How to create a financial forecast for a salmon farm?
If you are serious about keeping visibility on your future cash flows, then you need to build and maintain a financial forecast for your salmon farm.
Putting together a salmon farm financial forecast may sound complex, but don’t worry, with the right tool, it’s easier than it looks, and The Business Plan Shop is here to guide you.
In this practical guide, we'll cover everything you need to know about building financial projections for your salmon farm.
We will start by looking at why they are key, what information is needed, what a forecast looks like once completed, and what solutions you can use to create yours.
Let's dive in!
Why create and maintain a financial forecast for a salmon farm?
The financial projections for your salmon farm 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 salmon farm'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 needed to build a salmon 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 salmon 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 salmon 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 salmon 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 salmon farm's financial forecast.
The sales forecast for a salmon farm
From experience, it usually makes sense to start your salmon farm's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your salmon 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 salmon 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:
- Seasonal Demand: The seasonality of salmon consumption can greatly affect the average price and number of transactions for your salmon farm. During peak seasons, such as summer and holidays, demand for salmon tends to increase, driving up prices and increasing the number of monthly transactions. On the other hand, during slower seasons, prices may decrease and the number of transactions may also decrease.
- Global Supply and Demand: The global supply and demand for salmon can also impact your business's average price and number of monthly transactions. For example, if there is a shortage of salmon in other parts of the world, this can drive up demand for your salmon and increase prices. On the other hand, if there is an oversupply of salmon, prices may decrease and the number of transactions may also decrease.
- Environmental Factors: Environmental factors, such as weather patterns and water temperature, can also affect the growth and availability of salmon. Extreme weather conditions, such as droughts or floods, can impact the quality and quantity of your salmon, potentially leading to a decrease in average price and number of monthly transactions.
- Regulations and Health Concerns: Changes in regulations or health concerns surrounding salmon farming can also have an impact on your business's sales. For example, if there are new regulations that require stricter farming practices, this may increase your costs and potentially lead to a higher average price for your salmon. Additionally, if there are health concerns surrounding salmon consumption, this may decrease demand and lower the number of monthly transactions.
- Competition: The level of competition in the salmon farming industry can also affect your business's sales. If there are many other salmon farms in your area, this may drive down prices and make it more difficult to attract customers. On the other hand, if you are one of the few salmon farms in your area, this may give you more control over prices and potentially lead to higher average prices and more monthly transactions.
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 salmon farm
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your salmon 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 salmon farm will include some of the following items:
- Fish Feed: The most significant expense for your salmon farm will be the cost of feed for your salmon. This includes both the purchase of feed as well as any associated shipping and handling fees.
- Labor Costs: As with any farming operation, labor costs will be a major expense for your salmon farm. This includes wages, benefits, and payroll taxes for all employees, including farm workers, technicians, and administrative staff.
- Accountancy Fees: As a business owner, you will need to hire an accountant to help you manage your finances and ensure that you are complying with all tax laws and regulations.
- Insurance Costs: Operating a salmon farm comes with certain risks, such as disease outbreaks and natural disasters. It is important to have adequate insurance coverage to protect your business and assets.
- Equipment Maintenance: Your salmon farm will require specialized equipment, such as pumps, filters, and tanks, which will need regular maintenance and repairs to keep them in good working condition.
- Water and Electricity: Running a salmon farm requires a significant amount of water and electricity to keep the fish tanks and filtration systems running. These utility costs will need to be factored into your operating expenses.
- Transportation Costs: Once your salmon are ready for market, you will need to transport them to buyers. This may involve hiring a trucking company or investing in your own transportation vehicles.
- Software Licenses: To keep track of your inventory, sales, and other business operations, you may need to invest in specialized software for your salmon farm. This may include accounting software, inventory management software, or aquaculture-specific software.
- Marketing and Advertising: To attract customers and promote your salmon farm, you may need to invest in marketing and advertising efforts, such as creating a website, attending trade shows, or running social media campaigns.
- Packaging Materials: When selling your salmon, you will need to invest in packaging materials, such as boxes, labels, and insulation, to ensure that your fish are transported safely and maintain their freshness.
- Banking Fees: To manage your business finances, you will likely need to open a business bank account and may incur fees for services such as wire transfers, check processing, and account maintenance.
- Pest and Disease Control: As with any farming operation, pests and diseases can pose a threat to your salmon. You may need to invest in preventive measures, such as pesticides and vaccines, to protect your fish.
- Legal Fees: As a business owner, you may encounter legal issues that require the assistance of a lawyer. This could include drafting contracts, resolving disputes, or dealing with regulatory compliance.
- Rent/Lease: If you do not own the land where your salmon farm is located, you will need to factor in the cost of rent or lease payments for the use of the property.
- Training and Education: As a salmon farmer, it is important to stay up-to-date on the latest industry practices and techniques. This may involve attending workshops, conferences, or online courses, which will incur training and education costs.
This list will need to be tailored to the specificities of your salmon farm, but should offer a good starting point for your budget.
What investments are needed to start or grow a salmon farm?
Creating and expanding a salmon farm also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a salmon farm could include elements such as:
- Salmon pens: These are large floating structures that are used to contain and grow salmon in the ocean. They are a necessary capital expenditure for a salmon farm, as they provide the necessary environment for the fish to thrive.
- Boats and equipment: In order to maintain and harvest the salmon, you will need boats and equipment such as nets, feeders, and processing machinery. These are essential fixed assets for a salmon farm.
- Hatchery systems: A hatchery is a facility where salmon eggs are hatched and then raised until they are ready to be transferred to the pens. This is a crucial element of a salmon farm, as it is where the fish are initially bred and raised.
- Feed and feed storage: Salmon require a specialized diet to grow and thrive. As such, a significant expense for a salmon farm is the purchase and storage of feed. The feed must be kept in optimal conditions to maintain its quality, requiring proper storage facilities.
- Processing plant: Once the salmon are harvested, they need to be processed and packaged for sale. A processing plant is a fixed asset that is necessary for a salmon farm to prepare and package the fish for distribution to buyers.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your salmon 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 salmon farm
The next step in the creation of your financial forecast for your salmon 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 salmon farm?
Now let's have a look at the main output tables of your salmon farm's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your salmon farm's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a salmon 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 salmon farm's projected balance sheet provides a snapshot of your business’s financial position at year-end.
It is composed of three types of elements: assets, liabilities and equity:
- Assets: represent what the business possesses including cash, equipment, and accounts receivable (money owed by clients).
- Liabilities: represent funds advanced to the business by lenders and other creditors. They include accounts payable (money owed to suppliers), taxes payable and loans from banks and financial institutions.
- 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 salmon 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 salmon 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 salmon 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 salmon 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 salmon farm's financial forecast?
Using the right tool or solution will make the creation of your salmon farm's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your salmon 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
Outsourcing the creation of your salmon 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 salmon 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 salmon 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 salmon 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 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 salmon 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 salmon 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 salmon 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 salmon farm? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
