How to create a financial forecast for a sapling tree farm?

Developing and maintaining an up-to-date financial forecast for your sapling tree 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 sapling tree 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 sapling tree farm?

The financial projections for your sapling tree 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 sapling tree 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.

What information is used as input to build a sapling tree farm financial forecast?

A sapling tree 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 sapling tree farm.

If you are creating (or updating) the forecast of an existing sapling tree 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 sapling tree 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 sapling tree 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 sapling tree farm's financial forecast.

The sales forecast for a sapling tree farm

From experience, it is usually best to start creating your sapling tree farm financial forecast by your sales forecast.

To create an accurate sales forecast for your sapling tree farm, you will have to rely on the data collected in your market research, or if you're running an existing sapling tree farm, 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:

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.

The operating expenses for a sapling tree farm

The next step is to estimate the expenses needed to run your sapling tree 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 sapling tree farm's operating expenses should include the following items at a minimum:

This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small sapling tree farm might not have the same level of expenditure as a larger one, for example.

What investments are needed to start or grow a sapling tree farm?

Your sapling tree farm 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 sapling tree farm, these could include:

Again, this list will need to be adjusted according to the size and ambitions of your sapling tree farm.

The financing plan of your sapling tree farm

The next step in the creation of your financial forecast for your sapling tree 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 sapling tree farm?

Now let's have a look at the main output tables of your sapling tree 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 sapling tree 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 sapling tree farm will look different than for a startup.

The projected balance sheet

The projected balance sheet gives an overview of your sapling tree 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 sapling tree 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 sapling tree 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 sapling tree 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 sapling tree 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 sapling tree farm's financial plan. 

Which tool should you use to create your sapling tree farm's financial forecast?

Using the right tool or solution will make the creation of your sapling tree farm's financial forecast much easier than it sounds. Let’s explore the main options.

Using online financial projection software to build your sapling tree 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.

Hiring a financial consultant or chartered accountant

Hiring a consultant or chartered accountant is also an efficient way to get a professional sapling tree 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 sapling tree farm's financial forecast?

Creating an accurate and error-free sapling tree 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.

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

1. A financial projection shows expected growth, profitability, and cash generation for your business over the next three to five years.
2. Tracking actuals vs. forecast and keeping your financial forecast up-to-date is the only way to maintain visibility on future cash flows.
3. Using financial forecasting software makes it easy to create and maintain up-to-date projections for your sapling tree farm.

You have reached the end of our guide. We hope you now have a better understanding of how to create a financial forecast for a sapling tree farm. Don't hesitate to contact our team if you have any questions or want to share your experience building forecasts!

Also on The Business Plan Shop

• Example of financial projections
• How to create a sales forecast for a business?
• Sample financial forecast for business idea

Know someone who runs or wants to start a sapling tree farm? Share our financial projection guide with them!