How to create a financial forecast for an oil palm farm?
Developing and maintaining an up-to-date financial forecast for your oil palm 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 oil palm 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 oil palm farm?
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 oil palm farm becomes handy.
Creating an oil palm farm 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 oil palm farm.
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 oil palm farm 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 oil palm farm'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 oil palm farm financial forecast?
A oil palm farm'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 oil palm farm, 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 oil palm farm 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 oil palm farm 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 oil palm farm's financial forecast.
The sales forecast for an oil palm farm
From experience, it is usually best to start creating your oil palm farm financial forecast by your sales forecast.
To create an accurate sales forecast for your oil palm farm, you will have to rely on the data collected in your market research, or if you're running an existing oil palm farm, 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:
- Weather conditions: The weather can greatly impact the yield and quality of oil palm fruit. Droughts or heavy rains can result in lower production and potentially lower prices due to decreased supply.
- Government policies: Changes in government policies, such as taxes or subsidies, can affect the profitability of your oil palm farm. For example, an increase in taxes on palm oil exports may result in lower prices for your products.
- Competition: The presence of other oil palm farms in your area can affect the average price and number of monthly transactions for your farm. If there is high competition, you may need to lower your prices to remain competitive and maintain your market share.
- Pests and diseases: Pests and diseases can have a significant impact on the health and yield of your oil palm trees. In case of a pest or disease outbreak, your farm may experience a decrease in production and potentially lower prices for your products.
- Economic factors: Economic factors such as inflation, currency exchange rates, and consumer spending can also affect the average price and number of transactions for your oil palm farm. For example, a decrease in consumer spending may result in lower demand for palm oil products and lower prices.
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 oil palm farm
The next step is to estimate the costs you’ll have to incur to operate your oil palm farm.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your oil palm farm's operating expenses should normally include the following items:
- Staff Costs: This includes salaries, wages, benefits, and training for all your farm workers, including field workers, technicians, and administrative staff.
- Fertilizer and Pesticide Costs: Oil palm trees require regular application of fertilizers and pesticides to maintain their health and productivity.
- Fuel and Transportation Costs: Your farm will need fuel for machinery and vehicles, as well as transportation costs for transporting harvested palm fruits to processing plants.
- Machinery and Equipment Maintenance: Regular maintenance and repairs for your farm machinery, such as tractors and harvesters, are necessary to keep them in good working condition.
- Water and Electricity Costs: Your farm will need access to clean water for irrigation and electricity for running machinery and equipment.
- Accountancy Fees: You may need to hire an accountant to help with bookkeeping, tax filings, and other financial matters related to your farm.
- Insurance Costs: It is important to have insurance coverage for your farm to protect against potential risks and losses.
- Land Lease or Purchase Costs: If you do not own the land where your farm is located, you will need to pay for leasing or purchasing it.
- Seedlings and Planting Costs: You will need to purchase high-quality oil palm seedlings and cover the costs of planting them on your farm.
- Harvesting and Processing Costs: This includes the cost of hiring workers to harvest palm fruits, as well as the cost of processing and packaging them for sale.
- Marketing and Advertising Costs: You may need to spend money on marketing and advertising your palm oil products to attract customers and increase sales.
- Software Licenses: You may need to purchase licenses for software programs that can help with farm management, record keeping, and other tasks.
- Banking Fees: You will incur fees for banking services, such as wire transfers, foreign currency conversions, and credit card processing.
- Taxes and Government Fees: You will need to pay taxes and other fees to the government, such as land use fees, environmental fees, and export taxes on palm oil products.
- Training and Education Costs: It is important to invest in the ongoing training and education of your farm workers to improve their skills and knowledge.
This list is not exhaustive by any means, and will need to be tailored to your oil palm farm's specific circumstances.
What investments are needed to start or grow an oil palm farm?
Once you have an idea of how much sales you could achieve and what it will cost to run your oil palm farm, it is time to look into the equipment required to launch or expand the activity.
For an oil palm farm, capital expenditures and initial working capital items could include:
- Land Purchase: As an oil palm farmer, you will need to purchase land for your farm. This will be a major capital expenditure, as the size and location of the land will greatly impact your farm's success. You will need to consider factors such as soil quality, access to water, and proximity to processing facilities when making your land purchase.
- Equipment: To efficiently run your oil palm farm, you will need to invest in various equipment such as tractors, harvesters, and irrigation systems. These are considered fixed assets and will require a significant capital expenditure. It is important to carefully research and choose equipment that is suitable for your farm's size and needs.
- Nursery Establishment: Before you can plant oil palm trees on your farm, you will need to establish a nursery where the seedlings will be grown. This will involve building structures, purchasing materials, and setting up irrigation systems. The cost of establishing a nursery can vary depending on the size and design, but it is an essential capital expenditure for your farm.
- Processing Facilities: If you plan on processing your own oil from your palm fruits, you will need to invest in processing facilities such as a press, centrifuge, and storage tanks. These fixed assets will require a significant capital expenditure, but they will ultimately save you money in the long run by allowing you to process your own oil instead of paying for processing services.
- Infrastructure: In addition to land, your oil palm farm will also require infrastructure such as roads, fencing, and storage facilities. These fixed assets are necessary for the smooth operation of your farm and will require a significant capital expenditure. It is important to plan and budget for these infrastructure costs in your financial forecast.
Again, this list will need to be adjusted according to the specificities of your oil palm 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 oil palm farm
The next step in the creation of your financial forecast for your oil palm 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 oil palm farm?
Now let's have a look at the main output tables of your oil palm farm'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 oil palm farm'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 oil palm farm will look different than for a startup.
The projected balance sheet
The projected balance sheet gives an overview of your oil palm 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 oil palm 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 projected cash flow statement
A projected cash flow statement for an oil palm farm 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 oil palm farm'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 oil palm farm 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 oil palm farm's financial forecast?
Using the right tool or solution will make the creation of your oil palm farm's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your oil palm 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
Enlisting the help of a consultant or accountant is also a good way to obtain a professional oil palm farm 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 oil palm farm's financial forecast?
Creating an accurate and error-free oil palm 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 oil palm 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
- 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 oil palm 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 oil palm 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?
- Financial forecast template for a business idea
Know someone who owns or is thinking of starting an oil palm farm? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
