How to create a financial forecast for an insect 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 insect farm.
Putting together an insect 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 insect 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 insect farm?
The financial projections for your insect 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 insect 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 used as input to build an insect farm financial forecast?
A insect 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 insect farm.
If you are creating (or updating) the forecast of an existing insect 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 insect 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 insect 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 insect farm's financial forecast.
The sales forecast for an insect farm
The sales forecast, also called topline projection, is normally where you will start when building your insect 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 insect farms), and consider the elements below:
- Insect population fluctuations: Due to the unpredictable nature of insect populations, your average price and number of monthly transactions may be affected. If there is a decrease in the insect population, you may have to increase your prices to compensate for a decrease in supply. On the other hand, if there is a boom in the insect population, you may be able to offer lower prices to attract more customers.
- Increased demand for sustainable food sources: With the growing concern for sustainability and environmentally friendly food options, your insect farm may experience an increase in demand for your products. This could result in higher prices and more monthly transactions as people are willing to pay a premium for sustainable food sources.
- Weather conditions: Weather can play a significant role in the health and growth of your insect farm. Extreme weather conditions such as droughts or floods can affect the availability and quality of your insect products. This can impact your average price and number of monthly transactions as you may have to adjust prices and supply to meet demand.
- Competition: The presence of other insect farms in your area can affect your average price and number of monthly transactions. If there are several farms producing similar products, you may have to lower your prices to remain competitive. On the other hand, if you are the only insect farm in the area, you may be able to charge higher prices and see an increase in transactions.
- Consumer perception and education: The perception of insects as a food source is still relatively new to many consumers. Your average price and number of monthly transactions may be affected by the level of education and awareness about the benefits of insect consumption. If consumers are more open to the idea of insect farming and its benefits, you may see an increase in transactions and be able to charge higher prices.
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 insect farm
The next step is to estimate the expenses needed to run your insect 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 insect farm's operating expenses should include the following items at a minimum:
- Staff Costs: This includes salaries, wages, and benefits for all employees, including farm workers, managers, and administrative staff.
- Accountancy Fees: You will need to hire an accountant to help you with financial record keeping, tax preparation, and other financial matters specific to your insect farm.
- Insurance Costs: As with any business, it is important to have insurance coverage to protect against potential risks and liabilities.
- Software Licences: You may need to purchase software for inventory management, financial tracking, and other operational purposes.
- Banking Fees: You will incur fees for banking services, such as wire transfers, check processing, and account maintenance.
- Feed Costs: Insects will need to be fed in order to grow and reproduce, so you will need to budget for the cost of feed, which can include fruits, vegetables, and other organic materials.
- Housing Expenses: Insects may require specialized housing, such as climate-controlled rooms or cages, which will add to your operating expenses.
- Utilities: You will need to pay for electricity, water, and other utilities to keep your insect farm running.
- Marketing and Advertising: In order to attract customers and promote your insect products, you may need to budget for marketing and advertising expenses.
- Transportation Costs: If you plan on selling your insect products at local markets or shipping them to customers, you will need to budget for transportation costs.
- Pest Control: Ironically, an insect farm may have to deal with pests, so you may need to budget for pest control services and supplies.
- Equipment and Supplies: You will need various equipment and supplies to operate your insect farm, such as containers, tools, and protective gear.
- Rent or Mortgage: If you do not own the property where your insect farm is located, you will need to budget for rent or mortgage payments.
- Professional Memberships: You may want to join professional organizations related to insect farming, which may require membership fees.
- Training and Development: As with any business, it is important to invest in training and development for yourself and your employees to improve skills and knowledge related to insect farming.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small insect farm might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow an insect farm?
Once you have an idea of how much sales you could achieve and what it will cost to run your insect farm, it is time to look into the equipment required to launch or expand the activity.
For an insect farm, capital expenditures and initial working capital items could include:
- Insect housing and containment: This includes any structures or equipment necessary to house and contain your insect population, such as cages, terrariums, or specialized containers. You may also need to invest in heating or cooling systems to maintain the appropriate temperature for your insects.
- Processing and packaging equipment: As your insect farm grows, you will need to invest in equipment to process and package your insects for sale. This could include dehydrators, grinders, or packaging materials.
- Breeding and reproduction equipment: In order to maintain a sustainable insect farm, you will need to invest in equipment for breeding and reproduction. This could include incubators, mating chambers, or specialized habitats for different stages of the insect life cycle.
- Laboratory and research equipment: Depending on the scope of your insect farm, you may need to invest in laboratory equipment for conducting research and experiments. This could include microscopes, test tubes, or other equipment for studying insect behavior and biology.
- Transportation and delivery vehicles: If you plan on selling your insects to customers or businesses, you may need to invest in transportation and delivery vehicles to transport your products. This could include trucks, vans, or specialized vehicles for delicate insect shipments.
Again, this list will need to be adjusted according to the specificities of your insect 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 insect farm
The next step in the creation of your financial forecast for your insect 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 insect farm?
Now let's have a look at the main output tables of your insect farm's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your insect farm's expected growth and profitability over the next three to five years.
A financially viable P&L statement for an insect 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 insect 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 insect 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 insect 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 insect 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 insect 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 insect farm's financial projections?
Building an insect 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 insect 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 insect 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 insect farm's financial forecast?
Creating an accurate and error-free insect 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 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 insect farm, 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 insect farm
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 insect farm 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 insect farm, 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 sales forecast for a business?
- Sample financial forecast for business idea
Know someone who owns or is thinking of starting an insect farm? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
