Agricultural financial model for startup company
Financial model 15 yaers long built to substantiate capital investments into the land, beehives and equipment for honey distilling startup.
An agricultural start-up company needed to raise capital, that’s why the founder wanted to get a profound agricultural financial model of his business idea. I once had a business encounter with a promising entrepreneur who has such a strong wish and desire to establish a honey distilling startup. His name was David. To begin with, David already had a great business plan alongside a succinct research on the US market. To make certain he was acquainted with his idea, I had to ask some basic questions with regard to what was at stake.
“Generally, no matter how brilliant your business idea is or how detailed your business plan is, the bottom line calculations of a business idea are the key determinants whether the idea or the plan is a piece of cake worth the efforts”.
What is more, a proper allocation of financial resources within the set time frames was critical especially where there is a significant investment project. This was the case during the encounter and I was the person to share the vision and how to approach the challenges that would be imminent.
AGRICULTURAL FINANCIAL MODEL DESCRIPTION
My financial modeling expertise came into play and it was time for David to determine if I had any content worth his time. Basically, we engaged in a financial-oriented talk, with me explaining the basics of financial modeling. David needed to start his business but lacked the expertise to do it successfully. He was in need of an agricultural financial model that would ensure that his business projections would lead to a successful startup. At first, I did not comprehend the business idea presented by David leading to my suspicions that it would be difficult to strike a deal. Of course, David had seemed complicated, with many assumptions, requirements, and other conditions that had to be followed.
Nevertheless, the discussion proved to be heading somewhere and we were able to come up with a few agreements for the agricultural startup. Moreover, we were able to design a model that had the following elements:
- The land with its specified characteristics (type, total area, price, fertility, productivity growth rate etc.);
- Quantity of bee families and the estimated costs;
- Honey plants (quantity, change in productivity level);
- Quantity and cost of hives;
- Honey quality;
- The number and the cost of special-purpose vehicles and agricultural equipment (tractors, honey and oil extracting equipment) etc.
So, these were the factors that David had a hand in as agreed in the discussion.
It is worthwhile noting that each business case requires a specific financial model and the templates have to be adjusted for each case. With regard to this, it took us over one week to include and conclude all the vital and desirable details into one excel financial projection.
In fact, the financial model proposed was supposed to be a tool to answer the core question — involving the volume of investments at a certain moment of the project.
HONEY DISTILLING FINANCIAL MODEL DETAILS
The timeline of the project was extended to about 15 years. This appeared longer than usual but it was acceptable given the single harvest per year, planting and growing perennials and the amount of investment required for the startup.
As a side thought, it is advisable to cooperate and work as a team during a consultancy session involving financial modeling. Revisiting the steps outlined and giving the other party a chance to contribute may lead to invaluable contributions or discovery of possible loopholes.
After identifying all critical assumptions in detail, we proceeded to the business expenditure projection part. In this case, the items of interest included maintenance costs for the fixed assets (such as machinery, hives, and land), inventory expenditure, and cost of energy resources. Staff-related costs cost of third parties’ professional services, among others.
The next section was the revenues. We were able to identify different revenue streams. Honey was the main final product for the agricultural start-up and we identified other honey by-products that would have some benefit. This included oil extracted from the honeycombs, carbon form burn wax, and other non-operating revenues.
The most critical part of the model was the project financing section. Thus, this was the main reason for coming up with the model. David had some initial capital for the startup but it turned out that it was insufficient from our projections. He explained other possible finance sources for the startup and we incorporated them into the model. They were a mezzanine financing for the startup stage alongside with a bank loan. Since the business would start to generate profits, a shares forecasting was also included.
In the end, we were able to come up with a full honey distilling financial model that would be flexible enough to allow the user to include new factors/assumptions and come up with new scenarios on the spot. The model was amazing in that it could show the demand for financial resources for a given time. Furthermore, the model revealed that with excess liquidity, it would be possible to offset any pending debt obligations.
The good thing with a properly designed honey distilling financial model is the ability to visualize the entire business as a whole for a given period. Additionally, it becomes possible to calculate several financial indicators at the same time to meet the stakeholders’ needs. A honey distilling financial model makes it possible to compile complete financial statements at any desired moment, a task that would be difficult in the absence of these models. Additionally, an agricultural financial model facilitates the representation of important figures and indices with graphs and charts. This creates a chance to you as an investor to have high-level presentation material and content for business guides and other investment memorandums.
Although honey distilling financial model has a customized structure, there are aspects that remain constant. These include assumptions, dashboard, financing, evaluation, and financial statements.
This is the central part of the agricultural financial model. Here, we input our critical assumptions relating to revenue, expenses, production process, borrowed capital terms, among others. From the dashboard, we also obtain our core financial data (Revenue, Expenses, EBITDA, Profit, and profit before tax) and operational deliverables for each financial period. Visualization and trends can also be delivered for the index required.
At the same time, the Valuation section is important for investment purposes in the agricultural financial model. After reaching an agreement with my client, we set the business valuation to use Net Discounted Cash flow or the Net Present Value (NPV) technique where the discount factor (WACC) is computed in this section.
The projected Balance Sheet, Income Statement, and the Statement of Cash Flow are presented separately under one spreadsheet per each statement. This is necessary for the ease of use especially for the from a long timeframe. Nevertheless, the level of details per each statement is determined beforehand and could be changed if needed.
Undoubtedly, this is the engine of the honey distilling financial model. Therefore, this is where all the calculations are performed. This is the section where all the assumptions are collected from auxiliary datasheets in one. The timeline of calculations could be extended on demand. The calculations are performed in a very detailed way but categories are available depending on the project specifics. For the honey production model, we have the revenue caption and the expenditure caption. Additionally, the salary and wages caption is separated for the ease of human resources cost management.
For some special purposes, optional expanded data could be provided to the user. For example, the detailed list of assets available in the model. It is necessary for accurate depreciation/amortization calculation and for proper assets management purposes (e.g. capitalization and verification schedule)
Originally published at new.finmodelslab.com.