How to create a financial forecast for a tropical fruits farm?
Creating a financial forecast for your tropical fruits 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 tropical fruits 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 tropical fruits farm?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your tropical fruits farm and ensure that it can be financially viable in the years to come.
A financial plan for a tropical fruits 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 tropical fruits 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 tropical fruits 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 tropical fruits farm financial forecast?
A tropical fruits 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 tropical fruits 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 tropical fruits 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 tropical fruits 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 tropical fruits farm's financial forecast.
The sales forecast for a tropical fruits farm
The sales forecast, also called topline projection, is normally where you will start when building your tropical fruits farm financial forecast.
Creating a coherent sales projection boils down to estimating two key drivers:
- The average price
- The number of monthly transactions
To do this, you will need to rely on historical data (for an existing business), market research data (for both new and existing tropical fruits farms), and consider the elements below:
- Seasonal Demand: Depending on the time of year, certain tropical fruits may be in higher demand and therefore fetch a higher price. For example, mangoes may be more popular during the summer months.
- Weather Conditions: Changes in weather patterns can greatly affect the quality and quantity of tropical fruits produced. Severe weather events, such as hurricanes or droughts, can lead to a decrease in supply and potentially drive up prices.
- Competition: The presence of other tropical fruit farms in the area can impact your average price and number of monthly transactions. If there is a high level of competition, you may need to adjust your prices or marketing strategies to stay competitive.
- Transportation Costs: As a tropical fruit farm, you may need to transport your products to different locations for distribution. Fluctuations in fuel prices or changes in transportation regulations can affect your costs and potentially impact your pricing and sales.
- Crop Quality: The quality of your crops can have a direct impact on your average price and number of monthly transactions. If your fruits are consistently of high quality, you may be able to charge a premium price and attract more customers.
After the sales forecast comes the operating expenses budget, which we will now look into in more detail.
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The operating expenses for a tropical fruits farm
The next step is to estimate the expenses needed to run your tropical fruits 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 tropical fruits farm's operating expenses should include the following items at a minimum:
- Staff costs: This includes wages, salaries, and benefits for all employees working on the farm, including farmhands, harvesters, and administrative staff.
- Accountancy fees: You will need to hire an accountant to help you with bookkeeping, tax preparation, and financial analysis for your tropical fruits farm.
- Insurance costs: It is important to have insurance coverage for your farm, including property insurance, liability insurance, and crop insurance to protect against potential losses.
- Software licenses: You may need to purchase software licenses for accounting, inventory management, and other business operations to help you run your tropical fruits farm more efficiently.
- Banking fees: You will incur banking fees for maintaining bank accounts, processing transactions, and obtaining loans for your farm.
- Fertilizers and pesticides: These are necessary expenses for maintaining the health and productivity of your tropical fruits, and you will need to budget for them every year.
- Irrigation and water costs: Tropical fruits require regular watering, and you may need to invest in irrigation systems and pay for water usage to ensure your crops receive enough moisture.
- Fuel and equipment maintenance: Your farm equipment, such as tractors and harvesters, will need regular maintenance and fuel to keep them running smoothly.
- Transportation costs: You will need to transport your fruits from the farm to buyers or markets, and this will incur costs for fuel, vehicle maintenance, and labor.
- Packaging materials: You will need to purchase packaging materials, such as boxes and bags, to protect your fruits during transportation and storage.
- Marketing and advertising: To attract customers and promote your tropical fruits farm, you may need to invest in marketing and advertising efforts.
- Rent or mortgage: If you do not own the land for your farm, you will need to budget for rent or mortgage payments.
- Utilities: You will need to pay for electricity, gas, and other utilities for your farm, including powering equipment and lighting.
- Repairs and maintenance: Your farm structures and equipment will need occasional repairs and maintenance to keep them in good working condition.
- Training and education: To improve your farming skills and keep up with industry trends, you may need to attend workshops or conferences and invest in training and education programs.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small tropical fruits farm might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow a tropical fruits farm?
Once you have an idea of how much sales you could achieve and what it will cost to run your tropical fruits farm, it is time to look into the equipment required to launch or expand the activity.
For a tropical fruits farm, capital expenditures and initial working capital items could include:
- Land and buildings: This includes purchasing or leasing land for your tropical fruits farm, as well as any buildings or structures that are necessary for your operations, such as storage facilities, packing sheds, or processing facilities.
- Equipment and machinery: This encompasses the purchase or lease of equipment and machinery needed for growing, harvesting, and processing your tropical fruits, such as tractors, irrigation systems, and fruit processing machines.
- Planting and infrastructure: This includes the cost of preparing the land for planting, such as clearing, grading, and soil preparation, as well as the installation of infrastructure such as irrigation systems, fences, or roads.
- Vehicles: Depending on the size of your farm and the distance to market, you may need to purchase or lease vehicles for transporting your tropical fruits, such as trucks, vans, or trailers.
- Greenhouse structures: If you plan on growing tropical fruits in a controlled environment, you may need to invest in greenhouse structures, which can provide protection from weather, pests, and diseases.
Again, this list will need to be adjusted according to the specificities of your tropical fruits 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 tropical fruits farm
The next step in the creation of your financial forecast for your tropical fruits 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 tropical fruits farm?
Now let's have a look at the main output tables of your tropical fruits farm's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your tropical fruits farm's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a tropical fruits 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
The projected balance sheet gives an overview of your tropical fruits 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 tropical fruits 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 tropical fruits 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 tropical fruits 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 tropical fruits 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 tropical fruits farm's financial forecast?
Creating your tropical fruits 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 tropical fruits farm's projections
The modern and easiest way is to use professional online financial forecasting 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
Enlisting the help of a consultant or accountant is also a good way to obtain a professional tropical fruits 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 tropical fruits farm's financial forecast?
Creating an accurate and error-free tropical fruits 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 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
- 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 tropical fruits 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 tropical fruits 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?
- Example of financial forecast for business idea
Know someone who owns or is thinking of starting a tropical fruits farm? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
