How to create a financial forecast for a tea farm?
Creating a financial forecast for your tea 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 tea 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 tea farm?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your tea farm and ensure that it can be financially viable in the years to come.
A financial plan for a tea 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 tea 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 tea 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 needed to build a tea 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 tea 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 tea 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 tea 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 tea farm's financial forecast.
The sales forecast for a tea farm
From experience, it usually makes sense to start your tea farm's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your tea 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 tea 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:
- The availability of premium tea leaves can affect your average price as it is directly related to the quality of your tea. If there is a shortage of premium tea leaves, you may have to increase your prices to compensate for the higher cost of sourcing them.
- The weather can have a significant impact on the number of monthly transactions at your tea farm. Unfavorable weather conditions such as heavy rain or drought can affect the growth and quality of your tea leaves, leading to a decrease in sales.
- The popularity of tea trends and flavors can also influence your average price. If there is a sudden demand for a specific type of tea or flavor, you may be able to charge a higher price for it. On the other hand, if a certain type of tea falls out of favor, you may have to lower your prices to attract customers.
- The availability of labor can also affect your business's average price. If there is a shortage of labor in the tea industry, you may have to pay higher wages to attract workers, which can increase your production costs and ultimately impact your pricing strategy.
- The overall economic conditions of the country can also have an impact on your sales. During times of economic downturn, consumers may have less disposable income to spend on luxury items like tea, leading to a decrease in the number of monthly transactions. Alternatively, during times of economic prosperity, you may see an increase in sales as consumers have more spending power.
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 tea farm
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your tea 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 tea farm will include some of the following items:
- Staff costs: This includes salaries, wages, and benefits for all employees working on the tea farm, including harvesters, processors, and administrative staff.
- Accountancy fees: You will need to hire an accountant to help you manage your financial records, file taxes, and provide financial advice.
- Insurance costs: To protect your tea farm from potential risks and liabilities, you will need to pay for various types of insurance, such as crop insurance, property insurance, and liability insurance.
- Software licenses: As technology plays an increasingly important role in farming operations, you may need to purchase software licenses for programs that help with inventory management, accounting, and other tasks.
- Banking fees: You will likely have various banking fees associated with your farm, such as transaction fees, wire transfer fees, and monthly account maintenance fees.
- Seed and plant costs: This includes the cost of purchasing seeds or plants to grow your tea crop.
- Fertilizer and pesticide costs: To ensure healthy and productive tea plants, you will need to purchase fertilizers and pesticides.
- Irrigation costs: Depending on your location and climate, you may need to invest in irrigation systems and pay for water usage.
- Fuel and energy costs: Running a tea farm requires machinery, vehicles, and energy to power them, so you will need to budget for fuel and energy costs.
- Equipment maintenance costs: Your farming equipment, such as tractors and processing machines, will require regular maintenance and repairs.
- Packaging and labeling costs: To sell your tea, you will need to package and label it properly, which may include purchasing packaging materials and hiring a graphic designer.
- Marketing and advertising costs: To reach potential customers, you will need to invest in marketing and advertising efforts, such as creating a website, attending trade shows, and running social media ads.
- Transportation costs: If you plan to sell your tea to wholesale buyers or distributors, you will need to cover transportation costs to get your product to them.
- Rent or land costs: If you do not own the land on which you are operating your tea farm, you will need to pay rent or lease fees.
- Legal fees: It is important to consult with a lawyer to ensure that your tea farm is compliant with all relevant laws and regulations, which may incur legal fees.
This list will need to be tailored to the specificities of your tea farm, but should offer a good starting point for your budget.
What investments are needed to start or grow a tea farm?
Your tea 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 tea farm, these could include:
- Tea plants: These are the primary fixed assets of a tea farm and are essential for producing tea leaves. You will need to purchase tea plants and plant them on your farm to start your tea production.
- Irrigation system: Tea plants require a consistent water supply for optimal growth and production. You will need to invest in an irrigation system to ensure that your tea plants receive the necessary amount of water.
- Processing equipment: After harvesting the tea leaves, they need to be processed to make them suitable for consumption. This process requires specialized equipment such as withering racks, rolling machines, and drying machines.
- Storage facilities: Tea leaves need to be stored in a controlled environment to maintain their quality. You will need to invest in storage facilities such as a warehouse or a climate-controlled room to store your tea leaves.
- Transportation vehicles: Once your tea leaves are processed and ready for sale, you will need to transport them to buyers or distributors. You may need to purchase vehicles such as trucks or vans to transport your tea leaves to different locations.
Again, this list will need to be adjusted according to the size and ambitions of your tea 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 tea farm
The next step in the creation of your financial forecast for your tea 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 tea farm?
Now let's have a look at the main output tables of your tea farm's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your tea farm is likely to be in the years to come.
For your tea farm 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 tea farms, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.
The projected balance sheet
The projected balance sheet gives an overview of your tea 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 tea 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 projected cash flow statement
A projected cash flow statement for a tea farm is used to show how much cash the business is generating or consuming.
The cash flow forecast is usually organised by nature to show three key metrics:
- The operating cash flow: do the core business activities generate or consume cash?
- The investing cash flow: how much is the business investing in long-term assets (this is usually compared to the level of fixed assets on the balance sheet to assess whether the business is regularly maintaining and renewing its equipment)?
- The financing cash flow: is the business raising new financing or repaying financiers (debt repayment, dividends)?
Cash is king and keeping an eye on future cash flows is imperative for running a successful business. Therefore, you should pay close attention to your tea farm's cash flow forecast.
If you are trying to secure financing, note that it is customary to provide both yearly and monthly cash flow forecasts in a financial plan - so that the reader can analyze seasonal variation and ensure the tea farm 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 tea farm's financial forecast?
Creating your tea 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 tea 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 tea 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 tea 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 tea 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 tea 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 projection shows expected growth, profitability, and cash generation for your business over the next three to five years.
- Tracking actuals vs. forecast and keeping your financial forecast up-to-date is the only way to maintain visibility on future cash flows.
- Using financial forecasting software makes it easy to create and maintain up-to-date projections for your tea 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 tea farm. Don't hesitate to contact our team if you have any questions or want to share your experience building forecasts!
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 projections
- How to project sales for a business?
- Financial forecast for a business idea
Know someone who runs or wants to start a tea farm? Share our financial projection guide with them!
Founder & CEO at The Business Plan Shop Ltd
