Helping Your Small Farmers Develop a Business Plan Allen F. Wysocki Food and Resource Economics Small Farms In-Service Training May 18, 2006

Helping Your Small Farmers Develop a Business Plan

Allen F. WysockiFood and Resource Economics

Small Farms In-Service TrainingMay 18, 2006

Helping Small Farmers Develop a Business Plan2

An Excellent Resource

http://www.sare.org/publications/business.htm


Building A Sustainable Business Guide

Excellent resource

Uses a whole-farm approach

Traditional business planning & marketing

Personal, economic, environmental, & community values included


Why Create a Business Plan?

Make regular marketing, operational, human resource, & finance decisions (pg 15)

To identify new market opportunities

Pursue long-term personal, economic, environmental & community goals

To communicate ideas to lenders, business partners and business stakeholders


Effective Business Plans Demonstrate

Alternative strategies are well researched

Production methods understood

Marketing aspects have been considered

Financial risks have been calculated


Business Plan Structure

Five critical planning tasks (pg 12)

1.

2.

3.

4.

5.

Identifying stakeholder values

Your current situation

Vision, mission, & goals

Strategic planning & evaluation

Presenting, implementing, & monitoring


Business Plan Structure

Four key management areas (pg 12)

1.

2.

3.

4.

Marketing

Operations

Human Resources

Finance


What Is Business Planning?

An on-going, problem-solving process That can identify business challenges &

opportunities That apply the 4 key management areas to

develop strategic objectives To move the business toward a vision (pg 15)

Who benefits from business planning? (pg 13)

Does one size fit all?


Planning Task 1: Identifying Stakeholder Values

The decision maker’s values provide the backdrop for their decision-making & management choices (pg 20)

Value identification is especially important if Values need to be shared among team

members (pg 22)

Your clientele need to share their values with other stakeholders in this process

planning collectively


Planning Task 2: The Current Situation

Buy-in requires a comprehensive, realistic assessment of the current situation (pg 27)

Brief history of the business (pg 28)

Identify important successes & failures What are the key opportunities & challenges? What have they learned from their experiences? How have values shaped the choices made?


Assessing the Current Situation

Conduct a SWOT analysis for each management area (pg 30)

= What the organization does well

= What is done poorly = External events, that if

taken advantage of could, improve the organization

= External events, that if not addressed, could harm the organization

SWOT needs to be an inclusive process

Strengths

Weaknesses

Opportunities

Threats


Assessing the Marketing Situation

Product: What is their product? (pg 30)

Customers:

: How are they different from everyone else?

What markets do they serve?

Unique features


Product Focus May Be The Wrong Question

Too many small businesses have a “production” mentality

CMSQ:

Products can be (pg 32): Commodities Final consumer goods & services

Why should anyone buy their products?


How Are Products Distributed?

Do they sell to: (pg

34)

to end-users

(individuals or organizations)

Distribution choices are important Impact unique characteristics of the product Commodity - relatively easy, least control Direct – most control & can be expensive

First handlers/processorsGrocery wholesales or retailersDirect Marketing


How Are Their Products Priced?

Do they have a choice? (pg 36)

Encourage them not to

Study current pricing conditions Typical price Price ranges Price leader Sensitivity of price to demand changes

“Sell Price”


How Do They Promote Their Product?

Promotional strategies affected by choice of distribution system (pg 37)

Assess promotional strategy effectiveness How many customers are reached? The cost of reaching customers

Push vs. Pull promotion


Assessing The Operations Situation

Resources: Physical resources available?

Production: What systems are they using?

: What systems are in place to support their business? (pg 38)

Institutional Considerations e.g., ISO 9000, HACCP, COOL, etc.

Management


Assessing The Human Resources Situation

Current Work Force: Who is involved & what roles do they play? (pg 46)

Skills: What are the unique HR skill? What skills are lacking?

Change: Will the labor situation change in the near future?


Assessing The Financial Situation

Financial Needs: Current living expenses Financial Performance: What is the business

performance in the past, & how strong is current performance? (pg 51)

Risk: What type of risk is our business currently exposed to?

Financial Environment: How is it? Is it changing?


Financial Considerations

Profitability (pg 54)

Liquidity

Solvency

Repayment Ability

Efficiency


What Type of Risk Are They Exposed To?

Interest rates (pg 62)

Employment Inflation Government Action

These are all factors to be considered in SWOT analysis


Planning Task 3: Mission, Vision, & Goals

What is a Mission?

What is a Vision?

Goals: Describe what the decision maker would like to achieve (pg 87)

Must meet the criteriaSMACT


Planning Task 4: Strategic Planning & Evaluation

Strategy: a

(pg 103)

This is an important step in the process: Develop a business strategy Evaluate strategic alternatives Decide on the whole business strategic course Develop contingency plans

What functional area should be first? ABC Research example

“A careful plan or method for achieving an end.”


An Effective Business Strategy Addresses:

Markets: Who are the target customers & what do they value? (pg 107)

Product: Products offered & how unique? Competition: Who are the competitors &

how will the organization position itself? Distribution & Packaging: How & when

will the product be moved to the market? Prices: How will the product be priced? Promotion: How & what will be conveyed?


Identifying Potential Markets

How can you help them identify markets? Chambers of commerce Trade associations & membership directories USDA/Government sources Your knowledge & experience

S-T-P Marketing


Customer Segmentation

Geographic (pg 110)

Demographic

Needs/Preferences

Psychographic


Identifying Unique Product Features

It’s all about Competitive Advantage (pg 33)

Environmental and/or Social Benefits

Market research may be needed to uncover needs of existing & potential customers

Freshness

Quality


Understanding Sales Potential

Need realistic idea of sales potential (pg 110)

Sources of demographic patterns CACI Market System Group Sourcebook

http://www.caci.com/

SRDS Lifestyle Market Analysis http://www.srds.com/frontMatter/ips/lifestyle/

Departments of Ag: http://www.doacs.state.fl.us/ USDA: FSA, NRCS, Rural Development, SARE US Census Bureau http://www.census.gov/

Myflorida.com: http://www.myflorida.com/


Distribution Scope

product distribution: widespread placement of the product at low prices (pg 115)

product distribution: using a small number of intermediaries, usually retailers

product distribution: exclusive stocking rights to a wholesaler or retailer

Intensive

Selective

Exclusive


Promotion Strategy Should Include:

Message: What should customers know about their products (pg 126)

Tools & Delivery: How will the message be communicated?

Timing & Frequency: How often will customers be contacted?

Costs: How much will promotion cost?


Operations Strategy

Production Mgt: What alternatives will be considered? (pg 134)

Regulation & Policy: Institutional needs?

Resource Needs: Future needs?

Gaps: How will they fill these needs?

Size & Capacity: How much?

Storage & Inventory Mgt


Human Resources Strategy

Labor Needs: Future needs? (pg 145)

Skills: What is needed to meet needs?

Gaps: What are the gaps, how filled?

Compensation: How to pay?

Mgt & Communication: Who will manage & how?


Financial Strategy

Risk: Future business environment and how it will be managed (pg 154)

Risk mgt alternatives (pg 156)

Organization: Legal structure of the business Legal organizational structures (pg 158)

Financing: How will the business be financed to meet capital requirements? Financing alternatives (pg 160) Financial assistance options (pg 162)


Calculating Profitability

Financial Measures Net return (pg 168)

Break-even volume Break-even value

Study the impact of a new business idea on a

present business’ profitability & cash flow

Long-range Planning Projecting whole business profitability

Partial Budgeting


Choosing The Best Strategy

Decision makers need to decide? (pg 179)

Stay with current business plan Adopt an alternative strategy Reconsider new alternatives

Consider Strategy Fit Tests (pg 180)

Develop a contingency plan Use of scenario planning


The All Important Business Plan Executive Summary

Identity: Who they are & their name (pg 184)

Location: Where business is located

History: How long in operation

Ownership: Current structure

Industry/Competition: Competitive position


Executive Summary cont.

Product: Current & future offerings (pg 184)

Operations: How will they produce

Human Resources: Who will manage and how

Finances: How much profit will be generated & how the business will be financed


Additional Resources

Purdue University’s Business Planner https://www.agecon.purdue.edu/planner/

Thank You

For more information visit the Small Farms web at http://smallfarms.ifas.ufl.edu

Take a virtual field day tour by visiting the Virtual Field Day web at http://vfd.ifas.ufl.edu

This presentation brought to you by the

Small Farms/Alternative Enterprises Focus Team.

Documents

Helping Your Small Farmers Develop a Business Plan Allen F. Wysocki Food and Resource Economics Small Farms In-Service Training May 18, 2006