How to create a financial forecast for a watermelon farm?
Creating a financial forecast for your watermelon 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 watermelon 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 watermelon farm?
The financial projections for your watermelon 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 watermelon 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 needed to build a watermelon 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 watermelon 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 watermelon 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 watermelon 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 watermelon farm's financial forecast.
The sales forecast for a watermelon farm
The sales forecast, also called topline projection, is normally where you will start when building your watermelon 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 watermelon farms), and consider the elements below:
- Weather conditions: The average price of watermelons can be affected by weather conditions such as drought, excessive rainfall, or extreme temperatures. These factors can impact the size, quality, and yield of the watermelons, ultimately affecting the market demand and price.
- Competition: The number of monthly transactions can be affected by competition from other watermelon farms in the area. If there is an abundance of watermelons in the market, customers may have more options to choose from, potentially decreasing your sales.
- Consumer preferences: Consumer preferences can also impact the average price and number of transactions for your watermelon farm. For example, if there is a trend towards organic or locally grown produce, you may be able to charge a higher price for your watermelons and experience an increase in sales.
- Pests and diseases: Pests and diseases can significantly impact the health and yield of your watermelons. If your crops are affected, it can result in a decrease in supply, leading to a potential increase in price. Additionally, if the pests and diseases are severe, it can also lead to a decrease in sales as customers may not want to purchase damaged or diseased watermelons.
- Transportation costs: Transportation costs can affect the average price of your watermelons. If the cost of transporting your watermelons to markets or stores increases, it can result in a higher price for your customers. This can also potentially lead to a decrease in sales if customers are not willing to pay the higher price.
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 watermelon farm
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your watermelon 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 watermelon farm will include some of the following items:
- Staff costs: This includes the salaries, wages, and benefits of your farm workers, as well as any training or development expenses.
- Accountancy fees: You may need to hire an accountant or bookkeeper to help manage your financial records, prepare taxes, and provide financial advice.
- Insurance costs: As a watermelon farm owner, you'll need to protect your business from potential risks such as crop damage, equipment damage, and liability claims.
- Software licenses: You may use software to manage your farm operations, such as crop planning, inventory tracking, and sales management. These software licenses may come with a recurring cost.
- Banking fees: You'll likely have expenses related to your business bank account, such as transaction fees, monthly maintenance fees, and overdraft fees.
- Seeds and seedlings: The cost of purchasing seeds and seedlings to grow your watermelons will be a significant expense for your farm.
- Fertilizers and pesticides: To ensure healthy and abundant crops, you'll need to invest in fertilizers and pesticides to nourish and protect your watermelon plants.
- Irrigation and water costs: Water is essential for growing watermelons, and you may have expenses related to irrigation systems, water pumps, and water usage fees.
- Machinery and equipment maintenance: Your farm will rely on various machinery and equipment, such as tractors, harvesters, and irrigation systems, which will require regular maintenance and repairs.
- Fuel and energy costs: Running machinery, powering irrigation systems, and maintaining temperature-controlled storage facilities will all contribute to your fuel and energy expenses.
- Packaging and shipping materials: You'll need to package and transport your watermelons to market, which may require purchasing materials such as boxes, labels, and shipping supplies.
- Marketing and advertising: To attract customers and promote your watermelons, you may need to invest in marketing and advertising efforts, such as creating flyers, attending farmers' markets, or running social media ads.
- Rent or land lease: If you don't own the land on which your farm operates, you'll have to pay rent or a land lease to use the property for your business.
- Utilities: Your farm may have expenses related to utilities such as electricity, gas, and internet services for your office or storage facilities.
- Taxes and permits: You'll need to comply with local laws and regulations, which may require you to pay taxes and obtain permits or licenses for your watermelon farm.
This list will need to be tailored to the specificities of your watermelon farm, but should offer a good starting point for your budget.
What investments are needed to start or grow a watermelon farm?
Creating and expanding a watermelon farm also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a watermelon farm could include elements such as:
- Land: You will need to purchase or lease land to establish your watermelon farm. This is a fixed asset that will require a significant investment upfront.
- Irrigation system: A reliable irrigation system is essential for growing watermelons, as they require consistent moisture. This can include pumps, sprinklers, and irrigation pipes.
- Tractors and farming equipment: To prepare the land and maintain your watermelon farm, you will need tractors and other farming equipment such as plows, cultivators, and harvesters.
- Greenhouse: If you plan on growing watermelons year-round or in a colder climate, you may need to invest in a greenhouse. This will protect your crops from the elements and allow for controlled growing conditions.
- Storage facilities: Once harvested, watermelons need to be stored in a cool, dry place. You may need to invest in storage facilities such as a refrigerated warehouse or storage bins to keep your watermelons fresh until they are sold.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your watermelon 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 watermelon farm
The next step in the creation of your financial forecast for your watermelon 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 watermelon farm?
Now let's have a look at the main output tables of your watermelon farm's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your watermelon farm is likely to be in the years to come.
For your watermelon 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 watermelon farms, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.
The projected balance sheet
Your watermelon farm's projected balance sheet provides a snapshot of your business’s financial position at year-end.
It is composed of three types of elements: assets, liabilities and equity:
- Assets: represent what the business possesses including cash, equipment, and accounts receivable (money owed by clients).
- Liabilities: represent funds advanced to the business by lenders and other creditors. They include accounts payable (money owed to suppliers), taxes payable and loans from banks and financial institutions.
- 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 watermelon 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 watermelon 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 watermelon 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 watermelon 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 watermelon farm's financial projections?
Building a watermelon 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 projection software to build your watermelon 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 watermelon 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 watermelon farm's financial forecast?
Creating an accurate and error-free watermelon 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 watermelon 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 watermelon 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 create a turnover forecast for a business?
- Financial forecast for a business idea
Know someone who runs or wants to start a watermelon farm? Share our financial projection guide with them!
Founder & CEO at The Business Plan Shop Ltd
