How to create a financial forecast for an avocado farm?
Developing and maintaining an up-to-date financial forecast for your avocado farm 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 avocado farm 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 avocado farm?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your avocado farm and ensure that it can be financially viable in the years to come.
A financial plan for an avocado 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 avocado 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 avocado 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 an avocado farm financial forecast?
A avocado farm's financial forecast needs to be built on the right foundation: your assumptions.
The data required to create your assumptions will depend on whether you are a new or existing avocado farm.
If you are creating (or updating) the forecast of an existing avocado farm, then your main inputs will be historical accounting data and operating metrics, and your team’s view on what to expect for the next three to five years.
If you are building financial projections for a new avocado farm startup, you will need to rely on market research to form your go-to-market strategy and derive your sales forecast.
For a new venture, you will also need an itemised list of resources needed for the avocado farm to operate, along with a list of equipment required to launch the venture (more on that below).
Now that you understand what is needed, let’s have a look at what elements will make up your avocado farm's financial forecast.
The sales forecast for an avocado farm
The sales forecast, also called topline projection, is normally where you will start when building your avocado 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 avocado farms), and consider the elements below:
- The weather can have a significant impact on the average price and number of monthly transactions for your avocado farm. A drought or extreme heat can lead to a decrease in supply, driving up prices and potentially reducing the number of transactions as customers seek out cheaper alternatives.
- Market demand is another important factor to consider when creating a sales forecast for your avocado farm. If there is a high demand for avocados, especially in trendy restaurants or health food stores, you may be able to charge a premium price and see an increase in monthly transactions.
- The quality of your avocados can also impact your sales forecast. Customers are willing to pay more for high-quality, ripe avocados with a creamy texture. On the other hand, if your avocados are consistently bruised or underripe, you may see a decrease in both price and number of transactions.
- Competition in the avocado market can also affect your business. If there are many other avocado farms in your area, you may need to lower your prices to remain competitive. Alternatively, if you are one of the few avocado farms in your region, you may be able to charge higher prices and see an increase in transactions.
- The health benefits of avocados can also influence your sales forecast. As more people become aware of the nutritional value of avocados, the demand for them may increase, leading to higher prices and more transactions for your farm.
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 avocado farm
The next step is to estimate the expenses needed to run your avocado 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 avocado farm's operating expenses should include the following items at a minimum:
- Labor Costs: This includes the wages, salaries, and benefits for your farm workers. As an avocado farmer, you will need a team of skilled workers to help with planting, harvesting, and maintaining the trees.
- Seed and Seedling Costs: You will need to purchase avocado seeds or seedlings to plant on your farm. These costs can vary depending on the type and quantity of seeds you need.
- Fertilizer and Pesticide Costs: To ensure healthy and productive avocado trees, you will need to invest in fertilizer and pesticides. These costs can add up, especially if you have a large farm.
- Water Costs: Avocado trees require a lot of water to grow, so you will need to consider the cost of irrigation for your farm. This can include the installation and maintenance of irrigation systems.
- Machinery and Equipment Costs: As an avocado farmer, you will need to invest in machinery and equipment such as tractors, pruning tools, and harvesters. These costs can be significant, so it's important to budget for them accordingly.
- Transportation Costs: You will need to transport your avocados from the farm to the market. This may include costs for hiring trucks or other transportation vehicles.
- Storage and Packaging Costs: Avocados need to be stored and packaged properly to maintain their quality. You will need to invest in storage facilities and packaging materials, such as boxes and labels.
- Utilities Costs: Running a farm requires electricity, gas, and other utilities. These costs should be factored into your operating expenses.
- Accounting Fees: You may need to hire an accountant to help with managing your finances and taxes. This can be a valuable investment to ensure your farm's financial health.
- Insurance Costs: Running a farm comes with risks, such as crop damage or liability claims. Make sure to budget for insurance to protect your farm and assets.
- Software Licenses: You may need to purchase software for record-keeping, inventory management, or other farm operations. These costs should be included in your operating expenses.
- Banking Fees: As a business owner, you will have banking fees, such as transaction fees and account maintenance fees. These costs may seem small, but they can add up over time.
- Marketing and Advertising Costs: To attract customers and promote your avocados, you may need to invest in marketing and advertising. This can include costs for creating and distributing marketing materials.
- Training and Education Costs: It's important to stay updated on industry trends and best practices. Consider budgeting for training and education for yourself and your employees.
- Legal Fees: As a business owner, you may need legal advice or services from time to time. Make sure to include these costs in your operating expenses.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small avocado farm might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow an avocado farm?
Creating and expanding an avocado farm also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for an avocado farm could include elements such as:
- Land Purchase: This is the cost of acquiring land to establish your avocado farm. You may choose to buy or lease land, but make sure to include any associated fees and expenses such as surveying, legal fees, and title search.
- Equipment: Avocado farming requires specialized equipment such as tractors, irrigation systems, and harvesting tools. These are essential for efficient and effective farm operations, so make sure to include the cost of purchasing or leasing them.
- Greenhouse Construction: Many avocado farms use greenhouses to protect the trees from extreme weather conditions and pests. If you plan on building a greenhouse, include the cost of materials, labor, and any necessary permits or inspections.
- Tree Planting: The cost of purchasing and planting avocado trees can be a significant capital expenditure for your farm. Make sure to include the cost of the trees, labor for planting, and any necessary supplies or equipment.
- Irrigation System: Avocado trees require consistent and adequate watering, so investing in a quality irrigation system is crucial. Include the cost of the system, installation, and any necessary maintenance or repairs in your expenditure forecast.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your avocado 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 avocado farm
The next step in the creation of your financial forecast for your avocado 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 avocado farm?
Now let's have a look at the main output tables of your avocado farm's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your avocado farm's expected growth and profitability over the next three to five years.
A financially viable P&L statement for an avocado 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
Your avocado 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 forecast
Your avocado farm'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 avocado farm:
- 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 avocado farm'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 avocado farm's financial plan - so that banks or investors can assess seasonal variation and ensure your business 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 avocado farm's financial projections?
Building an avocado 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 avocado 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
Outsourcing the creation of your avocado 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 avocado farm's financial forecast?
Creating an accurate and error-free avocado 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
- A financial forecast shows expected growth, profitability, and cash generation metrics for your avocado farm.
- Tracking actuals vs. forecast and having an up-to-date financial forecast is key to maintaining visibility on your future cash flows.
- 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 avocado farm. Don't hesitate to contact us if you 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
- Financial forecast example
- How to create a turnover forecast for a business?
- Financial forecast template for a business idea
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Founder & CEO at The Business Plan Shop Ltd
