The Business of Agriculture
Your Success = Your Business Plan


Whether you've been in agriculture for years or just starting out, to succeed you must put together a business plan. Putting the details of what you do or want to do on paper will help you focus on directions, goals and other important aspects of your efforts. Once your directions and goals are clearly focused you will know exactly what you need to do to succeed.

Most people are overwhelmed at the idea of writing a business plan. In fact, truth be known, most self-employed haven't made any effort. This is because they don't know how and don't understand the value of having a plan.

Most business planning books try to cover every possible aspect of every possible business. They often leave small business people feeling lost in their lack of accounting, management and marketing knowledge. The end result is no plan gets written.

By following the steps covered in this article you will have a basic business plan that works for you. Remember, though, a business plan is not a "write it once and never look at it again" document. It is a working document that changes as your business changes.

***Note*** Take the time to visit the General Store where you will find Ranch Vision, an excellent computer program for cattle, sheep and goats grazing operations. You will find it extremely valuable.


Just What Is A Business Plan?

A business plan tells a complete story about your business. It will mostly be used by you as a road map and focusing tool which should be considered a living document and must be reviewed and updated every 3 to 6 months. It's the only way you can stay on top of your operation and have it running at an optimum level.

A business plan is almost always required when you apply for a loan or a grant. It will indicate to your lender that you have an in-depth knowledge of your operation and will be a good risk. Without a business plan your chances of getting a loan or grant drop dramatically. This also applies to those of you who are writing a proposed business plan. Just tailor it to fit your needs and your success rate of obtaining a loan or a grant will greatly be improved.


Getting Started On Your Business Plan.

Before you begin writing your actual business plan you need to concentrate on three major areas:

  1. What you have.
  2. What you want.
  3. How you're going to achieve it.

The following will show you how this is done:

(1) Make a list of all your skills related in any way to running your operation. Don't leave anything out. Do it like a resume but much more in detail.

(2) Write a complete detailed accounting of your entire operation, ie... how many acres, each type of animal, their facilities and what part they play in your operation and so on. If you don't currently have an operation, write about your proposed operation as though it's actually in existence.

(3) Determine what direction you want your business to go. What specifically is your overall goal and what (realistically) is your time table? Write down the steps (intermediate goals) you need to take to get to your ultimate goal. Write it with as many details as you possible can.

(4) Now write down how you plan to reach the goals you have set for yourself in # 3.

Take your time. This is the foundation of your business plan. The more detailed your lists, the more help they will be when your writing your actual business plan.


Writing Your Plan:

The following is an outline of a business plan that you should use as a guide. Agriculture is so diversified that some of it will pertain to your operation and some won't. Don't be quick to assume a certain part doesn't apply to you. You may realize latter in the process it does. The main thing it shows you is how to set your plan up and what should be covered in each category. If you don't intend to use the plan to acquire a loan or grant I still recommend that you write your business plan as though you are, at least for the first time, so you end up with a more complete picture. In fact, later on down the line you may want to apply for a grant or loan and you will be ready perhaps needing only a few changes.

Writing Hints:

If you're not comfortable writing at the computer, get a loose leaf notebook. Write down each section and each question within each section leaving space for your answers. Don't try to be perfect and cover everything from the start. Just start answering the questions. You can and will go back repeatedly as you think of other things. Remember, your business plan is and will always be a work in progress. Expect to make changes. When you have finished creating the plan, delete the actual questions you have answered but keep the section headlines. You will then have a smoothly flowing, professional looking plan.


PRODUCT(S)/SERVICE(S)
(Write at least 2 pages)

What product(s) and/or service(s) will you provide? Be specific and list all the things/services you can or will sell. Keep your mind open because one thing may lead to another, i.e..... raising sheep can mean that you can sell seed stock, milk, lambs, wool, etc. You may also spin the wool and sell it or the items made from it, make and sell cheese, etc. You get the idea.

What days and times will you be open for business or in operation? While many agriculture operations are 24 hours a day, seven days a week, try to be more specific, i.e..... milking will be done at.....; feeding cattle, calves, chickens will be done at .....; cheese will be made on..... from....to....; farm stand will be open 9am-5pm Saturday and Sunday. Cover each aspect of your operation. Don't overlook planting, irrigation, harvesting, attending the weekly livestock auction, etc., to name but a few. Make a schedule. You may discover time you didn't know you had or discover you don't really want to tackle everything you thought of.

What is the approximate number of customers you will serve each day/month/quarter/season? Use the time frame that fits your operation. Different aspects of your operation may use different time frames. However you do it, you must answer this question! It is the basis of your income.

How does your product(s)/service(s) differ from other similar products or services on the market? Think carefully. Why would someone buy your product instead of that of your neighbor? Is it fresher, bigger for the same money, organic, etc. Keep working on this one. Your point of difference is the basis of your marketing efforts. If their really isn't an difference, acknowledge it and begin thinking of better ways to sell it than your competition (ie...free delivery, custom made, special storage, USDA inspected, etc.).

How will the loan affect the product(s)/service(s)? Give a logical, complete, carefully thought through reason. For example, purchase new equipment/facilities for better manufacturing, more efficient operation, lower costs of producing; hire personnel to do something; etc. When you've written down your reasons, ask yourself this question: Would I lend my money to this person for this reason? Why or why not.


MARKET(S)
(Write at least 2 pages)

Now that you have identified what product(s) and/or service(s) you have to offer it's time to develop a marketing plan as complete and in-depth as possible.

To begin with you need to identify to whom you're going to sell your product(s) and/or service(s) too. Will you sell directly to retailers, wholesalers, or directly to the public? You might sell just to one market or you may sell to all three.

For example let's use alfalfa hay which you could sell not only to retailers (feed stores), wholesalers (hay brokers), but also directly to the public.

To determine which market to target depends on a number of factors.

The number of acres you have planted in alfalfa. The age of each of your alfalfa fields plus the quality and quantity (the number of tons to the acre you expect from the different fields for the current year). From that your can determine the type of customers to target...i.e. dairy, horse, cattle, etc. To do this effectually you also need to know where your customers are located and how many of them there are, what's their average income, their life-styles, how much money do you expect them to spend on your product(s) and/or service(s). At this point you can now pencil out your possible profit and expected expenses associated with doing business with each of the different markets but don't make a decision based on these figures alone. A particular market may not look worth while now but upon complication of your business plan, when you have all the figures related to doing business in each market, it may turn out to be very profitable possibly combined with other markets.

Be sure to check out the Federal, State, County and City rules and regulations that you will be governed by for each market. This will eliminate future surprises down the road which could cause drastic results to your profit.

Last by certainly not least, if you're applying for a loan, for your existing business you need to address, in-depth, how this loan will affect the share of the market you currently have. On the other hand, if you are applying for a loan to go into business, be very specific as to how much of the loan will be devoted to developing your share of the market. Also include your expectations.


LOCATION OF BUSINESS
(Write about 1/2 to 1 page)

Since there are a multitude of locations that could be involved in your business, i.e...your office on the ranch or farm that is used for your consulting business, barns, feedlot, pastures, fields, orchards, store in town to sell products made from your wool, eggs, etc. I'm not going to go into specifics and address each market place. Instead I'll concentrate on what should be covered in this section but leave it up to you how it applies to your specific business(s).

When deciding on a location, depending on your type of business, there are a number of factors that should be considered as any one of them can make or break you.

If needed is the location easily accessible by car or on foot and is parking readily available? What types of business(s) are located around yours including your immediate neighbors as well as those around the area?

Next describe the building(s), store, barn, etc., that will be used for your business explaining how they will be used, their condition, and what if anything needs to be done to the exterior and/or interior to make them suitable.

If you sign a lease be sure to describe it in detail.

Last but not least include any maps and pictures showing the location(s) of your business and the location of your closest competitors. Remember pictures and maps are worth a thousand words.


COMPETITION
(Write about 1 page)

This section on competition should not be taken lightly. No matter what type of business you're in, it could be livestock, equipment, retail, consultant, etc., you have competition. They might be next door or 5 states away but they're still competition. The more you know about your competitors the higher your success rate for your business. Be sure to go into as much detail as possible as the survival of your business depends on it!!

Start by making a list of competitors for each market you are targeting. Where they are located? How far they are from you? How profitable is their business? How does their business differ from yours? Include, also, if you expect to take sales away from these competitors. Be sure to go completely into detail on how you plan to accomplish this.


ADVERTISING and DISTRIBUTION
(Write about 1 page)

Agriculture offers so many possibilities that depending on what product and/or service you're selling determines what you must do to reach your customers.

For example, if you are selling all the fruit and vegetables your raise at the local Farmers Market one day a week then you don't need to do anything other than be there every week with your produce. If you have superior produce word will spread by word of mouth and customers will keep coming back.

On the other hand if you decide to go into subscription farming, with your customers coming to your farm or you make home deliveries, you'll need to decide what media you will use to reach them. Will it be advertisements in the your local paper, flyers, direct mail or personal contact? What ever it is your advertising must be cost effective.

Another factor you need to determine is that for every dollar you spend on advertising that same dollar must bring in 'x' dollars in sales.

If you have any unique marketing ideas you should list them here. Go into as much detail as possible.

Spend time and really work on coming up with the best way(s) to advertise your products and/or services as the very success of your business depends on it. Remember, if you don't reach your customers you have no business!!


SALES
(write about 1 page)

In this section you will figure out your projected sales and expenses for your first year in operation. If you're already in business and you're taking out a loan, this section will show if the increased sales warrant your increase debt load. This also wholes true if you're not taking out a loan but investing your own money in the expansion.

If you have a retail store and buy any type of merchandise to resell it is relatively easy to figure out. To begin you'll need to determine your cost of sales. This is the cost of the merchandise or material that you purchased for resell. Next you must show the basis for your cost of sales figure and what percentage of your sales is the cost of sales. Once you have those figures you now need to determine the average total of your monthly expenses. Show, also, how much money will you need to draw monthly from the business for your personal expenses. From all of these figures you can now determine how much merchandise you must sell to break even. You need also to show, if you are already in business and applying for a loan, how this loan will affect your sales.

Include what you believe could seriously change these sale projections ie... changes in the economy, changes in demand, etc.

If you have an on going agriculture operation where you raise hay, cattle, and so on (rather than a retail store), you need to pencil out your cash flow. You will also need to provide your banker with your actual cash flow plus a 5 year projected cash flow. This will give your banker a complete picture of how your operation will benefit from the loan. Even if you are not applying for a loan you should do this for yourself and up date as needed when changes occur. Your cash flow plays a major part in your business plan by allowing you to determine if you're on track with your objectives and goals. If not then you're able to make immediate informed changes and bring it back into line without suffering any serious consequences had you allowed it to continue.

It doesn't matter why you are doing a cash flow projection, for your own use or applying for a loan, etc., consider it a road map. It shows where you are today, next month and next year.

If you are applying for a loan to buy your farm or ranch, etc., your banker will want a 5 year projected cash flow. You can pick up cash flow forms from the lending agency when you pick up your loan application.

Don't be fooled into thinking that you are going to sit down and do this in an evening. The more fore thought you give and time you spend doing your cash flow the better your chances for a loan and the success of your business.


KEY PERSONNEL

Give a detailed accounting of you and your employees. Describe the duties and qualifications of each and years of experience. Include a personal resume for any employee, including your self, who will or has any administrative responsibilities such as manager or assistant manager or any other employee with authority in your business.


ORGANIZATION

Describe the type of business you have ... corporation, partnership, sole proprietorship, etc. Who's on the Board of Directors. If your business is a partnership, who are the partners and the percentage of ownership of each. Also state where the business headquarters is located.

Last but certainly not least do short term and long term personal goals of the owner(s) harmonizing with the business requirements and objectives. Go into detail.


COMPLETED BUSINESS PLAN

Upon completion of your business plan every facet of your business(s) should be crystal clear, not just to you, but to anyone knowing nothing of your operation. If it's not, go back and keep working on it until it is.

The final test comes when you ask yourself if you were the banker would you make a loan on the merit of this business plan. If the answer is no then it needs more work. Keep at it until the answer is YES!!

Remember, also, this is not a do it one time and that's it. For your operation to be and stay successful your business plan must be updated every 3 to 6 months or more often if changes occur.


Submitted by L. J. MacKenzie
©Copyright 1997, 1998 MacKenzie & Associates All Rights Reserved

Dividing line between how to do a business plan and the menu

| BACK TO TOPICS |

BACK TO OPPORTUNITIES




AgriHelp is a service of MacKenzie & Associates
MacKenzie@AgriHelp.com

P.O. Box 1941, Santa Rosa, California USA
Telephone: 707-528-6427 and Fax: 707-527-1309