Developing Your Business Plan
Developing a Business Plan for Trade Adjustment Assistance Kevin Klair Center for Farm Financial Management University of Minnesota Developing a Business Plan A business plan is required to complete all TAA training phases and to receive the maximum payment This workshop will help prepare you to write your business plan 1
Why develop a plan Objectives How to develop a plan What Is a Business Plan? A formal statement of business goals, the reasons why they are believed attainable, and the plan for reaching those goals 2
Who Needs a Business Plan? Any business will benefit, but a business plan is particularly valuable for: New or expanding businesses Businesses making major changes Do You Need a Business Plan? Are you a new or expanding business? Are you considering major changes to your business? Do you have multiple family members who need to be on the same page? Are you involved in creative, niche, value added, or alternative enterprises 3
Purpose of a Business Plan Demonstrates that you have taken the time to objectively think through the details required to make the business succeed Purpose for a Business Plan Effectively communicate your business Externally to lenders, investors, partners Internally to family members & employees 4
Purpose of a Business Plan Most importantly, will help you improve the management of your business It is the blueprint for operating your business Serves as your operational guide 5
Business planning: Lessons Learned Is very time consuming Is best done by the business owner/management Can be very expensive Your business plan should be a living document Revisited and revised at least annually Major Functions of Management Production management Marketing management Personnel management Financial management 6
Sections of a Business Plan Executive summary Business description Operations plan Marketing plan Personnel plan Financial plan How to Develop a Business Plan Most people use business planning software Provides Outlines Suggestions on content Sample plans 7
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AgTransitions If your plan is to transition out of the business There is an alternative business planning tool AgTransitions Develops a plan to transition a business to next generation 19
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AgTransitions If you want to transition your business to someone else or retire Tell your consultant AgTransitions may be a better tool for you than AgPlan 21
Business Plan Sections In the next few segments of this workshop will we briefly discuss the sections in AgPlan There is more detailed information about each section in AgPlan s tips and resources Business Plan Sections Almost no one uses all of the sections in the AgPlan outline Use the sections that are relevant to your business and leave the others blank A good business plan does not have to be long 22
Business Description Business Description The business description is the easiest to write It is a great place to start 23
Business Description AgPlan business description sections: Business overview Location or Location/Area fished Facilities or Gear/Facilities Business history Ownership structure Operations 24
Operations The Operations section describes the production management system It describes what you produce and how you produce it Operations Production management is one of the most important aspects of running a farm or fishing business Production level or yield is usually the most important factor determining the cost of production and profitability 25
Operations There is rarely one area where significant cost reductions can be attained The key to more profitable businesses is managing many costs two to five percent more efficiently Operations AgPlan operations sections: Products Services Production system Customer service* Inventory management* Licenses, permits and regulations 26
Operations AgPlan operations sections (cont.): Patents and trademarks* Risk management Environmental issues Quality control Implementation timeline Operations Many of the topics in the operations section are issues that, if mishandled can destroy a business very quickly They are issues that lenders, partners and family members want to know are being addressed 27
Products and Services Operations Describe the products you produce and the production levels you achieve If you have multiple products or services, describe their importance to your business Are you planning new products or services Products and Services Operations You might also discuss in this section how and why you: Specialize in a product or a few products Diversify your line of products 28
Production Systems Operations How do you produce your products or services? Do technologies you use give you any advantages? Describe proposed production system changes and how they will improve production levels or efficiencies Customer Service Operations If you deal directly with customers, good customer service is critical. Describe what you do to provide good customer service How do you monitor your reputation? 29
Inventory Management Operations Do you produce a product that needs to be stored? Do you need specialized storage facilities? Do you need to maintain an inventory of supplies? Do you have reliable suppliers? Operations Licenses, Permits and Regulations If you are making changes, you likely will need to get permits or licenses Identify the permits and licenses needed, when you need them and the process to get them Identify how you respond to major regulations affecting your business 30
Risk Management Operations Risk management is increasingly important Discuss the risks you face: Production, price, financial, legal, and human And the methods you use to manage risk: Insurance, pricing, financing, safety procedures, and contingency plans Environmental Issues Operations Environmental issues and regulations are important for fishing and agricultural industries How are you addressing environmental concerns and regulations? 31
Quality Control Operations How do you produce high quality products or service? Is quality important for your marketing plan? If you handle food products, how do you address food safety issues? Operations Implementation Timeline If you are planning major changes, the implementation timeline is critical Outline the major steps that must be accomplished and deadlines to complete Discuss the impact on your business while the changes are being implemented 32
Marketing Marketing Your marketing plan will depend on how you market your products Sell commodities to processor or wholesaler Contract production Direct marketing to consumers or retail 33
Marketing AgPlan marketing sections: Market Trends Marketing Describe what is happening to the market for your products Threats or challenges Consumer demand Competition How will this impact you? 34
Marketing Strategy Marketing This topic is only available for the ag traditional commodity & fishing outlines Where and how do you sell your products? Production contracts Forward pricing using contracts, futures, options Customers Marketing Who are your customers? Will they change? Are there new customers you want to gain? Demonstrate that you understand your current and future customers 35
Marketing Contracts Marketing If you have production or marketing contracts describe them What portion of your production is under contract? What are the terms of your contracts? How do your contracts benefit your business? Strategic Partners Marketing Partnerships can add to your success Almost all businesses have some form of partnerships Markets, input suppliers, producer organizations, other producers Some have more formal partnerships Who are your important partnerships and how do you benefit from them? 36
Pricing Marketing What do you charge for your products or services? How do you determine your prices? How do your prices compare to competitors? Can you capture premium prices? Promotion Marketing How do potential customers become aware of your product or services? Promotion can take many forms and may be limited only by your creativity 37
Distribution Marketing How do you distribute your products? Direct shipping, delivery, on-site sales Orders via phone, online, other Timing Distribution channels Wholesale, processors, retail, consumers Direct marketing Market Segments Marketing Market segments are similar groups of customers Demographic age, gender, occupation Geographic local, national, international, rural, urban Individuals, other businesses, distributors, processors What are the primary market segments for your products and services How big are the segments? 38
Target Market Marketing Which market segments do you target? Why? Competitive Advantage Marketing Who are your competitors? How well do you compete with them? Do you have competitive advantages? Quality, price, location, facilities, equipment, distribution, alliances, recognition, employees, service 39
Management & Organization Management & Organization People make a business successful Who will manage your business, who will provide the labor, and how will they do it? 40
Management & Organization Your business plan should document that you have the management and personnel resources necessary to run your business or a plan to obtain them Management & Organization AgPlan management and organization sections: Management team Board of directors Advisory board Personnel plan Professional services 41
Management & Organization Management Team Who manages your business? What are their roles? What are the qualifications of the management team? Management & Organization Management Team If changes are planned, is the management in place to implement them? What additional management skills may be needed? Do you have a management transition or contingency plan? 42
Management & Organization Board of Directors If you have a board of directors, identify the board members and their affiliations Describe the strengths they bring to your business. Describe how your board functions Management & Organization Advisory Board Some businesses have an advisory board If you have an advisory board, identify the board members and describe the strengths they bring to your business Describe how your board benefits your business 43
Management & Organization Personnel Plan For many family farms and fishing businesses, just describe the roles of the family members If you do have employees, describe their roles and responsibilities What additional tasks will be created if you make major business changes? Management & Organization Personnel Plan Your personnel plan should describe your job descriptions, compensation plans, incentive plans, employee handbooks, and training procedures 44
Management & Organization Professional Services What professional services do you use? How long have you used them, what is your relationship with them? Are their services essential, how do you manage the third party risk of losing their services? Financial 45
Financial For many businesses, the financial section is the most important part of their business plan The financial section is particularly important if you are proposing major changes or starting a new business Financial AgPlan financial sections: Financial position Historical performance Financial projections Asset management Benchmarks Capital request 46
Financial Financial viability is generally evaluated from three perspectives: Solvency Profitability Liquidity Financial Solvency evaluates changes in net worth How much do you own if all debts paid Profitability monitors earnings How much income are you generating Liquidity estimates cash flow and debt repayment ability The ability to pay bills when due 47
Financial Position Financial A balance sheet measures business solvency Compares the assets invested (what you own) in the business with the sources of capital (liabilities what you owe and your equity) Historical Performance Financial Usually evaluated using income statements to measure profitability Measures how much income the business is making in relation to the resources used to produce that income 48
Financial Projections Financial Evaluate liquidity using a cash flow statement A projection of all sources and uses of cash during a specified planning period Evaluates the business s ability to meet loan payments and other financial obligations on time Asset Management Financial Your financial plan should also describe how you acquire and manage capital assets - purchase, lease, or custom hire How efficiently are assets being used? 49
Benchmarks Financial Compare your business performance to other similar businesses Can be very valuable as you evaluate changes to your business and if you are requesting financing Capital Required Financial The final part of your financial plan should describe how much money you need to implement your business plan Describe the sources of your financing Present your financing request if you have one 50
Financial In addition to financial statements, Include a written description of the strengths of your financial position, projections, and historical performance Describe the assumptions you used to make your financial projections Financial Your Financial Statements Generate financial statements using a software program, it s easier FINPACK is a widely used ag financial planning software that can also be used by fishermen 51
Financial Your TAA business planning consultant will have access to FINPACK FINPACK provides financial statements and also financial ratios to help evaluate the meaning of your financial numbers Balance Sheet A balance sheet will be required as part of your plan A blank balance is included with your handouts You might start working on it before meeting with your consultant 52
Balance Sheet Assets Current (< 1 year) Intermediate (1 10 yrs) Long term (> 10 years) Personal Total assets Liabilities Current Intermediate Long term Personal Total liabilities Net worth Balance Sheet Inventory of your financial and physical resources Evaluates financial strengths and weaknesses Evaluates credit risk Starting point for financial plan 53
Executive Summary Executive Summary The first section of your plan But may be the last section you write Summarizes your entire plan May be the only section some people read Needs to briefly, but very effectively describe your business and your plan 54
Executive Summary AgPlan executive summary sections: Business description Mission statement Goals Plan summary Capital request Writing Your Business Plan We have briefly looked at all the sections of the AgPlan outline REMEMBER, almost no one uses all of the sections Use the sections important to your business A good plan only needs to be 20 to 50 pages 55
Writing Your Business Plan What is needed to write a business plan? Take time to think about your business and where you want it to go Communicate with family members and partners Research potential markets, prices, equipment, structures, and available options Writing Your Business Plan Most people need 2-3 months to write a good business plan If you are investing the time to write a business plan Develop a living document that you can use as a guide in your business for years 56
Writing Your Business Plan Developing a good business plan can be very valuable for your business Use it to improve management and profits To measure progress toward your goals and financially To differentiate your business To make it easier for others to do business with you Writing Your Business Plan TAA provides valuable resources to help you write your business plan An individual business planning consultant Business planning tools Financial planning tools 57
Four Phases Remember four TAA training phases 1.Initial orientation 2.Intensive workshops 12 hours 3.Initial business plan 4.Long-term business plan Planning Consultant When you complete Phase 3 - Initial Business Plan You will be assigned a business planning consultant 58
Will contact you by: Planning Consultant Phone, email or mail to set up first meeting Will meet with you up to three times Will continue to interact with you via AgPlan, email, or phone to help you finish Planning Consultant Will NOT write your plan for you! They are coaches To help you understand how to write your plan To suggest ideas to expand your thinking To help you keep progressing on your plan 59
Planning Consultant Consultant will ask you to sign an agreement at the first meeting, Consultant will not write your plan Will not give advice nor is liable for any decisions you make Will not try to sell you any additional services Will keep all information confidential Will not guarantee that you will finish or get a payment Planning Consultant Most business planning consultants are: Retired or current business management educators People with experience helping develop business plans 60
Planning Consultant If there are problems with your business planning consultant, call your regional TAA center Western Center (509) 477-2168 Southern Center (501) 671-2165 North Central Center (800) 535-3456 Northeast Center (302) 831-1325 61
The Process Initial Orientation Intensive Training Initial Business Plan Long Term Business Plan 3 Years Available to Complete The Process Long Term Business Plan Not Approved Finish Not Approved Approval Reviewer 1 Reviewer 2 Approval Payment 62
Conclusion We hope you find developing a business plan: Rewarding Challenging Profitable 63
Initial Business Plan After you have completed 12 hours of workshops, the next step is to complete the Initial Business Plan. This is a simple two page, six question plan The six questions are: Initial Business Plan In several sentences, describe your business Describe the key challenges to your business that you need to address Describe the knowledge and skills you gained from TAA technical assistance workshops? 64
Initial Business Plan Questions (continued): In what ways will you apply the knowledge and skills you gained to your business? What changes are you considering to improve your business profitability and to improve your ability to compete with imports? Do you intend to complete a long-term business plan? Initial Business Plan You will also be asked if you are: An owner/manager An owner/manager husband & wife both applied A crew member/employee A crew member/employee operating, or intending to start, a business Your answers will help assign the appropriate business planning consultant to you 65
Initial Business Plan Your plan will be reviewed and when approved, will make you eligible to receive up to a $4,000 payment from FSA If not approved, it will be returned to you with suggestions on how to improve it Initial Business Plan The approval criteria are: You must answer all six questions You must make a serious effort to answer the questions Your answers must make rational sense 66
Initial Business Plan The approval criteria (cont.): Your answers will be used to assign a business planning consultant to you, so describe your business and plans as best you can Consultants have different experience and expertise Initial Business Plan The Initial Business Plan will be handed out at this workshop If you have finished 12 hours of training by the end of this workshop, you can complete the Initial Plan here and turn it in to the instructor 67
Initial Business Plan If you have not completed 12 hours of training or if you do not want to finish it at this workshop You can take it home and mail it in later You can do it online at www.taaforfarmers.org Initial Business Plan The advantage of doing it at this workshop is that the instructors are available to help you if you have questions 68