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  • 1. 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
  • 2. BUSINESS PLANNING <ul><li>The goal: </li></ul><ul><ul><li>To help you improve the management of your business through business planning. </li></ul></ul>
  • 3. BUSINESS PLANNING <ul><li>The value of a Business Plan should outweigh the time and cost required to develop. </li></ul><ul><ul><li>Should facilitate change in a farm business </li></ul></ul><ul><ul><li>Should improve management of the business. </li></ul></ul><ul><ul><li>Should be done by farm managers </li></ul></ul><ul><ul><li>It should not be done for them. </li></ul></ul>
  • 4. BUSINESS PLANNING <ul><li>Business Plans </li></ul><ul><ul><li>Frequently used to communicate the business externally – to lenders, investors, partners </li></ul></ul><ul><ul><li>Demonstrate the business has a plan and is well managed </li></ul></ul><ul><ul><li>Should be used by farm manager to improve the management of the business </li></ul></ul><ul><ul><li>Helps a manager think through: </li></ul></ul><ul><ul><ul><li>Where the business is at </li></ul></ul></ul><ul><ul><ul><li>Where they want it to go </li></ul></ul></ul>
  • 5. Finance Operations Marketing Personnel Strategy Business Plan
  • 6. <ul><li>Includes: </li></ul><ul><ul><li>A standard format to help develop and store your business plan. </li></ul></ul><ul><ul><li>Tips or questions to help you think through your plan. </li></ul></ul><ul><ul><li>Sample business plans </li></ul></ul>
  • 7. Strategic Plan Component Personal Vision, Mission, Goals Family Vision, Mission, Goals Business Vision, Mission, Goals External Scanning Internal Scanning Strategic Plan
  • 8. Strategic Planning <ul><li>A lot has been said about knowing where you are going. </li></ul><ul><li>People who can articulate their goals and mission tend to be more successful in life and business. </li></ul><ul><li>How do you know where you want to go in life, your mission, your goals? </li></ul><ul><li>How do you write your mission and goals? </li></ul><ul><li>Most people like to plan and dream – but few want to write down their goals. </li></ul>
  • 9. Mission <ul><li>A mission and goals describe the dreams and plans you have for your future. </li></ul><ul><li>What do you dream about, how do you envision your future? </li></ul>
  • 10. Mission <ul><li>The Building a Sustainable Business worksheets can help you put your dreams and values into a mission statement. </li></ul><ul><li>Let family members or team members describe individual dreams and desires for the future and then compile them. </li></ul>
  • 11. Goals <ul><li>In addition to dreams, everyone has goals. Sometimes they are almost subconscious, but they drive why you choose to do what you do. </li></ul><ul><li>Goals are things you want to accomplish, not how you will accomplish them. </li></ul>
  • 12. Goals <ul><li>Family goals should describe what you want for your family. </li></ul><ul><li>Business goals should describe what you want from your business. </li></ul>
  • 13. Developing Your Mission and Goals <ul><li>Worksheets are available </li></ul><ul><li>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. </li></ul>
  • 14. Additional Questions <ul><li>Family goals: </li></ul><ul><ul><li>What do I want to accomplish during my life? </li></ul></ul><ul><ul><li>What goals do we have for our children? </li></ul></ul><ul><ul><li>What do we want to do for others? </li></ul></ul><ul><ul><li>What would I like to do before I’m too old to do it? </li></ul></ul><ul><ul><li>Do we have quality of life goals we want to meet? </li></ul></ul>
  • 15. Additional Questions <ul><li>Business goals: </li></ul><ul><ul><li>How much money do we want to generate for our family living? </li></ul></ul><ul><ul><li>Do we want to make a living focusing on production, managing people, or by developing people and marketing skills? </li></ul></ul>
  • 16. Additional Questions <ul><li>Business goals: </li></ul><ul><ul><li>What kind of work environment do you want to work in regarding safety, team, sole operator? </li></ul></ul><ul><ul><li>What do I really enjoy doing? </li></ul></ul><ul><ul><li>What jobs or tasks don’t I enjoy? </li></ul></ul>
  • 17. Strategic Planning <ul><li>Determine the strategy that helps accomplish your mission and goals. </li></ul>
  • 18. Strategic Planning <ul><li>The strategic plan should demonstrate that you understand the future outlook for your particular industry (Industry Situation in software). </li></ul><ul><li>This is important for both an existing business or starting a new enterprise. </li></ul>
  • 19. Strategic Planning <ul><li>The strategic plan should assess your competitive position within your industry, and describe how you are positioned to be successful. </li></ul><ul><li>What strengths will help you succeed in this industry? </li></ul>
  • 20. Resources <ul><li>FINPACK Business Plan Software </li></ul><ul><ul><li>Mission </li></ul></ul><ul><ul><li>Goals </li></ul></ul><ul><ul><li>Industry analysis/situation </li></ul></ul><ul><ul><li>Competitive position </li></ul></ul><ul><ul><li>Business strategy </li></ul></ul><ul><ul><li>Implementation plan </li></ul></ul>
  • 21. Operations Planning <ul><li>The Operations Plan describes your production management system. </li></ul><ul><li>It describes what you produce and how you produce it. </li></ul><ul><li>This section should be one of the easier sections for you to develop. </li></ul><ul><li>But planning is easy, implementation is the hard part. </li></ul>
  • 22. Operations Planning <ul><li>Operations/production management is one of the most important aspects of running a farm business. </li></ul><ul><li>Production level or yield is usually the single most important factor determining the cost of production. </li></ul>
  • 23. Operations Planning <ul><li>There is rarely one area where significant cost reductions can be attained. </li></ul><ul><li>The key to more profitable businesses is managing many costs two to five percent more efficiently than their competitors. </li></ul>
  • 24. Operations Planning <ul><li>In the operations section of a business plan, you need to adequately communicate that the business has a sound production management strategy. </li></ul>
  • 25. Operations Planning <ul><li>The operations plan should document the critical operational procedures that make will make your business successful? </li></ul><ul><li>Do you know the critical operational functions that will determine a new business or enterprise’s success? </li></ul>
  • 26. Operations Planning <ul><li>To communicate your Operations plan, this section should discuss: </li></ul><ul><ul><li>The products produced </li></ul></ul><ul><ul><li>The production system </li></ul></ul><ul><ul><li>Quantity produced </li></ul></ul><ul><ul><li>Production schedule </li></ul></ul>
  • 27. Operations Planning <ul><li>Operations should discuss: </li></ul><ul><ul><li>Resources available and needed </li></ul></ul><ul><ul><li>Permits and regulations </li></ul></ul><ul><ul><li>Risk management plan </li></ul></ul><ul><ul><li>Environmental issues </li></ul></ul><ul><ul><li>Quality control systems </li></ul></ul>
  • 28. Operations Planning <ul><li>The operations section should also help you think through and identify production functions that can be improved. </li></ul>
  • 29. Operations Plan <ul><li>Marketing and operations are closely related. </li></ul><ul><li>Which plan should you develop first? </li></ul>
  • 30. Operations Plan <ul><li>You may want to ask: </li></ul><ul><ul><li>Should I determine my marketing opportunities and produce to meet the marketing plan? </li></ul></ul><ul><ul><li>Or should I determine my competitive production capacity and develop markets for my products? </li></ul></ul>
  • 31. Operations Plan <ul><li>Traditionally agricultural producers focused on products they had a competitive advantage producing. </li></ul><ul><li>Today there is a growing focus on determining marketing opportunities and producing to meet demand. </li></ul>
  • 32. Resources <ul><li>FINPACK Business Plan software </li></ul><ul><ul><li>Crop system </li></ul></ul><ul><ul><li>Livestock system </li></ul></ul><ul><ul><li>Other enterprises </li></ul></ul><ul><ul><li>Risk management plan </li></ul></ul><ul><ul><li>Environmental considerations </li></ul></ul><ul><ul><li>Quality control systems </li></ul></ul>
  • 33. Marketing Plan <ul><li>FINPACK Business Plan software asks questions and offers tips about: </li></ul><ul><ul><li>Current markets </li></ul></ul><ul><ul><li>Potential new markets </li></ul></ul><ul><ul><li>Pricing strategy </li></ul></ul><ul><ul><li>Promotion and distribution strategy </li></ul></ul><ul><ul><li>Storage and quality control </li></ul></ul><ul><ul><li>Resources – suppliers, contractors, competitors </li></ul></ul>
  • 34. Personnel Plan <ul><li>People make a business successful. </li></ul><ul><li>Who will manage your business, who will provide the labor, and how will they do it? </li></ul>
  • 35. Labor <ul><li>Your business plan should document that you have the management and personnel resources necessary to run your business or a plan to obtain them. </li></ul>
  • 36. Personnel Plan <ul><li>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. </li></ul>
  • 37. Management <ul><li>Who is the manager? </li></ul><ul><li>What are the roles of the manager? </li></ul><ul><li>What are the qualifications of the manager? </li></ul>
  • 38. Management <ul><li>Who is on the management team, what are there roles and qualifications? </li></ul><ul><li>What additional management skills may be needed either through training, outside advisors or hiring staff. </li></ul>
  • 39. Management <ul><li>How do you transition from a one person operation and learn how to manage people? </li></ul><ul><li>You have to be a learner, and willing to get help to learn how to manage people. </li></ul>
  • 40. Management <ul><li>Do you have a management transition or contingency plan? </li></ul><ul><li>If the manager is unable to continue, who will replace him or her? </li></ul>
  • 41. Labor <ul><li>What tasks need to be accomplished in your business? </li></ul><ul><li>What additional tasks will be created if you make major business changes? </li></ul><ul><li>Who will do the required tasks – family members, existing employees, or will you hire additional help? </li></ul>
  • 42. Labor <ul><li>Are there tasks that no one on your team has the skills to do or that no one is willing to do? </li></ul><ul><li>You might want to use your task list and identify the ones where your business has personnel gaps. </li></ul><ul><li>What responsibilities will you hire consultants to do? </li></ul>
  • 43. Personnel Plan <ul><li>Your personnel plan should describe job descriptions, compensation plans, incentive plans, employee handbooks, and training procedures. </li></ul><ul><li>The most important business skill in any occupation is people skills! </li></ul>
  • 44. Resources <ul><li>FINPACK Business Plan software </li></ul><ul><ul><li>Management team </li></ul></ul><ul><ul><li>Family & hired labor </li></ul></ul><ul><ul><li>Consultants </li></ul></ul><ul><ul><li>Personnel management </li></ul></ul>
  • 45. Financial Plan <ul><li>Your lender wants to know if your business will be financially successful. </li></ul><ul><li>Your spouse wants to know too! </li></ul>
  • 46. Financial Plan <ul><li>In many cases, the financial plan is the most important part of your business plan. </li></ul><ul><li>The financial plan is particularly important if you are proposing a major change or a new business. </li></ul>
  • 47. Financial Plan <ul><li>What do you need to include in your business plan to communicate financial viability? </li></ul>
  • 48. Financial Plan <ul><li>Financial viability is generally evaluated from three perspectives: </li></ul><ul><ul><li>Solvency </li></ul></ul><ul><ul><li>Profitability </li></ul></ul><ul><ul><li>Liquidity </li></ul></ul>
  • 49. Financial Plan <ul><li>Solvency evaluates changes in net worth </li></ul><ul><ul><li>growth in your retirement account </li></ul></ul><ul><li>Profitability monitor earnings </li></ul><ul><ul><li>ability to generate income </li></ul></ul><ul><li>Liquidity estimates cash flow and debt repayment ability </li></ul><ul><ul><li>paying the bills when due </li></ul></ul>
  • 50. Solvency <ul><li>Compares the assets invested (what you own) in the business with the sources of capital (liabilities – what you owe and your net worth) </li></ul><ul><li>Requires an up to date balance sheet </li></ul>
  • 51. Profitability <ul><li>Measures the earnings of the business </li></ul><ul><li>Requires an accrual income statement </li></ul><ul><li>As an alternative, use average net income from 3 years Schedule F tax forms </li></ul>
  • 52. Liquidity <ul><li>Measures the ability of the business to generate cash to meet short term obligations </li></ul><ul><li>Requires a cash flow statement, usually projected for next year or more </li></ul>
  • 53. Financial Plan <ul><li>The tools used to communicate a business’s financial situation are: </li></ul><ul><ul><li>Balance sheet - solvency </li></ul></ul><ul><ul><li>Income statement - profitability </li></ul></ul><ul><ul><li>Cash flow plan – liquidity </li></ul></ul>
  • 54. Financial Plan <ul><li>A written description of the strengths of these three measurements of your financial projections should also be included. </li></ul><ul><li>Also describe the assumptions you used to make your financial projections. </li></ul>
  • 55. Asset Management <ul><li>Your financial plan should also describe how you acquire and manage capital assets - purchase, lease, or custom hire. </li></ul><ul><li>How efficiently are assets being used? </li></ul>
  • 56. Asset Management <ul><li>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. </li></ul><ul><li>Asset management is often the best indicator of future net worth growth. </li></ul>
  • 57. Capital Required <ul><li>The final part of your financial plan should describe how much money you need to implement your business plan. </li></ul><ul><li>Describe the sources of your financing. </li></ul><ul><li>Present your financing request if you have one. </li></ul>
  • 58. Resources <ul><li>FINPACK Business Plan software </li></ul><ul><ul><li>Balance sheet </li></ul></ul><ul><ul><li>Asset management </li></ul></ul><ul><ul><li>Projected profitability </li></ul></ul><ul><ul><li>Cash flow </li></ul></ul><ul><ul><li>Long range projections </li></ul></ul><ul><ul><li>Historical trends </li></ul></ul><ul><ul><li>Benchmarks </li></ul></ul><ul><ul><li>Capital required </li></ul></ul>
  • 59. Business Plan <ul><li>Information to organize: </li></ul><ul><ul><li>Farm description (history and current situation) </li></ul></ul><ul><ul><li>Values, goals, mission </li></ul></ul><ul><ul><li>Strategy summaries </li></ul></ul><ul><ul><li>Financial analyses, tax returns </li></ul></ul><ul><ul><li>Implementation plan </li></ul></ul><ul><ul><li>Contingency statement </li></ul></ul><ul><ul><li>Historical tax returns </li></ul></ul><ul><ul><li>Resources </li></ul></ul>
  • 60. Business Planning <ul><li>The executive summary is typically the last section written. It summarizes all the work you have put into developing your plan. </li></ul>
  • 61. Business Planning <ul><li>When writing the plan, remember: </li></ul><ul><ul><li>Only use the sections needed </li></ul></ul><ul><ul><li>Make it concise and to the point </li></ul></ul><ul><ul><li>If you want someone to read it, remember their time is valuable </li></ul></ul><ul><ul><li>Don’t include graphics without substance </li></ul></ul><ul><ul><li>Always prepare an executive summary </li></ul></ul><ul><ul><li>Communicate clearly </li></ul></ul>
  • 62. Business Planning <ul><li>Additional writing/organization tips: </li></ul><ul><ul><li>Don’t use technical language or jargon </li></ul></ul><ul><ul><li>Make sure presentation is professional presentation (typed, proofed) </li></ul></ul>
  • 63. Business Planning <ul><li>Take-home ideas: </li></ul><ul><ul><li>Talk to others, ask questions </li></ul></ul><ul><ul><li>Study your markets </li></ul></ul><ul><ul><li>Be honest with yourself when evaluating ideas </li></ul></ul><ul><ul><li>Reject a strategy if it doesn’t make money on paper </li></ul></ul><ul><ul><li>Ask for feedback from family, team members </li></ul></ul><ul><ul><li>Get started! </li></ul></ul>
  • 64. Business Planning <ul><li>Lastly, remember that a business plan should be used: </li></ul><ul><ul><li>Distribute copies to those involved in business </li></ul></ul><ul><ul><li>Review plan periodically </li></ul></ul><ul><ul><li>Monitor progress, meet with planning team </li></ul></ul><ul><ul><li>Keep records </li></ul></ul><ul><ul><li>Compare actual outcomes to projected outcomes </li></ul></ul><ul><ul><li>Make changes to plan as needed </li></ul></ul>
  • 65. Thank You! <ul><li>Tim Eggers </li></ul><ul><li>Field Agricultural Economist </li></ul><ul><li>311 East Washington </li></ul><ul><li>Clarinda, IA 51632 </li></ul><ul><li>877-596-7243 </li></ul><ul><li>[email_address] </li></ul>

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