How to create a financial forecast for an organic vegetable 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 organic vegetable farm.
Putting together an organic vegetable 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 organic vegetable 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 organic vegetable farm?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your organic vegetable farm and ensure that it can be financially viable in the years to come.
A financial plan for an organic vegetable 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 organic vegetable 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 organic vegetable 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 organic vegetable 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 organic vegetable 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 organic vegetable 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 organic vegetable 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 organic vegetable farm's financial forecast.
The sales forecast for an organic vegetable farm
The sales forecast, also called topline projection, is normally where you will start when building your organic vegetable 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 organic vegetable farms), and consider the elements below:
- Seasonal Variations: As an organic vegetable farm, your produce may be affected by seasonal variations. For example, during the summer months, when there is an abundance of fresh produce available, your average price may decrease due to competition from other local farms. On the other hand, during the winter months, when there is a shortage of fresh produce, your average price may increase as demand exceeds supply.
- Weather Conditions: Weather can greatly impact the success of your organic vegetable farm. For instance, if there is a drought or excessive rainfall, your crops may be affected, leading to a decrease in supply and potentially driving up your average price. On the other hand, if weather conditions are favorable, your crops may thrive, resulting in a larger supply and potentially driving down your average price.
- Consumer Trends: In recent years, there has been a growing trend towards healthier and more sustainable food options. As an organic vegetable farm, this can work in your favor, potentially increasing demand for your produce and allowing you to charge a higher average price. However, it's important to stay on top of consumer trends and adapt your offerings accordingly.
- Competition: The number and success of other organic vegetable farms in your area can also impact your sales forecast. If there are many other farms offering similar products, you may need to adjust your average price to stay competitive. On the other hand, if you are the only organic vegetable farm in the area, you may be able to charge a premium for your produce.
- Economic Factors: Economic factors, such as inflation and changes in consumer spending, can also affect your average price and number of transactions. During periods of economic downturn, consumers may be more price-sensitive and opt for cheaper produce, potentially leading to a decrease in your average price. On the other hand, during periods of economic growth, consumers may be more willing to spend on higher-quality, organic produce, allowing you to charge a higher 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 organic vegetable farm
The next step is to estimate the expenses needed to run your organic vegetable 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 organic vegetable farm's operating expenses should include the following items at a minimum:
- Seeds and seedlings: As an organic vegetable farmer, you'll need to invest in high-quality, non-GMO seeds and seedlings to start your crops.
- Soil amendments: Organic farming relies on building and maintaining healthy soil, which requires regular purchases of compost, manure, and other organic fertilizers.
- Labor costs: Running an organic vegetable farm requires a lot of hard work, so it's important to budget for paying yourself and any hired workers.
- Irrigation system: Organic crops need consistent and adequate water supply, so you'll need to invest in an irrigation system and budget for any repairs or maintenance.
- Pest and weed control: Without the use of synthetic pesticides and herbicides, organic farmers must rely on other methods such as crop rotation, companion planting, and physical barriers to manage pests and weeds.
- Packaging materials: As an organic farmer, you'll need to invest in eco-friendly packaging materials for your produce, such as biodegradable bags or reusable containers.
- Marketing expenses: To sell your organic vegetables, you'll need to budget for marketing expenses such as creating a website, attending farmers' markets, and advertising.
- Accounting fees: Keeping track of your farm's finances and taxes can be complex, so it's important to budget for hiring an accountant who is familiar with organic farming practices.
- Insurance costs: Protecting your farm from unforeseen events, such as natural disasters or liability claims, is crucial. Make sure to budget for insurance premiums.
- Software licenses: As technology becomes increasingly important in farming, you may need to invest in software licenses for farm management, bookkeeping, or marketing tools.
- Training and education: As an organic farmer, it's important to stay updated on best practices and new techniques. Budget for attending conferences, workshops, or online courses.
- Transportation costs: Getting your produce to market or delivering to customers may require a vehicle, fuel, and maintenance expenses.
- Utilities: Running a farm requires electricity, water, and possibly gas. Make sure to budget for these monthly expenses.
- Legal fees: It's important to have a lawyer familiar with organic farming to review contracts, leases, and any other legal documents.
- Banking fees: To manage your farm's finances, you'll likely have to pay fees for services such as checking accounts, credit cards, and loans.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small organic vegetable farm might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow an organic vegetable farm?
Creating and expanding an organic vegetable farm also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for an organic vegetable farm could include elements such as:
- Greenhouse Structure: This includes the cost of purchasing or constructing a greenhouse on your organic vegetable farm. Greenhouses are essential for protecting your crops from harsh weather conditions and can also extend the growing season.
- Irrigation System: Installing an irrigation system on your farm will help ensure that your crops receive the necessary amount of water for optimal growth. This can include drip irrigation, sprinkler systems, or other methods.
- Tractor and Farm Equipment: As an organic vegetable farmer, you will need certain equipment to help you with tasks such as tilling, planting, and harvesting. This can include tractors, plows, seeders, and other necessary tools.
- Cold Storage Facility: Storing your harvested vegetables in a cold storage facility is important for maintaining their freshness and extending their shelf life. This can include walk-in coolers, refrigerated trucks, or other methods of cold storage.
- Packaging and Labeling Equipment: In order to sell your organic vegetables, you will need to package and label them properly. This can include purchasing equipment such as scales, labeling machines, and other packaging materials.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your organic vegetable 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 organic vegetable farm
The next step in the creation of your financial forecast for your organic vegetable 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 organic vegetable farm?
Now let's have a look at the main output tables of your organic vegetable farm's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your organic vegetable farm is likely to be in the years to come.
For your organic vegetable 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 organic vegetable farms, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.
The projected balance sheet
Your organic vegetable farm's forecasted balance sheet enables you to assess your financial structure and working capital requirements.
It is composed of three types of elements: assets, liabilities and equity:
- Assets: represent what the business owns and uses to produce cash flows. It includes resources such as cash, equipment, and accounts receivable (money owed by clients).
- Liabilities: represent funds advanced to the business by lenders and other creditors. It includes items such as accounts payable (money owed to suppliers), taxes due and loans.
- 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 organic vegetable 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 organic vegetable 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 organic vegetable 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 organic vegetable 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 organic vegetable farm's financial forecast?
Using the right tool or solution will make the creation of your organic vegetable farm's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your organic vegetable 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.
Hiring a financial consultant or chartered accountant
Hiring a consultant or chartered accountant is also an efficient way to get a professional organic vegetable 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 organic vegetable farm's financial forecast?
Creating an accurate and error-free organic vegetable 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 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 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 organic vegetable 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 organic vegetable 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 create a turnover forecast for a business?
- Sample financial forecast for business idea
Know someone who runs or wants to start an organic vegetable farm? Share our financial projection guide with them!
Founder & CEO at The Business Plan Shop Ltd
