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Chapter 5
Planning and Organizing an Agribusiness
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Essential Questions
• What are the benefits and challenges of entrepreneurship?
• What is a business plan?
• What makes for a successful agribusiness?
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The Small Business
• Defined by the SBA (Small Business Administration) as a business that is independently operated, is not dominant in its field, and meets certain size standards in terms of number of employees and annual receipts.
• Ninety percent of the nation’s new jobs in the private sector are in small business.
• Accounts for more than 40% of GDP.• The number of women and minorities opening
small businesses has grown significantly since the 1960s.
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Entrepreneurship: General Characteristics
• Entrepreneurship: All the risks pertaining to forming and operating a small business.
• Reasons people choose it:– Work for themselves
– Set their own hours
– Test their own theories
– Set prices, determine production levels, control inventory
– Solve problems
– Set company policy
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Personal Characteristics of Entrepreneurs
• An entrepreneur should first have knowledge or skill in the area he/she wants to start a business, but he/she must also be the following:– Independent, self-confident, energetic, organized,
visionary, persistent, optimistic, committed, problem solver, self-nurturing, risk taker, action oriented, flexible, emotionally stable, and have a sense of urgency
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Challenges of Entrepreneurship
• Total Responsibility:– Must manage workers, manufacturing, and shipping– Must find customers, sell the product, and be certain orders are
met
• Long, Irregular Hours– Longer hours than working for someone else– Often over 60 hours/week
• Financial Risks– Take money to start a business, run a business, and grow a
business– Only half of all small businesses reach a fourth year
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Reasons Agribusinesses Fail
• Failure is usually the result of three factors:– Management (a mismanagement of resources, people,
or products, by failure to fully plan)
– Labor (unqualified and/or undependable workers can cause failure of any business)
– Finances (inability to allocate resources, debt, and taxes can all cause an agribusiness to fail)
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Analyzing an Agribusiness Venture
• Prior to starting a business, one must first recognize a need, then take into account several factors:– What financial resources are needed; what labor will be
required; what management requirements exist; does a market exist for this service or product; where should the business be located; should an agribusiness be started or purchased?
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The Business Plan
• Prior to the actual agribusiness, an entrepreneur must create a business plan.
• A business plan is a written description of a new business that describes all aspects of the proposed agribusiness.
• This plan allows the entrepreneur to be realistic, honest, detailed, and objective.
• It also serves as a formal document when seeking credit from various financial institutions.
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Preparing the Business Plan
• A business plan includes six major sections:– Introduction: Statement of purpose/objectives
– Table of contents
– The organizational plan (see slide 11)
– The marketing plan (see slide 12)
– Financial documents (see slide 13)
– Appendix: Support material for any of the previous sections (resume, credit report, etc.)
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The Organizational Plan
• Includes two major areas:– Summary of the agribusiness
• Mission; business model; strategy; strategic relationships; analysis of strengths, weaknesses, opportunities, and threats
– Detailed description of administration• Products or services, intellectual property (copyrights, patents,
etc.), location, legal structure, management, personnel, accounting, legal, insurance, security
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The Management Plan
• Sets out all the elements of components of the marketing strategy.
• This plan will provide the following:– Overview of goals, market analysis, marketing strategy,
implementation of marketing strategies, customer service, assessment of marketing effectiveness
• It is important to first understand the current market trends (what works, what doesn’t) and the state of the economy before writing this plan.
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Financial Documents
• This portion of the overall business plan will address the quantitative interpretation of everything set out in the organizational and marketing sections.
• In other words, what’s everything going to cost and what monies are currently available?
• This will include the following: – Summary of financial needs– Loan fund dispersal statement– Pro forma cash flow statement (budget)– Three-year income projection– Projected balance sheet– Break-even analysis
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Major Areas of Agribusiness Management
• The ability to manage is probably the single most important quality for the entrepreneur. Management must take place in several areas:– Planning (what, when, where, how)
– Organizing (grouping together activities, people, and resources)
– Directing (leading by instruction and guidance)
– Staffing (recruitment, selection, training, and retention)
– Controlling (setting standards, solving problems, monitoring, communicating)
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Goal Setting for the Agribusiness
• Goals should be set prior to and during business operations.
• These goals can take three forms:– Immediate, short-term, and long-term
• Immediate goals are accomplished daily, weekly, or monthly.
• Short-term goals are set for accomplishment in a year or two and often lead toward long-term goals.
• Long-term goals are set with the future of the business in mind.