How to create a financial forecast for an olive farm?
Developing and maintaining an up-to-date financial forecast for your olive 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 olive 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 olive farm?
The financial projections for your olive 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 olive 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 olive farm financial forecast?
A olive 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 olive farm.
If you are creating (or updating) the forecast of an existing olive 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 olive 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 olive 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 olive farm's financial forecast.
The sales forecast for an olive farm
From experience, it is usually best to start creating your olive farm financial forecast by your sales forecast.
To create an accurate sales forecast for your olive farm, you will have to rely on the data collected in your market research, or if you're running an existing olive 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:
- Harvest Yield: The amount of olives that your farm can harvest in a given year will directly impact your average price and number of monthly transactions. If your yield is high, you will have more olives to sell, potentially driving down the average price due to increased supply. On the other hand, if your yield is low, you may have less olives to sell, potentially driving up the average price due to limited supply.
- Weather Conditions: Weather can greatly affect the quality and quantity of your olive harvest. Unfavorable weather conditions such as drought or heavy rains can damage the olive trees and result in a lower yield. This can lead to a decrease in the number of monthly transactions and potentially increase the average price of your olives due to limited supply.
- Demand for Olive Oil: The demand for olive oil can also impact your average price and number of monthly transactions. If there is a high demand for olive oil, you may be able to sell your olives at a higher price and potentially increase your monthly transactions. However, a decrease in demand may result in a lower average price and fewer monthly transactions.
- Competition: The level of competition in the market can also affect your average price and number of monthly transactions. If there are many other olive farms in your area, you may face price competition, leading to a decrease in your average price. On the other hand, if there are few competitors, you may be able to sell your olives at a higher price and potentially increase your monthly transactions.
- Pests and Diseases: Pests and diseases can greatly impact the health of your olive trees and ultimately affect your harvest yield. If your trees are infested with pests or affected by diseases, you may have a lower yield, resulting in a decrease in the number of monthly transactions and potentially increasing the average price due to limited supply.
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 olive farm
The next step is to estimate the expenses needed to run your olive 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 olive farm's operating expenses should include the following items at a minimum:
- Employee salaries and wages: This includes the cost of hiring and paying staff to assist with planting, harvesting, and maintaining the olive farm.
- Accountancy fees: You may need to hire an accountant to help with financial management, tax preparation, and bookkeeping for your olive farm.
- Insurance costs: Protect your olive farm from potential risks and liabilities by investing in insurance coverage for your property, equipment, and crops.
- Software licenses: To manage your farm efficiently, you may need to purchase software for record-keeping, inventory management, and crop tracking.
- Banking fees: You may incur fees for depositing and withdrawing funds, transferring money, and maintaining bank accounts for your olive farm.
- Seed and seedling costs: This includes the cost of purchasing high-quality olive seeds or seedlings to plant in your farm.
- Fertilizer and pesticide expenses: You will need to regularly fertilize and treat your olive trees to ensure a healthy and productive harvest.
- Water and irrigation costs: Olive trees require regular watering and irrigation, which can be a significant expense for your farm.
- Equipment maintenance and repairs: Over time, your equipment will need maintenance and repairs to keep them in good working condition.
- Fuel and transportation expenses: You may need to transport your olives to processing facilities or markets, which can incur fuel and transportation costs.
- Marketing and advertising costs: To attract customers and promote your olive products, you may need to invest in marketing and advertising strategies.
- Rent or mortgage payments: If you do not own the land for your olive farm, you will need to pay rent or mortgage payments.
- Utilities and electricity costs: You will need to cover the cost of utilities, such as electricity, for your farm.
- Laboratory testing fees: You may need to conduct tests on your olives to ensure their quality, which can incur laboratory testing fees.
- Training and education expenses: To stay updated with the latest farming techniques and practices, you may need to invest in training and education for yourself and your staff.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small olive farm might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow an olive farm?
Your olive farm financial forecast will also need to include the capital expenditures (aka investments in plain English) and initial working capital items required for the creation or development of your business.
For an olive farm, these could include:
- Tractor: This is a crucial piece of equipment for an olive farm, used for plowing, planting, and harvesting. It is important to invest in a reliable and durable tractor to ensure efficient farm operations.
- Irrigation system: Olive trees require consistent and adequate water supply for optimal growth and production. Installing an irrigation system, such as a drip irrigation system, can help reduce water usage and improve crop yield.
- Olive press: This is a necessary piece of equipment for processing olives into oil. Depending on the size of your farm, you may need to invest in a small-scale or large-scale olive press.
- Storage tanks: After the olives have been pressed, the oil needs to be stored in tanks before being bottled or sold. These tanks should be made of food-grade materials and properly sealed to maintain the quality of the oil.
- Harvesting equipment: Hand harvesting olives can be a time-consuming and labor-intensive process. Consider investing in mechanical harvesting equipment, such as shakers or pickers, to increase efficiency and reduce labor costs.
Again, this list will need to be adjusted according to the size and ambitions of your olive 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 olive farm
The next step in the creation of your financial forecast for your olive 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 olive farm?
Now let's have a look at the main output tables of your olive farm's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your olive farm's expected growth and profitability over the next three to five years.
A financially viable P&L statement for an olive 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
The projected balance sheet gives an overview of your olive 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 olive 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 forecast
Your olive 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 olive 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 olive 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 olive 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 olive farm's financial forecast?
Creating your olive farm's financial forecast may sound fairly daunting, but the good news is that there are several ways to go about it.
Using online financial forecasting software to build your olive farm's projections
The modern and easiest way is to use an online financial forecasting tool 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 projection 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 olive 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 olive farm's financial forecast?
Creating an accurate and error-free olive 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 olive 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 olive 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 olive 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 turnover forecast for a business?
- Financial forecast for a business idea
Know someone who owns or is thinking of starting an olive farm? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
