Business Planning

Presentation based on materials developed by the University of Minnesota to accompany FINPACK Business Plan software

Tim Eggers

Field Agricultural Economist

Iowa State University Extension

BUSINESS PLANNING

• The goal:

– To help you improve the management of your business through business planning.

BUSINESS PLANNING

• The value of a Business Plan should outweigh the time and cost required to develop.– Should facilitate change in a farm business– Should improve management of the business.– Should be done by farm managers– It should not be done for them.

BUSINESS PLANNING• Business Plans

– Frequently used to communicate the business externally – to lenders, investors, partners

– Demonstrate the business has a plan and is well managed

– Should be used by farm manager to improve the management of the business

– Helps a manager think through:• Where the business is at• Where they want it to go

Finance

Operations Marketing

Personnel

Strategy

BusinessPlan

• Includes:– A standard format to help develop and store

your business plan.– Tips or questions to help you think through

your plan.– Sample business plans

Strategic Plan ComponentPersonal Vision,Mission, Goals

Family Vision,Mission, Goals

Business Vision,Mission, Goals

External ScanningInternal Scanning

Strategic Plan

Strategic Planning

• A lot has been said about knowing where you are going.

• People who can articulate their goals and mission tend to be more successful in life and business.

• How do you know where you want to go in life, your mission, your goals?

• How do you write your mission and goals?• Most people like to plan and dream – but few want to

write down their goals.

Mission

• A mission and goals describe the dreams and plans you have for your future.

• What do you dream about, how do you envision your future?

Mission

• The Building a Sustainable Business worksheets can help you put your dreams and values into a mission statement.

• Let family members or team members describe individual dreams and desires for the future and then compile them.

Goals

• In addition to dreams, everyone has goals. Sometimes they are almost subconscious, but they drive why you choose to do what you do.

• Goals are things you want to accomplish, not how you will accomplish them.

Goals

• Family goals should describe what you want for your family.

• Business goals should describe what you want from your business.

Developing Your Mission and Goals

• Worksheets are available

• Whatever method you use, each family or team member should develop their mission and goals independently and then discuss and compile them into an agreed upon mission and goals.

Additional Questions

• Family goals:– What do I want to accomplish during my life?– What goals do we have for our children?– What do we want to do for others?– What would I like to do before I’m too old to

do it?– Do we have quality of life goals we want to

meet?

Additional Questions

• Business goals:– How much money do we want to generate for

our family living?– Do we want to make a living focusing on

production, managing people, or by developing people and marketing skills?

Additional Questions

• Business goals:– What kind of work environment do you want to

work in regarding safety, team, sole operator?– What do I really enjoy doing?– What jobs or tasks don’t I enjoy?

Strategic Planning

• Determine the strategy that helps accomplish your mission and goals.

Strategic Planning

• The strategic plan should demonstrate that you understand the future outlook for your particular industry (Industry Situation in software).

• This is important for both an existing business or starting a new enterprise.

Strategic Planning

• The strategic plan should assess your competitive position within your industry, and describe how you are positioned to be successful.

• What strengths will help you succeed in this industry?

Resources

• FINPACK Business Plan Software– Mission– Goals – Industry analysis/situation– Competitive position– Business strategy– Implementation plan

Operations Planning

• The Operations Plan describes your production management system.

• It describes what you produce and how you produce it.

• This section should be one of the easier sections for you to develop.

• But planning is easy, implementation is the hard part.

Operations Planning

• Operations/production management is one of the most important aspects of running a farm business.

• Production level or yield is usually the single most important factor determining the cost of production.

Operations Planning

• 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 than their competitors.

Operations Planning

• In the operations section of a business plan, you need to adequately communicate that the business has a sound production management strategy.

Operations Planning

• The operations plan should document the critical operational procedures that make will make your business successful?

• Do you know the critical operational functions that will determine a new business or enterprise’s success?

Operations Planning

• To communicate your Operations plan, this section should discuss:– The products produced– The production system– Quantity produced– Production schedule

Operations Planning

• Operations should discuss:– Resources available and needed– Permits and regulations– Risk management plan– Environmental issues– Quality control systems

Operations Planning

• The operations section should also help you think through and identify production functions that can be improved.

Operations Plan

• Marketing and operations are closely related.

• Which plan should you develop first?

Operations Plan

• You may want to ask:– Should I determine my marketing

opportunities and produce to meet the marketing plan?

– Or should I determine my competitive production capacity and develop markets for my products?

Operations Plan

• Traditionally agricultural producers focused on products they had a competitive advantage producing.

• Today there is a growing focus on determining marketing opportunities and producing to meet demand.

Resources

• FINPACK Business Plan software– Crop system– Livestock system– Other enterprises– Risk management plan– Environmental considerations– Quality control systems

Marketing Plan

• FINPACK Business Plan software asks questions and offers tips about:

• Current markets• Potential new markets• Pricing strategy• Promotion and distribution strategy• Storage and quality control• Resources – suppliers, contractors, competitors

Personnel Plan

• People make a business successful.

• Who will manage your business, who will provide the labor, and how will they do it?

Labor

• Your business plan should document that you have the management and personnel resources necessary to run your business or a plan to obtain them.

Personnel Plan

• For many family farms, the personnel plan will only need to describe the roles of the family members and the outside consultants and advisors hired.

Management

• Who is the manager?

• What are the roles of the manager?

• What are the qualifications of the manager?

Management

• Who is on the management team, what are there roles and qualifications?

• What additional management skills may be needed either through training, outside advisors or hiring staff.

Management

• How do you transition from a one person operation and learn how to manage people?

• You have to be a learner, and willing to get help to learn how to manage people.

Management

• Do you have a management transition or contingency plan?

• If the manager is unable to continue, who will replace him or her?

Labor

• What tasks need to be accomplished in your business?

• What additional tasks will be created if you make major business changes?

• Who will do the required tasks – family members, existing employees, or will you hire additional help?

Labor

• Are there tasks that no one on your team has the skills to do or that no one is willing to do?

• You might want to use your task list and identify the ones where your business has personnel gaps.

• What responsibilities will you hire consultants to do?

Personnel Plan

• Your personnel plan should describe job descriptions, compensation plans, incentive plans, employee handbooks, and training procedures.

• The most important business skill in any occupation is people skills!

Resources

• FINPACK Business Plan software– Management team– Family & hired labor– Consultants– Personnel management

Financial Plan

• Your lender wants to know if your business will be financially successful.

Your spouse wants to know too!

Financial Plan

• In many cases, the financial plan is the most important part of your business plan.

• The financial plan is particularly important if you are proposing a major change or a new business.

Financial Plan

• What do you need to include in your business plan to communicate financial viability?

Financial Plan

• Financial viability is generally evaluated from three perspectives:– Solvency– Profitability– Liquidity

Financial Plan

• Solvency evaluates changes in net worth – growth in your retirement account

• Profitability monitor earnings– ability to generate income

• Liquidity estimates cash flow and debt repayment ability– paying the bills when due

Solvency

• Compares the assets invested (what you own) in the business with the sources of capital (liabilities – what you owe and your net worth)

• Requires an up to date balance sheet

Profitability

• Measures the earnings of the business

• Requires an accrual income statement

• As an alternative, use average net income from 3 years Schedule F tax forms

Liquidity

• Measures the ability of the business to generate cash to meet short term obligations

• Requires a cash flow statement, usually projected for next year or more

Financial Plan

• The tools used to communicate a business’s financial situation are:– Balance sheet - solvency– Income statement - profitability– Cash flow plan – liquidity

Financial Plan

• A written description of the strengths of these three measurements of your financial projections should also be included.

• Also describe the assumptions you used to make your financial projections.

Asset Management

• Your financial plan should also describe how you acquire and manage capital assets - purchase, lease, or custom hire.

• How efficiently are assets being used?

Asset Management

• An analysis of your investment in capital assets relative to the size of your business may be valuable as you plan the future of your business.

• Asset management is often the best indicator of future net worth growth.

Capital Required

• 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.

Resources

• FINPACK Business Plan software– Balance sheet– Asset management– Projected profitability– Cash flow– Long range projections– Historical trends– Benchmarks– Capital required

Business Plan• Information to organize:

– Farm description (history and current situation)– Values, goals, mission– Strategy summaries– Financial analyses, tax returns– Implementation plan– Contingency statement– Historical tax returns– Resources

Business Planning

• The executive summary is typically the last section written. It summarizes all the work you have put into developing your plan.

Business Planning

• When writing the plan, remember:

Only use the sections needed Make it concise and to the pointIf you want someone to read it, remember

their time is valuableDon’t include graphics without substanceAlways prepare an executive summaryCommunicate clearly

Business Planning

• Additional writing/organization tips:

Don’t use technical language or jargonMake sure presentation is professional

presentation (typed, proofed)

Business Planning

• Take-home ideas:

• Talk to others, ask questions• Study your markets• Be honest with yourself when evaluating ideas• Reject a strategy if it doesn’t make money on paper• Ask for feedback from family, team members• Get started!

Business Planning

• Lastly, remember that a business plan should be used:

Distribute copies to those involved in businessReview plan periodicallyMonitor progress, meet with planning teamKeep recordsCompare actual outcomes to projected outcomesMake changes to plan as needed

Thank You!

Tim EggersField Agricultural Economist

311 East Washington

Clarinda, IA 51632

877-596-7243teggers@iastate.edu