Tips for farm diversification projects

More and more farmers are considering diversifying, with returns from arable and livestock enterprises in the doldrums.

Such a move can require investment and be challenging, but it can also boost profits or even mean the difference between survival and failure for some businesses. 

Whether you’re wondering about a tried-and-tested option such as a self-catering cottage, or something more unusual and novel, here are some considerations from Jerry Marshall, a serial entrepreneur and chief executive of the Arthur Rank Centre.

What opportunities should I look at?

• Can you extend what you already do? You have some great customers – what else could you sell to them? You have some great products – is there a completely different group of customers you could sell them to?

© FLPA/Rex Shutterstock

• Brainstorm and spend time making four long lists. List all the groups of people you know (for example, people in your village; tourists) and against each group, list the things they might need (for example, pet care; food). List all the resources you have – your buildings, equipment, special features of your land. List all the things you enjoy doing even if you are not being paid. And list all your skills and abilities – not just obvious commercial skills, but hobbies (what can you make?) and “soft skills” like project management or putting people at ease.
• Looking at all four lists, can you see matches, for example, needs that you have the resources, skills and interest to meet? Of these, what do you feel most drawn to? Would you be proud to offer this product or service? What do your friends say about your choices? Make a shortlist then chose one idea to investigate further.

Research

• Who would your competitors be? How do they attract customers? What are the similarities and differences between competitors? For each competitor, check out prices and try to understand their strengths, weaknesses and reasons for their success.

• Consider customers. Meet people who already buy this product or service and ask what they are looking for when they chose this item. Ask them where the best place is to buy it and why. Say you are thinking about doing something similar but how could you do it in a way that was better?

• How much business might you get? Try to evaluate the market size and what market share would be realistic. How many customers would this mean and realistically, how quickly could sales grow?

• Consider a test run. Assessing potential sales can be very difficult. If it can be done without lots of time and expenses, run a small pilot.

Plan it

• Write out each step of the production process, or (for a service) each step of the customer “journey” from enquiry to completion and payment. What equipment do you need to hire, borrow or buy? What consumables or raw materials are needed? What people and skills are needed? What regulations and/or licences are needed? What legal structure is best – self-employed, partnership, limited company (there are different forms of these)?

© Tim Scrivener

• Why will people buy from you – is it cheaper or better or faster or nicer? People are likely to buy services from you because you are nearer (faster) or they like you (nicer) not because you are the cheapest. What price and quantity discounts will you set? Will you sell direct or through a shop or agent (and if the latter, how much money will they want to keep)? How will your future customers find out about you? How can you encourage them to try your product? Is it viable?

• What are the costs you need to cover before you can make the first sale and how can these be minimised? What are your fixed monthly operating costs and the direct cost of each product or service you make allowing for delivery and for breakages, “no shows,” etc. What do you need to spend on sales and marketing? Do you need to draw an income yourself? How much do you need to allow for equipment replacement?

• Prepare a sales forecast. From your research, calculate monthly revenue. Does the money come in before, after or at the point of sale?

• Prepare a cashflow forecast. This is a forecast of your business bank account month by month, with money in, money out and updated balance. What is your deficit in the worst month? This amount plus a good-sized margin of error is what you will need to get your hands on. Does the initial deficit gradually disappear – if not, try another idea.

Germinate Enterprise

The Arthur Rank Centre is a Warwickshire-based charity which supports rural communities and churches. It has recently launched Germinate Enterprise, which includes a free workbook for those considering starting a rural business and resources for groups to run a start-up programme.