How to create a financial forecast for an agricultural machinery wholesaler?

Creating a financial forecast for your agricultural machinery wholesaler, 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 agricultural machinery wholesaler 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 an agricultural machinery wholesaler?

Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your agricultural machinery wholesaler and ensure that it can be financially viable in the years to come.

A financial plan for an agricultural machinery wholesaler 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 agricultural machinery wholesaler 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 agricultural machinery wholesaler'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.

What information is needed to build an agricultural machinery wholesaler 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 an agricultural machinery wholesaler, 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 agricultural machinery wholesaler 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 agricultural machinery wholesaler, 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 agricultural machinery wholesaler's financial forecast.

The sales forecast for an agricultural machinery wholesaler

From experience, it usually makes sense to start your agricultural machinery wholesaler's financial projection with the revenues forecast.

The inputs used to forecast your sales will include the historical trading data of your agricultural machinery wholesaler (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 agricultural machinery wholesaler'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:

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. 

The operating expenses for an agricultural machinery wholesaler

Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your agricultural machinery wholesaler 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 an agricultural machinery wholesaler will include some of the following items:

This list will need to be tailored to the specificities of your agricultural machinery wholesaler, but should offer a good starting point for your budget.

What investments are needed to start or grow an agricultural machinery wholesaler?

Once you have an idea of how much sales you could achieve and what it will cost to run your agricultural machinery wholesaler, it is time to look into the equipment required to launch or expand the activity.

For an agricultural machinery wholesaler, capital expenditures and initial working capital items could include:

Again, this list will need to be adjusted according to the specificities of your agricultural machinery wholesaler.

The financing plan of your agricultural machinery wholesaler

The next step in the creation of your financial forecast for your agricultural machinery wholesaler 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 an agricultural machinery wholesaler?

Now let's have a look at the main output tables of your agricultural machinery wholesaler'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 agricultural machinery wholesaler'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 agricultural machinery wholesaler will look different than for a startup.

The projected balance sheet

The projected balance sheet gives an overview of your agricultural machinery wholesaler'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 agricultural machinery wholesaler. 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 cash flow forecast

Your agricultural machinery wholesaler's cash flow forecast shows how much cash your business is expected to consume or generate in the years to come.

It is best practice to organise the cash flow forecast by nature to better explain where cash is used or generated by the agricultural machinery wholesaler:

• Operating cash flow: shows how much cash is generated by the operating activities
• Investing cash flow: shows how much will be invested in capital expenditure to maintain or expand the business 
• Financing cash flow: shows if the business is raising new capital or repaying financiers (debt repayment, dividends)

Keeping an eye on (and regularly updating) your agricultural machinery wholesaler's cash flow forecast is key to ensuring that your business has sufficient liquidity to operate normally and to detect financing requirements as early as possible.

If you are trying to raise capital, you will normally be asked to provide a monthly cash flow forecast in your agricultural machinery wholesaler's financial plan - so that banks or investors can assess seasonal variation and ensure your business is appropriately capitalised.

Which tool should you use to create your agricultural machinery wholesaler's financial forecast?

Using the right tool or solution will make the creation of your agricultural machinery wholesaler's financial forecast much easier than it sounds. Let’s explore the main options.

Using online financial projection software to build your agricultural machinery wholesaler'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.

Hiring a financial consultant or chartered accountant

Hiring a consultant or chartered accountant is also an efficient way to get a professional agricultural machinery wholesaler 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 agricultural machinery wholesaler'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 agricultural machinery wholesaler 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 agricultural machinery wholesaler'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.

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

1. A financial forecast shows expected growth, profitability, and cash generation metrics for your agricultural machinery wholesaler.
2. Tracking actuals vs. forecast and having an up-to-date financial forecast is key to maintaining visibility on your future cash flows.
3. Using financial forecasting software is the modern way of creating and maintaining financial projections.

We hope that this guide helped you gain a clearer perspective on the steps needed to create the financial forecast for an agricultural machinery wholesaler. Don't hesitate to contact us if you have any questions!

Also on The Business Plan Shop

• Financial forecast example
• How to project revenues for a business?
• Example of financial forecast for business idea

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