How to create a financial forecast for a tomato farm?
Developing and maintaining an up-to-date financial forecast for your tomato 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 tomato 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 tomato farm?
The financial projections for your tomato 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 tomato 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 used as input to build a tomato farm financial forecast?
A tomato 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 tomato farm.
If you are creating (or updating) the forecast of an existing tomato 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 tomato 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 tomato 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 tomato farm's financial forecast.
The sales forecast for a tomato farm
From experience, it is usually best to start creating your tomato farm financial forecast by your sales forecast.
To create an accurate sales forecast for your tomato farm, you will have to rely on the data collected in your market research, or if you're running an existing tomato 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 average price of tomatoes may increase during periods of drought or extreme heat, as the supply decreases. Alternatively, the number of monthly transactions may decrease if there is an abundance of tomatoes due to favorable weather conditions.
- Pest infestations: If your farm experiences a pest infestation, the quality and quantity of tomatoes may be affected. This could result in a decrease in the average price and number of transactions.
- Competition: If other tomato farms in the area have a successful harvest, the market may become saturated and the average price of tomatoes may decrease. This could also lead to a decrease in the number of monthly transactions as customers have more options to choose from.
- Transportation costs: The cost of transporting tomatoes to market can fluctuate depending on fuel prices and other factors. This could impact the average price of tomatoes, as well as the number of monthly transactions if the cost becomes too high for customers to afford.
- Consumer demand: Changes in consumer preferences and demand for tomatoes can greatly affect the average price and number of transactions for your farm. For example, if there is a trend towards organic produce, you may be able to charge a higher price for your tomatoes, resulting in an increase in average price and potentially a decrease in number of 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.
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The operating expenses for a tomato farm
The next step is to estimate the expenses needed to run your tomato 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 tomato farm's operating expenses should include the following items at a minimum:
- Seeds and seedlings: You will need to purchase seeds and seedlings to start your tomato farm. This expense can vary depending on the type and quantity of seeds you need.
- Fertilizers and pesticides: To ensure healthy and productive tomato plants, you will need to invest in fertilizers and pesticides. These can be a significant expense, especially if you are using organic options.
- Irrigation and water costs: Tomatoes require consistent watering to thrive, which means you will need to factor in the cost of irrigation systems and water usage.
- Labor costs: You will need to hire workers to plant, maintain, and harvest your tomato crops. These labor costs can include wages, benefits, and payroll taxes.
- Packaging and labeling: Once your tomatoes are ready to be sold, you will need to invest in packaging materials and labels to ensure they are properly presented and labeled for customers.
- Transportation and delivery: If you are selling your tomatoes to retailers or at farmers' markets, you will need to factor in the cost of transporting and delivering them to their final destination.
- Utilities: Running a tomato farm requires electricity and other utilities, such as gas or propane for heaters, which can add up to significant expenses.
- Equipment maintenance and repairs: Your farm equipment, such as tractors and irrigation systems, will require regular maintenance and occasional repairs, which can be costly.
- Accountancy fees: As a business owner, you will need to keep track of your finances and file taxes. You may need to hire an accountant to help you with these tasks, which will incur fees.
- Insurance costs: To protect your farm from potential risks, such as crop damage or liability claims, you will need to invest in insurance coverage, which can be a significant expense.
- Software licenses: In today's digital age, you may need to invest in software programs for tasks such as managing inventory, tracking expenses, and analyzing data.
- Banking fees: You will need to open a business bank account to manage your finances, which may come with fees such as transaction fees or monthly maintenance fees.
- Marketing and advertising: To attract customers and promote your farm, you may need to invest in marketing and advertising efforts, such as creating a website, printing flyers, or attending trade shows.
- Training and education: As a tomato farmer, you may need to continuously learn about new techniques and technologies to improve your crops' quality and yield, which may require attending workshops or conferences.
- Taxes and permits: You will need to pay taxes on your farm's income and obtain any necessary permits, such as a business license or agricultural permit, which can be a recurring expense.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small tomato farm might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow a tomato farm?
Your tomato 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 tomato farm, these could include:
- Greenhouse structure: This includes the cost of constructing or purchasing a greenhouse to house the tomato plants. The structure should be durable and able to withstand harsh weather conditions.
- Irrigation system: A reliable irrigation system is essential for a successful tomato farm. This includes the cost of pipes, pumps, and other equipment needed to water the plants efficiently.
- Tractors and farm equipment: To maintain and harvest your tomato crops, you will need tractors, plows, and other farm equipment. These are essential fixed assets for a tomato farm.
- Storage facilities: After harvesting, you will need a place to store your tomatoes before they are sold. This can include refrigerated storage units or other facilities to keep the tomatoes fresh.
- Land and property: If you do not already own land for your tomato farm, you will need to purchase or lease it. This includes the cost of acquiring the land and any necessary permits or zoning approvals.
Again, this list will need to be adjusted according to the size and ambitions of your tomato 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 tomato farm
The next step in the creation of your financial forecast for your tomato 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 tomato farm?
Now let's have a look at the main output tables of your tomato farm's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your tomato farm's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a tomato 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 tomato 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 tomato 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 tomato 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 tomato 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 tomato 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 tomato farm's financial forecast?
Creating your tomato 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 forecasting software to build your tomato 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.
Calling in a financial consultant or chartered accountant
Enlisting the help of a consultant or accountant is also a good way to obtain a professional tomato farm financial forecast.
The downside of this solution is its cost. From experience, obtaining a simple financial forecast over three years (including a balance sheet, income statement, and cash flow statement) is likely to cost a minimum of £700 or $1,000.
The indicative cost above, is for a small business, and a forecast is done as a one-shot exercise. Using a consultant or accountant to track your actuals vs. forecast and to keep your financial projections up to date on a monthly or quarterly basis will cost a lot more.
If you opt for this solution, make sure your accountant has in-depth knowledge of your industry, so that they may challenge your figures and offer insights (as opposed to just taking your assumptions at face value to create the forecast).
Why not use a spreadsheet such as Excel or Google Sheets to build your tomato farm's financial forecast?
Creating an accurate and error-free tomato 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.
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 tomato 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 tomato 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 tomato 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 sales forecast for a business?
- Financial forecast for a business idea
Know someone who owns or is thinking of starting a tomato farm? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
