Developing a Business Plan

A Step by Step Guide

This Material Developed By Joseph Bonelli from the University of Connecticut and Jon Jaffe from Farm Credit East 2

What is a Business Plan?

• Tool used to convert idea into a reality for either a new business or for changes to an existing business • Keeps everyone focused on same goals • Provides a necessary analysis of all aspects of the business • A business plan is a dynamic document – For each business stage, the business plan must be updated 3

• Business Plans are Written For: Owners • Business managers • Lenders and investors • Consultants and employees 4

Basic Components • Executive Summary • Business description • Operations • Marketing plan • Management • Financials 5

Section #1 Executive Summary 6

Executive Summary Overview of: • Your business including product or service and what you will do and how you will do it • Key elements of business plan • Why business will be successful 7

• • • • Executive Summary Include the following information: Business Description Mission Statement Goals Capital Needs 8

Business Description • Provide a brief description of all aspects of your farm business • Include an overview of the business products and/or services 9

Mission statement • Explains the scope and essence of the business • States why it is in business • Must express the collective values of the business 10

Mission Statement Examples • Good – Produce a healthy and nutritious product at a reasonable price for our customers • Bad – Make lots of money 11

Goals • Goals are directions for your business and outline what you want your business to look like in the future • Too many goals may result in less effective results. 4 to 8 is probably about right for most small businesses • All activities undertaken by the business should have the objective of achieving these goals 12

Goals Consider these areas when developing goals: • Business Marketing • Crop practices • Financial considerations • Personnel and personal needs 13

Goals Goals must be: o

S

pecific: o

M

easureable o

A

ttainable o

R

ewarding o

T

imed 14

Capital Needs • Provide an overview of the business capital requirements and an overview of the major purpose(s) for which the funds will be used. Example Tractor: Plow: Harrow: Start up money: Total need: $12,000 $2,000 $2,000 $6,000 $20,000 15

Section #2 Business Description 16

Business Description • What business will you be in?

• What will you do?

• What will you produce?

• What service will you provide?

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Location • Physical Address • Description of property, i.e. acreage, buildings and other defining attributes.

• Proximity to nearby towns • Proximity to other “landmark” locations 18

Products and Services • What product or products does your business produce?

• What service does it provide?

• This section should be descriptive and explain what is “unique or special” about what you sell.

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Size and Scope of Your Current and Planned Business • Be descriptive • Dollar Sales • Volume of sales • Customer count • Is business new, or existing?

• If existing, is it stable or growing?

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Personnel • Who owns the business?

• Who runs the business?

• How many employees?

• Full-time versus Part-time • Year-round versus seasonal 21

Legal Structure • Sole proprietor?

• Partnership?

• LLC?

• Corporation?

• Other/Multiple entities?

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Special Attributes of Business • Why was this business started?

• What is special about the business or products?

• Why should the customer be excited?

• • Why should the reader of this plan be excited? (Hint: You want the reader excited if you are trying to get something from them such as a loan) 23

Customers • Who are your customers?

• Where are they located?

• Are they single visit or repeat?

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Competition • Who is your competition?

• Where are they located?

• What is the biggest challenge they present?

• What weakness do they have that you plan to exploit?

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Growth Plan • What is your expansion plan, if you have one?

• How fast do you want to grow?

• Do you plan multiple locations?

• What is the biggest opportunity for growth?

• What is the biggest limitation?

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Section #3 Operations 27

Operations Include the following: • Production system • Risk management • Timeline 28

Production System • If you produce crops, describe your current and future crop plan including crops produced, acreages, and yields. • If you provide a service, describe how you provide that service 29

Risk Management • Business insurance • Labor: Health and disability • Contracts: Legal liability • Compliance with all local, state and federal regulations and tax requirements 30

Timeline • The tasks that must be completed and • The date when the tasks must be completed to achieve goals 31

Section #4 Marketing Plan 32

Marketing Plan Big Picture Questions. Are you?

1. Wholesale or retail?

2. Year-round or seasonal?

3. Prime location or a destination?

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Target Customer • Local – define target area • Destination – special trip • One shot or repeat customers?

• Online sales?

• What is your “ideal” customer?

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Marketing Sites • Website?

• Facebook?

• Other social media?

• Newspaper?

• Billboards?

• Radio?

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Other Marketing Options • Customer Loyalty Programs • Coupons • Discount Sales • Educational Classes • PR/Goodwill Efforts 36

Why Should They Buy From You??

• Product or service quality • Specific knowledge • Price • Convenience • Buy local 37

Who Will Develop the Marketing Plan?

1. Owner?

2. Employee?

3. Marketing Firm?

4. Other?

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Who Will Execute and Oversee the Marketing Plan?

1. Owner?

2. Employee?

3. Marketing firm?

4. Other?

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Cost of Marketing Effort • Initial Cost - i.e. Website development • Early Years – 3 -5% of gross sales likely • Ongoing – 1 – 3% of gross sales likely Which form of marketing is going to give you the most “bang for your buck”? 40

Exterior Signage Primary Sign – How does it greet your customers?

Parking signs – Make it easy Entrance sign – Sounds simple, but rarely used!

Outside product – Location and description Outside service/event – Location and description 41

Interior Signage • Printed or handwritten?

• Direction signs • Pricing signs • Information booths or customer service area • Cashier/checkout location 42

Other Marketing Efforts Customer loyalty programs Gathering customer info (emails and addresses) Analyzing Customer Data – Now what do you do with this information?

Using this information – What is the customer benefit?

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Marketing – Risk Mitigation o o o o o o o Track Commodity Cycle Contract Input Prices (i.e. lock in fuel prices) Value Added Products Product Diversification Spread Sales over Season Market Thru Alternative Channels (i.e. CSA) Increase Direct Sales 44

Section #5 Management 45

Management Include the following information: • Management team • Personnel plan • Organization 46

Management team • List the members of your management team.

• Briefly describe their qualifications and their management roles. 47

Develop: Personnel Plan • Job descriptions • Compensation plans • Employee handbooks • Training procedures 48

Organization • Explain how owners and employees relate and contribute to the success of the business • If starting or expanding a business, describe the new positions • Develop an organizational chart for all employees 49

Sample Organizational Chart Farm Owner Production Manager Sales Manager Maintenance Grower Sales person Sales person Office Manager Bookkeeper

Section #6 Financials 51

Financials Key Financial Information • Financial Statements – Current & projected • Earnings – Historical & projected • Capital Spending Budget • Cash Flow – Annual & monthly • SWOT Analysis 52

Current Financial Statement • Assets owned – Detailed list • Liabilities owed – Detailed list • Net worth – Assets minus liabilities • Liquidity – Coverage for the unexpected • Leverage – Green light, orange light or red light?

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Projected Financial Statement • What is your net worth after changes are implemented?

• How much greater is your leverage?

• New liquidity position • Room for adversity?

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Historic Earnings • History of gross income • History of net income • Consistent or varied earnings?

• Discuss any “special events” that affected historic earnings.

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Projected Earnings • Project earnings for the next 3 to 5 years depending upon the scope of the changes planned. • List assumptions used • Note whether your assumptions are “most likely”, “best case” or “worst case” 56

Capital Spending Budget • How much do you plan to spend?

• What do you plan to spend it on?

• Source of funds for spending?

• Cost overruns budgeted?

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Cash Flow – Annual Review • Annual cash flow review allows you to see whether projected business earnings are adequate to cover debt service, living needs and capital improvement needs for each year projected. 58

Cash Flow – Monthly Analysis • Monthly cash flow analysis lets you see if there will be certain times of the year where cash flow is inadequate and liquidity or operating loans needed to be tapped to cover these shortfalls.

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SWOT Analysis • Strengths – What are the strengths of this venture to capitalize on?

• Weaknesses – What are the weakness of this venture to mitigate/minimize?

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SWOT Analysis • Opportunities – What are the opportunities in the current and future market?

• Threats – What threats are out there for this venture – i.e. competition opening down the road, etc.?

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Financial Discussion Summary • What do the numbers tell you? • What do the numbers tell the reader?

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Business Plan - Wrap-Up • Final thoughts • Encouragement o Put in the time o o o Ask questions Keep an open mind Embrace the challenge!

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