Creating a Business Plan

Creating a Business Plan Plan for and communicate success

Objectives • Understand the purposes of a business plan. • Be able to develop a business plan • Communicate business plan to a commercial lender • Utilize a business plan to set your farming operation up for success

What is a Business Plan? A business plan is a decision making tool that takes the form of a formal document. It encompasses many of the concepts we have already talked about: • Mission Statement & Farm Story • SMART Goals (short and long-term) • SWOT Analysis • Organizational Structure/Job Description/Job Specification • Balance Sheet (actual and/or projected) • Income Statement (actual and/or projected) • Enterprise/Whole-Farm/Cash Flow Budgets • Break-evens

Primary Purpose • Action Plan – starting a business can seem like a daunting task. A business plan breaks starting a business into smaller problems that are easier to solve. This makes the process more successful. • Road Map – a business plan gives your business direction. This will cause it to have a higher likelihood of success and help you communicate your vision to investors and commercial lender. • Sales Tool – a well developed business plan will help you sell your business venture idea to yourself, family members, investors, and commercial lenders. It will show the feasibility of an idea.

Creating Your Business Plan

Executive Summary • An executive summary is a stand-alone summary of your business plan. It is a chance to sell your reader on your business. • Summarize the essence of your business • Describe why this is a good opportunity • Describe the product, describe the target market and your product’s benefits • Describe your marketing plan, competitive advantage, management team, financial strategy, and funding strategy • Most people will not read pass the executive summary, so make it count!

Step 1: Company Overview • Identify what kind of business you want to pursue. What will you grow/make? Who will be your customers? Where is your location? How will you sell your product? Where do you envision this business to be in 5, 10, 20, or 25 years? • Write Introduction • Develop your mission statement • Develop your farm story (from start to now) • Set SMART goals • Develop objectives • Develop an exit strategy

Step 2: Product Overview • This is your opportunity to introduce the reader to your product. • Describe your product’s feature – attributes, demand for product, prices, customer service • Describe your product’s benefits – what are the benefits for your target market? • Where is your product in the stage of development? When will it be ready for market? What obstacles stand in your way? • Describe your product in ways that someone who has never heard of your product will understand.

Step 3: Market and Industry Analysis • This should be an in-depth analysis of your market. • Define your market, the size, identify any growth • Identify trends affecting your market i.e. consumer trends, business trends, political trends. List both good and bad. • Identify your target market. Look at demographics, economic value, how buying decisions are made. Your target market may be a consumer segment or a business segment.

Step 3: Market and Industry Analysis Cont’d • This should be an in-depth analysis of your industry. • Define how products get to the consumer. What is the level of integration? This should be a supply chain analysis. • Analysis of the competitive market including: • How do businesses compete i.e. price, quality, customer service? • Is it a highly competitive market? • How do competitors react to new, entering firms? Can your business withstand this reaction? • Are there barriers to entry like economies to scale, establishment cost, agreements with suppliers, customers, strategic partners? • Analysis of each competitor and any opportunities you see.

Step 4: Marketing Plan • This section can make or break you. You need to show that you can be competitive. • Provide a complete profile of your direct customer • Describe the marketing channel to get your product to the final consumer • Describe your market positioning. What does the customer need to believe about your product? What unmet need are you fulfilling? What makes you different?

Step 4: Marketing Plan Cont’d • Describe how your product has been tailored to meet the needs of customers • Describe your pricing strategy and how it will be effective • How will you communicate with your customer? Do you need branding? • This may be a great place to show forecasted sales and revenues

Step 5: Operations Plan • You and your employees will be spending a majority of your time and money on operations. It’s important to tie this into your marketing plan. • Describe how you will produce and deliver your product to the direct consumer • Scope of Operations: what tasks will be completed “in-house” • Identify key vendors, suppliers, lenders, strategic partners. What arrangements have you reached with them? • How many inputs, employees, and capital assets do you need to reach your five year sales goal? What level of production do you need?

Step 6: Development Strategy • Describe what 5-10 events need to take place in order for your business to succeed in the next 2-3 years. • Funding • Key agreements • Strategic alliances • Key hires • Facility development • Marketing Strategy

Step 7: Management Strategy • The idea is to convince the reader that you have a great management team to support your great idea. Display your strengths while downplaying your weaknesses. Note your accomplishments. • Include an organizational structure • If you have a board of directors, identify the members and their role • If you have a board of advisors, identify the members and their role • Define the ownership structure of the business. • Write a brief description of each management member including duties, skills, and responsibilities

Step 8: Competitive Advantage • Perhaps one of the most difficult parts of a business plan, this section addresses your true competitive advantages and how you will sustain your competitive advantage as more competitors enter your market. • To identify your sustainable competitive advantage: • Refer to your SWOT analysis • Identify your business’s resources including financial, physical, human, patents, trade-secrets, and organizational • Identify your business’s capabilities including management, sales, technology, or production expertise • Identify the barriers to entry that you can establish for competing businesses

Step 9: Financial Plan • You will want to include financial statement projections for your first five years of operation. • Income Statement – Annually for years 1-5 • Balance Sheet – Annually for years 1-5 • Cash Flow – Monthly for years 1-2, Quarterly for years 3-5 • Break-even and sensitivity analysis • Include your key financial assumptions, compare your estimates to other companies in your industry, and identify the risks to implementation.

Step 10: Funding • You will need to address how much funding is needed, the sources of funding, and how the funding will be used. • Funding Requirements – use your cash flow to determine how much funding is needed • Sources of funding – include equity (owner financing) and debt financing. How will funding from each of these sources be used? • Offering – this is your pitch for money • Equity financing – security offered, share of company, and ROI • Debt financing – collateral, term of loan, interest rate, and how it will be repaid

Make Your Business Plan Stand Out

Make Your Business Plan… • Professional: • Choose professional looking fonts, colors, pictures, and format • Include a cover letter • Include an executive summary • Include a table of contents and topic headers • Include appendices, figures, charts, and graphs • Proof-read, spell-check, and grammar check your work

Make Your Business Plan… • Informative: • Write clearly – “say what you are going to say, say it, say what you said” • Write succinctly • Cite your sources • Reference your appendices, figures, charts, and graphs where applicable in your business plan

Resources to get you started • “Writing a Successful Business Plan” by Lawrence and Moyes • Small Farm Funding Resources from USDA National Agricultural Library • Starting a Business from The U.S. Small Business Administration • Farm Business Planning from Beginning Farmers Business Plan Templates: • Business Plan Preparation from University of Colorado

Homework • Gather information for your business plan. • Write a rough draft of your business plan. Make sure to include a cover letter, executive summary, and all 10 steps.

One Minute Takeaway • Take a minute to write down one or two ideas or takeaways from this lesson.

Sieverkropp Consulting LLC. Contact: Elizabeth Sieverkropp esieverkropp@gmail.com (509) 398-6858 Website: www.sieverkroppconsulting.com Training Program Homepage: www.sieverkroppconsulting.com/fsa-borrower-training-program-homepage

Creating a Business Plan