies or expansion plans can also affect the demand for your prawns.
After the sales forecast comes the operating expenses budget, which we will now look into in more detail.
Need a convincing business plan?
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The operating expenses for a prawn farm
The next step is to estimate the costs you’ll have to incur to operate your prawn farm.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your prawn farm's operating expenses should normally include the following items:
- Staff Costs: This includes the salaries and benefits of your prawn farm workers, such as farm managers, technicians, and laborers.
- Feed Costs: Prawns require a specialized diet, and this expense covers the cost of purchasing and storing feed for your farm.
- Water and Electricity Costs: Running a prawn farm requires a significant amount of water and electricity for filtration systems, pumps, and aerators.
- Maintenance and Repairs: As with any farm, there will be ongoing maintenance and repair costs for equipment, infrastructure, and ponds.
- Accountancy Fees: You may need to hire an accountant to help with financial recordkeeping, tax preparation, and other financial matters related to your prawn farm.
- Insurance Costs: It's important to have insurance coverage for your prawn farm to protect against potential risks and losses.
- Software Licenses: You may need to purchase software licenses for programs to help with recordkeeping, inventory management, and other aspects of running a prawn farm.
- Transportation Costs: This expense covers the cost of transporting prawns to market, as well as any other transportation needs related to running your farm.
- Marketing Expenses: To sell your prawns, you may need to invest in marketing efforts such as advertising, packaging, and branding.
- Laboratory Testing: To ensure the health and quality of your prawns, you may need to conduct regular laboratory testing, which can be an ongoing expense.
- Banking Fees: This includes fees for bank accounts, credit card processing, and other financial services related to your prawn farm.
- Permits and Licenses: Depending on your location, you may need to obtain permits and licenses for environmental compliance, water use, and other aspects of operating a prawn farm.
- Supplies and Equipment: This expense covers the cost of purchasing supplies and equipment such as nets, pumps, and other tools needed to run your prawn farm.
- Professional Services: You may need to hire consultants or other professionals for services related to your prawn farm, such as legal advice or environmental assessments.
- Rent or Land Lease: If you do not own the land your prawn farm is located on, you will need to factor in the cost of rent or a land lease as an operating expense.
This list is not exhaustive by any means, and will need to be tailored to your prawn farm's specific circumstances.
What investments are needed to start or grow a prawn farm?
Once you have an idea of how much sales you could achieve and what it will cost to run your prawn farm, it is time to look into the equipment required to launch or expand the activity.
For a prawn farm, capital expenditures and initial working capital items could include:
- Pond Construction and Equipment: Building and equipping ponds for prawn farming is a major capital expenditure. This includes costs for excavating and lining ponds, installing aeration systems, and purchasing pumps and filters.
- Hatchery Equipment: A prawn farm requires a hatchery to produce juvenile prawns for stocking in the ponds. This involves purchasing hatchery tanks, filters, water treatment systems, and other equipment.
- Feeding and Harvesting Equipment: To efficiently feed and harvest prawns, a farm will need to invest in specialized equipment such as automatic feeders, aerators, and harvesters.
- Water Management System: Prawns require clean water to thrive, so a prawn farm will need to invest in a water management system that includes pumps, filters, and monitoring equipment.
- Laboratory and Testing Equipment: Prawn farming involves regular testing of water quality and monitoring of prawn health. This requires purchasing equipment such as water testing kits, microscopes, and other laboratory equipment.
Again, this list will need to be adjusted according to the specificities of your prawn 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 prawn farm
The next step in the creation of your financial forecast for your prawn 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 prawn farm?
Now let's have a look at the main output tables of your prawn farm's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your prawn farm's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a prawn 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 prawn 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 prawn 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 prawn 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 prawn 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 prawn 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 prawn farm's financial forecast?
Creating your prawn 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 projection software to build your prawn 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 prawn 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 prawn 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 prawn 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 prawn 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.
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 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
- A financial forecast shows expected growth, profitability, and cash generation metrics for your prawn 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 prawn 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 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
