How to create a financial forecast for a tobacco farm?
Developing and maintaining an up-to-date financial forecast for your tobacco 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 tobacco 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 tobacco 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 tobacco farm becomes handy.
Creating a tobacco 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 tobacco 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 tobacco 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 tobacco 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 used as input to build a tobacco farm financial forecast?
A tobacco farm's financial forecast is only as good as the inputs used to build it.
If you are creating (or updating) the forecast of an existing tobacco farm, then you mostly need your accounting information, key historical operating non-financial data, and your team’s input on what to expect for the coming years.
If you are building financial projections for a tobacco farm startup, you will need to have done your research and have a clear picture of your competitive environment and go-to-market strategy so that you can forecast sales accurately.
For a new venture, you will also need a precise list of the resources needed to keep the tobacco farm running on a day-to-day basis and a list of the equipment and expenditures required to start the business (more on that later).
Let's now take a closer look at the elements that make up your tobacco farm's financial forecast.
The sales forecast for a tobacco farm
From experience, it is usually best to start creating your tobacco farm financial forecast by your sales forecast.
To create an accurate sales forecast for your tobacco farm, you will have to rely on the data collected in your market research, or if you're running an existing tobacco 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: As a tobacco farmer, you know that weather can greatly impact the quality and yield of your crops. Unfavorable weather conditions such as drought or excessive rain can lead to a decrease in the average price of your tobacco, as well as a decrease in the number of monthly transactions.
- Government regulations: Changes in government regulations surrounding the production and sale of tobacco can have a significant impact on your business. For example, stricter regulations on tobacco use or packaging may lead to a decrease in demand, resulting in a decrease in both average price and number of monthly transactions.
- Competition: The tobacco industry is highly competitive, and the actions of your competitors can affect your business. For instance, if a new tobacco farm enters the market and offers lower prices, you may need to adjust your prices to remain competitive, potentially resulting in a decrease in your average price and number of monthly transactions.
- Crop quality: The quality of your tobacco crop can greatly impact your average price. Higher quality tobacco can demand a higher price, while lower quality tobacco may need to be sold at a lower price. Additionally, if your crop quality is consistently high, your customers may be more likely to return, resulting in an increase in the number of monthly transactions.
- International trade: As a tobacco farmer, your business may be affected by international trade policies and agreements. Changes in tariffs or trade agreements can impact the demand for your tobacco and ultimately affect your average price and number of monthly transactions.
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 tobacco farm
The next step is to estimate the costs you’ll have to incur to operate your tobacco farm.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your tobacco farm's operating expenses should normally include the following items:
- Labor Costs: This includes wages, salaries, and benefits for all employees working on the tobacco farm, including farm hands, supervisors, and administrative staff.
- Seed and Seedlings: The cost of purchasing tobacco seeds and seedlings to be planted on the farm.
- Fertilizers and Pesticides: These are necessary to maintain the health and growth of the tobacco plants and prevent pests and diseases.
- Fuel and Energy: This includes the cost of diesel, gasoline, and electricity used for operating farm machinery and equipment, as well as heating and cooling systems.
- Water Usage: The cost of irrigation, water pumps, and other water-related expenses for the tobacco farm.
- Rent or Mortgage: If you do not own the land, you may have to pay rent or a mortgage for the use of the tobacco farm.
- Equipment and Machinery Maintenance: This includes regular maintenance and repairs for tractors, harvesters, and other farm equipment.
- Packaging and Shipping: The cost of packaging materials and shipping fees for transporting the tobacco to market.
- Marketing and Advertising: These expenses are necessary for promoting and selling your tobacco products to buyers.
- Accounting and Bookkeeping: This includes the cost of hiring an accountant or using accounting software to keep track of your farm's finances.
- Insurance: You may need to purchase insurance to protect your farm from potential risks, such as crop failure, natural disasters, or liability claims.
- Software Licenses: If you use any specialized software for record-keeping or farm management, you may have to pay for annual licenses.
- Banking Fees: This includes transaction fees, ATM fees, and other charges associated with managing your farm's finances.
- Taxes: As a business owner, you are responsible for paying various taxes, such as property taxes, income taxes, and sales taxes.
- Training and Education: To stay updated on the latest farming techniques and regulations, you may need to invest in training and education programs for yourself and your employees.
This list is not exhaustive by any means, and will need to be tailored to your tobacco farm's specific circumstances.
What investments are needed to start or grow a tobacco farm?
Your tobacco 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 tobacco farm, these could include:
- Tractors and Other Farm Equipment: As a tobacco farmer, you will need to invest in tractors, plows, harvesters, and other equipment to help you prepare the land, plant and harvest your tobacco crops efficiently. These are long-term assets that will greatly impact your farm's productivity and profitability.
- Irrigation Systems: Tobacco crops require a consistent and adequate water supply to thrive. Investing in irrigation systems, such as drip irrigation or sprinklers, will ensure that your crops receive the necessary amount of water. These systems are essential for maintaining the health and quality of your tobacco plants.
- Barns and Storage Facilities: Once your tobacco is harvested, it needs to be properly cured and stored. Building or purchasing barns and storage facilities will provide a safe and controlled environment for your tobacco to dry and cure. These structures are necessary for preserving the quality of your tobacco and preventing losses due to weather or pests.
- Greenhouses: Greenhouses are used to grow seedlings and can also be used to extend the growing season for your tobacco plants. Investing in a greenhouse can increase your yield and improve the quality of your crops. It also allows you to have more control over the growing conditions and protect your plants from adverse weather.
- Tobacco Processing Machinery: If you plan on processing and packaging your own tobacco, you will need to invest in machinery such as leaf strippers, dryers, and grading machines. These capital expenditures will help you streamline your operations and potentially save costs in the long run.
Again, this list will need to be adjusted according to the size and ambitions of your tobacco 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 tobacco farm
The next step in the creation of your financial forecast for your tobacco 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 tobacco farm?
Now let's have a look at the main output tables of your tobacco 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 tobacco 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 tobacco farm will look different than for a startup.
The projected balance sheet
Your tobacco 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 projected cash flow statement
A projected cash flow statement for a tobacco 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 tobacco 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 tobacco 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 tobacco farm's financial projections?
Building a tobacco farm financial forecast is not difficult provided that you use the right tool for the job. Let’s see what options are available below.
Using online financial forecasting software to build your tobacco farm's projections
The modern and easiest way is to use an online financial forecasting tool 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 projection 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 tobacco 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 tobacco farm's financial forecast?
Creating an accurate and error-free tobacco 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 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 tobacco 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 tobacco 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?
- Sample financial forecast for business idea
Know someone who runs or wants to start a tobacco farm? Share our financial projection guide with them!
Founder & CEO at The Business Plan Shop Ltd
