8 business plan questions answered by farm finance expert

A good business plan is key to the success of any new enterprise. Oliver McEntyre, national agricultural specialist at Barclays, answers some of the most frequently asked questions about putting a plan together.

See also: Five point plan for a successful business plan

1. What key things should be included within the plan?

For any business plan, a cashflow, balance sheet and estimated profit and losses account are a necessity.

These should all tie in with the cash positions tallying together.

The assumptions made in the projections should also be included.

A source and allocation of funds is also a useful document to give clarity for those reading the business plan.

For example, give detail of where has the cash came from – profit, capital, loans and what has it been spent on – losses, capital expenditure, drawings.

2. How long term should it be? 

A business plan should run for as long as it takes for the new enterprise to generate a cash profit, that way you can gauge if the enterprise is worthwhile financially.

If a project takes a long time to generate a cash return, those investing in it need to ensure they are comfortable with the risk when set against the return. If one business model does not work, then the business plan can be changed to make it more viable.

Business plans should be revisited and adjusted as the business project develops. Importantly, when a business is in trouble, having a solid plan can help to steer it back to good health.

3. Apart from financial information, what else should be in it?

For a new diversification project, it is useful to include a marketing plan – this should demonstrate knowledge of your target customer, what their buying habits are, which can be used to clearly plan the marketing strategy.

See also: Tips of how to get your business plan right

4. How important is it to demonstrate how the business is able to achieve turnover/profit estimates?

Vital – setting achievable deadlines and targets will keep your business on track for growth.

Be realistic – basing turnover and profit figures on reasonable estimates which are backed up through a good marketing plan is important.

5. What’s often missing in the business plan?

The most common omission from a business plan is accompanying notes.

With any business plan the assumptions made and numbers have to estimated – it is always important to substantiate these figures, justify them and give a sound basis for how they have been calculated.

When a business is diversifying – either into another core agricultural enterprise or something non-agricultural – it is also good to include a frank and honest assessment of the management and their skills and if there is a skills gap, how that is going to be filled.

That might be demonstrated in the plan through training of those involved or through hiring someone with the right skillset to complement the project. Identifying any skills gaps before the project starts and addressing them is a great strength, not a weakness from the bank or lender’s perspective.

6. What do farmers tend to under or overestimate?

Planning to ensure any enterprise has sufficient working capital to operate is sometimes lost within the complexity of running the business.

Any business plan is built on assumptions, and it is not uncommon to set targets and either exceed or not quite make the projection.

However, the cash impact of not hitting production or sales targets is often underestimated.

A lack of working capital can not only constrict a business, but also can mean those operating a business become consumed with the day to day juggling of cashflow rather than concentrating on operating the business.

Be aware of costs and make sure you don’t underestimate overheads.

A financial plan should contain your budgets and sales forecasts, as well as your personal financial plan.

For example, for capital expenditure a contingency should always be built in for overspend to ensure if a project runs over you have sufficient capital to complete the project.

7. What mistakes are often made?

Don’t assume that just because you have a good location or are close to potential customers they will avail themselves of your product or service.

Where investment in the project is going to be significant, it is often prudent to use a marketing expert to put a clear marketing and promotional strategy together for you.

Even diversification projects near the urban fringe and tourism hotspots could hinder your opportunities if your potential customers do not know you are there.

8. What supporting evidence should be submitted? 

For a diversification project, the key evidence is the marketing plan, which should highlight:

  • Target market – potential size, buying habits, demand for product or service
  • How the new enterprise is going to reach the target market
  • Number of customers and average spend

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  • Educated conversations when collaborating with your advisors
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