How to create a financial forecast for a soybean farm?
Creating a financial forecast for your soybean 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 soybean 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 soybean farm?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your soybean farm and ensure that it can be financially viable in the years to come.
A financial plan for a soybean farm enables you to look at your business in detail - from income to operating costs and investments - to evaluate its expected profitability and future cash flows.
This gives you the visibility needed to plan future investments and expansion with confidence.
And, when your trading environment gets tougher, having an up to date soybean farm forecast enables you to detect potential upcoming financing shortfalls in advance, enabling you to make adjustments or secure financing before you run out of cash.
It’s also important to remember that your soybean farm's financial forecast will be essential when looking for financing. You can be 100% certain that banks and investors will ask to see your numbers, so make sure they’re set out accurately and attractively.
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 soybean farm financial forecast?
A soybean 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 soybean farm.
If you are creating (or updating) the forecast of an existing soybean 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 soybean 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 soybean 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 soybean farm's financial forecast.
The sales forecast for a soybean farm
From experience, it is usually best to start creating your soybean farm financial forecast by your sales forecast.
To create an accurate sales forecast for your soybean farm, you will have to rely on the data collected in your market research, or if you're running an existing soybean 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:
- Weather conditions: The success of your soybean harvest is heavily dependent on the weather. Adverse weather conditions such as drought or excessive rainfall can greatly affect the yield and quality of your soybeans, which in turn can impact the average price and number of monthly transactions.
- Demand for soybean-based products: The demand for soybean-based products, such as tofu and soy milk, can have a direct impact on the average price of soybeans. If the demand for these products increases, it may drive up the price of soybeans and lead to more monthly transactions.
- Competition: The presence of other soybean farms in your area can affect your business's average price and number of monthly transactions. If there are many competitors offering similar products, you may have to lower your prices to remain competitive, which can impact your profitability.
- Government policies and regulations: Changes in government policies and regulations related to the production and sale of soybeans can have a significant impact on the market. For example, the imposition of tariffs on imported soybeans can drive up the price of domestically grown soybeans, leading to higher average prices for your farm.
- Crop diseases and pests: Soybeans are susceptible to various diseases and pests, which can affect the overall yield and quality of your crop. This can result in lower average prices and reduced monthly transactions if the quality of your soybeans is affected.
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.
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 soybean farm
The next step is to estimate the expenses needed to run your soybean 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 soybean farm's operating expenses should include the following items at a minimum:
- Seeds: As a soybean farmer, you will need to purchase high-quality seeds that are specifically bred for soybean production.
- Fertilizers: To ensure a healthy and productive crop, you will need to invest in fertilizers that provide the necessary nutrients for soybean growth.
- Pesticides: As with any farm, pest control is crucial for protecting your soybean crop from harmful insects and weeds.
- Labor costs: Hiring and paying workers to help with planting, harvesting, and other farm tasks is an essential expense for your soybean farm.
- Machinery and equipment maintenance: Maintaining and repairing your farm equipment, such as tractors, combines, and other necessary machinery, is crucial for a successful soybean harvest.
- Fuel and oil: The cost of fuel and oil for running your farm equipment, as well as transportation, is an important expense to consider.
- Irrigation: Soybeans require consistent moisture levels for optimal growth, so investing in irrigation systems and the cost of water is necessary for a successful crop.
- Crop insurance: Protecting your soybean crop from potential losses due to natural disasters, pests, or other unforeseen events is crucial for your farm's financial stability.
- Accounting and bookkeeping fees: Keeping accurate records and managing your finances is crucial for the success of your soybean farm, so hiring an accountant or bookkeeper is a necessary expense.
- Insurance costs: In addition to crop insurance, you will also need to invest in insurance for your farm's buildings, equipment, and liability coverage.
- Software licenses: As technology plays an increasingly important role in farming, you may need to purchase software licenses for farm management, soil mapping, or other necessary tools.
- Banking fees: Managing your farm's finances and transactions may incur banking fees for services such as loans, wire transfers, or credit card processing.
- Marketing and advertising: Promoting and selling your soybean crop may require marketing and advertising expenses, such as attending trade shows or creating promotional materials.
- Rent or land expenses: If you do not own the land where your soybean farm is located, you will need to consider the cost of renting or leasing the land.
- Utilities: Running your farm's operations may require electricity, water, and other utilities, which can add up to significant expenses.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small soybean farm might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow a soybean farm?
Your soybean 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 soybean farm, these could include:
- Tractors and Equipment: As a soybean farmer, you will need to invest in tractors and equipment to help with planting, harvesting, and other tasks. This includes items such as combines, planters, sprayers, and tillage equipment.
- Irrigation System: Since soybeans require consistent moisture, you may need to invest in an irrigation system to ensure your crops receive enough water. This can include items such as pumps, pipes, and sprinkler systems.
- Storage Facilities: As you harvest your soybeans, you will need a place to store them before they are sold. This can include grain bins, silos, or other types of storage facilities.
- Transportation Vehicles: In order to transport your soybeans from your farm to the market, you may need to invest in transportation vehicles such as trucks, trailers, or other types of vehicles.
- Farm Buildings: Depending on the size of your operation, you may need to build or purchase farm buildings for storage, workspace, and other purposes. This can include barns, sheds, and other structures.
Again, this list will need to be adjusted according to the size and ambitions of your soybean 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 soybean farm
The next step in the creation of your financial forecast for your soybean 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 soybean farm?
Now let's have a look at the main output tables of your soybean farm's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your soybean farm's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a soybean 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 soybean 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 projection
The cash flow forecast of your soybean 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 soybean 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 soybean 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 soybean 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 soybean farm's financial forecast?
Using the right tool or solution will make the creation of your soybean farm's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial projection software to build your soybean 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 soybean 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 soybean farm's financial forecast?
Creating an accurate and error-free soybean farm financial forecast on Excel (or any spreadsheet) is very technical and requires both a strong grasp of accounting principles and solid skills in financial modelling.
Most entrepreneurs lack the expertise required to create an accurate financial forecast using spreadsheet software like Excel or Google Sheets. As a result, it is unlikely anyone will trust your numbers.
The second reason is that it is inefficient. Building forecasts on spreadsheets was the only option in the 1990s and early 2000s, nowadays technology has advanced and software can do it much faster and much more accurately.
This is why professional forecasters all use software. With the rise of AI, software is also becoming smarter at helping us detect mistakes in our forecasts and helping us analyse the numbers to make better decisions.
Finally, like everything with spreadsheets, tracking actuals vs. forecasts and updating your forecast as the year progresses is manual, tedious, error-prone, and time-consuming. Whereas financial forecasting 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 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 soybean farm, 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 soybean farm
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 soybean 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 soybean 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 create a turnover forecast for a business?
- Financial forecast template for a business idea
Know someone who owns or is thinking of starting a soybean farm? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
