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

Helping Small Farmers Develop a Business Plan 2 An Excellent Resource 

Helping Small Farmers Develop a Business Plan 3 Building A Sustainable Business Guide  Excellent resource  Uses a whole-farm approach  Traditional business planning & marketing  Personal, economic, environmental, & community values included

Helping Small Farmers Develop a Business Plan 4 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

Helping Small Farmers Develop a Business Plan 5 Effective Business Plans Demonstrate  Alternative strategies are well researched  Production methods understood  Marketing aspects have been considered  Financial risks have been calculated

Helping Small Farmers Develop a Business Plan 6 Business Plan Structure  Five critical planning tasks (pg 12) Identifying stakeholder values Your current situation Vision, mission, & goals Strategic planning & evaluation Presenting, implementing, & monitoring

Helping Small Farmers Develop a Business Plan 7 Business Plan Structure  Four key management areas (pg 12) Marketing Operations Human Resources Finance

Helping Small Farmers Develop a Business Plan 8 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?

Helping Small Farmers Develop a Business Plan 9 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

Helping Small Farmers Develop a Business Plan 10 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?

Helping Small Farmers Develop a Business Plan 11 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

Helping Small Farmers Develop a Business Plan 12 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

Helping Small Farmers Develop a Business Plan 13 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?

Helping Small Farmers Develop a Business Plan 14 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/processors Grocery wholesales or retailers Direct Marketing

Helping Small Farmers Develop a Business Plan 15 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”

Helping Small Farmers Develop a Business Plan 16 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

Helping Small Farmers Develop a Business Plan 17 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

Helping Small Farmers Develop a Business Plan 18 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?

Helping Small Farmers Develop a Business Plan 19 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?

Helping Small Farmers Develop a Business Plan 20 Financial Considerations  Profitability (pg 54)  Liquidity  Solvency  Repayment Ability  Efficiency

Helping Small Farmers Develop a Business Plan 21 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

Helping Small Farmers Develop a Business Plan 22 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 criteria SMACT

Helping Small Farmers Develop a Business Plan 23 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.”

Helping Small Farmers Develop a Business Plan 24 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?

Helping Small Farmers Develop a Business Plan 25 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

Helping Small Farmers Develop a Business Plan 26 Customer Segmentation  Geographic (pg 110)  Demographic   Needs/Preferences Psychographic

Helping Small Farmers Develop a Business Plan 27 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

Helping Small Farmers Develop a Business Plan 28 Understanding Sales Potential  Need realistic idea of sales potential (pg 110)  Sources of demographic patterns  CACI Market System Group Sourcebook  SRDS Lifestyle Market Analysis  Departments of Ag:  USDA: FSA, NRCS, Rural Development, SARE  US Census Bureau  Myflorida.com:

Helping Small Farmers Develop a Business Plan 29 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

Helping Small Farmers Develop a Business Plan 30 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?

Helping Small Farmers Develop a Business Plan 31 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

Helping Small Farmers Develop a Business Plan 32 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?

Helping Small Farmers Develop a Business Plan 33 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)

Helping Small Farmers Develop a Business Plan 34 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

Helping Small Farmers Develop a Business Plan 35 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

Helping Small Farmers Develop a Business Plan 36 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

Helping Small Farmers Develop a Business Plan 37 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

Helping Small Farmers Develop a Business Plan 38 Additional Resources  Purdue University’s Business Planner

Thank You  For more information visit the Small Farms web at  Take a virtual field day tour by visiting the Virtual Field Day web at This presentation brought to you by the Small Farms/Alternative Enterprises Focus Team.