How to create a financial forecast for an agroforestry equipment producer?
Developing and maintaining an up-to-date financial forecast for your agroforestry equipment producing company is key in order to maintain visibility on your business’s future cash flows.
If you feel overwhelmed at the thought of putting together an agroforestry equipment producing company 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 an agroforestry equipment producing company?
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 agroforestry equipment producing company becomes handy.
Creating an agroforestry equipment producing company 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 agroforestry equipment producing company.
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 an agroforestry equipment producing company 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 agroforestry equipment producing company'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 an agroforestry equipment producing company financial forecast?
A agroforestry equipment producing company'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 agroforestry equipment producing company, 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 an agroforestry equipment producing company 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 agroforestry equipment producing company 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 agroforestry equipment producing company's financial forecast.
The sales forecast for an agroforestry equipment producing company
From experience, it is usually best to start creating your agroforestry equipment producing company financial forecast by your sales forecast.
To create an accurate sales forecast for your agroforestry equipment producing company, you will have to rely on the data collected in your market research, or if you're running an existing agroforestry equipment producing company, 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:
- Seasonal demand for specific equipment: Depending on the time of year, there may be a higher demand for certain agroforestry equipment, causing prices to fluctuate and potentially increase. For example, during harvest season, there may be a higher demand for harvesters, resulting in a higher average price and more monthly transactions.
- Changes in agricultural practices: As farming techniques and practices evolve, there may be a shift in the types of agroforestry equipment that are in demand. If there is a trend towards more sustainable and environmentally-friendly practices, there may be a higher demand for equipment such as no-till seed drills or precision agriculture tools, potentially impacting the average price and number of monthly transactions for these specific products.
- Competition from other equipment manufacturers: The presence of other companies producing similar agroforestry equipment can affect your business's average price and number of monthly transactions. If there is a new competitor with lower prices, you may need to adjust your prices to stay competitive, potentially leading to a decrease in average price and an increase in monthly transactions.
- Changes in government regulations: Government regulations related to agriculture and forestry can impact the demand for certain equipment. For example, if there are new regulations promoting sustainable land management and agroforestry practices, there may be a higher demand for equipment that supports these practices, potentially increasing your average price and number of monthly transactions.
- Economic conditions: Economic factors such as inflation, interest rates, and consumer confidence can also affect your business's average price and number of monthly transactions. During times of economic downturn, farmers and forestry workers may have less disposable income, leading to a decrease in demand for agroforestry equipment and a potential decrease in 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 an agroforestry equipment producing company
The next step is to estimate the expenses needed to run your agroforestry equipment producing company 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 agroforestry equipment producing company's operating expenses should include the following items at a minimum:
- Staff costs: This includes salaries, wages, and benefits for all employees working for your agroforestry equipment producing company. This could include production workers, sales staff, and administrative staff.
- Accountancy fees: You will need to hire an accountant to help you manage your finances and taxes. This could include services such as bookkeeping, tax preparation, and financial planning.
- Insurance costs: As a business owner, it is important to protect your assets and investments. This could include general liability insurance, property insurance, and worker's compensation insurance.
- Software licenses: To run your business efficiently, you may need to purchase software licenses for programs such as accounting software, inventory management software, and customer relationship management (CRM) software.
- Banking fees: Your company will incur fees for maintaining business bank accounts, wire transfers, and other banking services.
- Rent or mortgage: If you do not own the building where your company is located, you will need to pay rent. If you own the building, you may have a mortgage payment to consider.
- Utilities: You will need to pay for electricity, water, and other utilities to keep your business running.
- Marketing and advertising: To attract customers and promote your agroforestry equipment, you will need to invest in marketing and advertising efforts such as print ads, digital ads, and trade show participation.
- Travel expenses: If your company travels to trade shows or meets with clients, you will need to cover expenses such as airfare, lodging, and meals.
- Raw materials and supplies: In order to produce your agroforestry equipment, you will need to purchase raw materials and supplies such as metal, wood, and tools.
- Maintenance and repairs: Your equipment and machinery will require regular maintenance and occasional repairs, which will incur costs.
- Shipping and delivery: If you ship your products to customers, you will need to cover shipping costs. If you offer delivery services, you will also need to consider the cost of gas and vehicle maintenance.
- Legal fees: You may need to hire a lawyer for legal advice and to help you navigate any legal issues that may arise.
- Training and development: It is important to invest in your employees' skills and knowledge. This could include training programs, workshops, and conferences.
- Taxes and licenses: Your company will need to pay taxes and obtain necessary licenses to operate legally.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small agroforestry equipment producing company might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow an agroforestry equipment producing company?
Creating and expanding an agroforestry equipment producing company also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for an agroforestry equipment producing company could include elements such as:
- Land and Buildings: This includes the purchase or lease of land to set up your agroforestry equipment producing company, as well as any buildings or structures needed to house your production equipment and materials.
- Machinery and Equipment: This covers the cost of purchasing or leasing the necessary machinery and equipment to produce your agroforestry equipment, such as tractors, harvesters, and sawmills.
- Transportation Vehicles: As an agroforestry equipment producing company, you will need transportation vehicles to move your equipment and products from one location to another. This can include trucks, trailers, and other vehicles.
- Technology and Software: In today's digital age, technology and software are essential for running any business. This may include purchasing or licensing software for inventory management, accounting, and other administrative tasks.
- Furniture and Fixtures: This covers the cost of purchasing office furniture and fixtures, such as desks, chairs, and shelving, for your administrative and sales teams.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your agroforestry equipment producing company.
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 agroforestry equipment producing company
The next step in the creation of your financial forecast for your agroforestry equipment producing company 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 agroforestry equipment producing company?
Now let's have a look at the main output tables of your agroforestry equipment producing company's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your agroforestry equipment producing company's expected growth and profitability over the next three to five years.
A financially viable P&L statement for an agroforestry equipment producing company 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 agroforestry equipment producing company'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 agroforestry equipment producing company. 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 an agroforestry equipment producing company 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 agroforestry equipment producing company'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 agroforestry equipment producing company 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 agroforestry equipment producing company's financial forecast?
Using the right tool or solution will make the creation of your agroforestry equipment producing company's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your agroforestry equipment producing company'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 agroforestry equipment producing company 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 agroforestry equipment producing company's financial forecast?
Creating an accurate and error-free agroforestry equipment producing company 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 projection templates for inspiration
The Business Plan Shop has dozens of financial forecast templates available.
Our examples contain a complete business plan with a financial forecast and a written presentation of the company, the team, the strategy, and the medium-term objectives.
Whether you are just starting out or already have your own agroforestry equipment producing company, looking at our financial forecast template is a good way to:
- Understand what a complete business plan should look like
- Understand how you should model financial items for your agroforestry equipment producing company
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 agroforestry equipment producing company 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 an agroforestry equipment producing company, 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 turnover forecast for a business?
- Financial forecast for a business idea
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Founder & CEO at The Business Plan Shop Ltd
