How to create a financial forecast for an aquaponics farm?
If you are serious about keeping visibility on your future cash flows, then you need to build and maintain a financial forecast for your aquaponics farm.
Putting together an aquaponics farm financial forecast may sound complex, but don’t worry, with the right tool, it’s easier than it looks, and The Business Plan Shop is here to guide you.
In this practical guide, we'll cover everything you need to know about building financial projections for your aquaponics farm.
We will start by looking at why they are key, what information is needed, what a forecast looks like once completed, and what solutions you can use to create yours.
Let's dive in!
Why create and maintain a financial forecast for an aquaponics farm?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your aquaponics farm and ensure that it can be financially viable in the years to come.
A financial plan for an aquaponics 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 aquaponics 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 aquaponics 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 needed to build an aquaponics 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 an aquaponics 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 aquaponics 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 aquaponics 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 aquaponics farm's financial forecast.
The sales forecast for an aquaponics farm
The sales forecast, also called topline projection, is normally where you will start when building your aquaponics 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 aquaponics farms), and consider the elements below:
- Seasonal Demand: The demand for fresh produce from aquaponics farms may vary depending on the season. During peak seasons, such as spring and summer, when there is an abundance of fresh produce, the average price for your products may decrease due to increased competition. On the other hand, during the winter season, when there is a limited supply of fresh produce, the average price for your products may increase due to higher demand.
- Weather Conditions: Adverse weather conditions, such as droughts or floods, can affect the production and availability of your products. This can lead to fluctuations in the average price of your products, as well as the number of monthly transactions. Unfavorable weather conditions can also result in lower quality or quantity of produce, which may impact your customers' purchasing decisions.
- Consumer Preferences: The preferences and tastes of your target market may change over time. For example, there may be a shift towards organic or locally-sourced produce, which may increase the average price of your products. Keeping up with the latest trends and catering to your customers' preferences can help you maintain a competitive edge and potentially increase your average price.
- Competition: The presence of other aquaponics farms in your area can impact your business's average price and number of monthly transactions. If there are many competitors offering similar products at lower prices, you may need to adjust your prices accordingly to remain competitive. On the other hand, if you offer unique or high-quality products, you may be able to charge a premium price.
- Economic Conditions: Changes in the economy, such as inflation or recession, can affect the purchasing power of your customers. During tough economic times, consumers may be more price-sensitive and opt for cheaper alternatives, which can lead to a decrease in your average price. On the other hand, during periods of economic growth, consumers may be willing to spend more on premium products, which can increase your average price.
After the sales forecast comes the operating expenses budget, which we will now look into in more detail.
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 aquaponics farm
The next step is to estimate the costs you’ll have to incur to operate your aquaponics farm.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your aquaponics farm's operating expenses should normally include the following items:
- Staff costs: This includes salaries, benefits, and training for your aquaponics farm employees.
- Accountancy fees: You may need to hire an accountant to help you manage your financial records and taxes.
- Insurance costs: It's important to have insurance to protect your aquaponics farm from any potential risks or accidents.
- Software licences: You may need to purchase software licences for programs that help you manage your farm, such as accounting or inventory software.
- Banking fees: You may need to pay fees for banking services, such as wire transfers or processing credit card payments from customers.
- Seeds and plants: These are essential for growing your crops in the aquaponics system.
- Fish feed: Your fish will need to be fed regularly, so you will need to budget for the cost of fish feed.
- Water and electricity: Your aquaponics system will require water and electricity to operate, so you will need to factor in these costs.
- Maintenance and repairs: Like any other farming operation, your aquaponics farm will require regular maintenance and occasional repairs.
- Packaging materials: If you plan to sell your produce, you will need to budget for packaging materials such as bags, containers, and labels.
- Marketing and advertising: To attract customers and promote your farm, you may need to invest in marketing and advertising efforts.
- Transportation costs: You may need to transport your produce to customers or to market, so you will need to budget for transportation costs.
- Rent or lease: If you do not own the land or building for your aquaponics farm, you will need to budget for rent or lease payments.
- Pest control: Like any other farming operation, you may need to invest in pest control measures to protect your crops.
- Training and education: As with any business, it's important to continue learning and improving your skills, so budget for training and education opportunities.
This list is not exhaustive by any means, and will need to be tailored to your aquaponics farm's specific circumstances.
What investments are needed to start or grow an aquaponics farm?
Once you have an idea of how much sales you could achieve and what it will cost to run your aquaponics farm, it is time to look into the equipment required to launch or expand the activity.
For an aquaponics farm, capital expenditures and initial working capital items could include:
- Greenhouse: A greenhouse is an essential fixed asset for an aquaponics farm as it provides a controlled environment for the plants and fish to thrive. It also protects the farm from adverse weather conditions, pests, and other external factors.
- Aquaculture Tanks: These are specialized tanks used for raising fish in an aquaponics system. They are typically made of durable materials such as fiberglass or PVC and come in various sizes and shapes to accommodate different types of fish.
- Grow Beds: Grow beds are where the plants are grown in an aquaponics system. These can be made of various materials such as plastic, wood, or gravel, and are designed to hold the plants and allow for proper drainage and aeration.
- Water Filtration System: As water quality is crucial for the success of an aquaponics farm, investing in a high-quality water filtration system is necessary. This system removes any waste and harmful chemicals from the water, ensuring a healthy environment for both the fish and plants.
- Pumps and Pipes: Pumps and pipes are used to circulate water throughout the aquaponics system, ensuring that the fish receive enough oxygen and the plants receive enough nutrients. These are important components that require regular maintenance and replacement when necessary.
Again, this list will need to be adjusted according to the specificities of your aquaponics 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 aquaponics farm
The next step in the creation of your financial forecast for your aquaponics 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 an aquaponics farm?
Now let's have a look at the main output tables of your aquaponics farm's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your aquaponics farm is likely to be in the years to come.
For your aquaponics 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 aquaponics farms, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.
The projected balance sheet
The projected balance sheet gives an overview of your aquaponics 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 aquaponics 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 cash flow projection
The cash flow forecast of your aquaponics 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 aquaponics 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 aquaponics 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 aquaponics 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 aquaponics farm's financial projections?
Building an aquaponics 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 forecasting software to build your aquaponics 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.
Hiring a financial consultant or chartered accountant
Hiring a consultant or chartered accountant is also an efficient way to get a professional aquaponics farm 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 aquaponics farm's financial forecast?
Creating an accurate and error-free aquaponics 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 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 aquaponics 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
- 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 aquaponics 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 an aquaponics 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 project sales for a business?
- Example of financial forecast for business idea
Know someone who runs or wants to start an aquaponics farm? Share our financial projection guide with them!
Founder & CEO at The Business Plan Shop Ltd
