Many new entrants underestimate the importance of planning. Robyn Vinter gets to grips with why a good business plan is valuable to a fledgling farm business and how to make yours stand out
Drawing up a business plan is often the first step to turning the vision of a farm business into a reality.
It is important to keep a business plan clear and simple, says Alison Rickett, national project manager for Fresh Start, which runs training academies for new entrants to farming.
“People like to be able to find info quite simply, so it’s about quality not quantity,” she says.
Know it backwards, says Ms Rickett, including what is on your business plan and why – especially if you get help writing it.
What should your business plan include?
1. An executive summary
- Outline the business proposal
- Should be written last
- Avoid jargon
2. Explanation of the business
- Explain background of business
- Your experience
- The farming system
- Key features of the industry
- Markets and competitors
- Size of the market segment and whether it growing or declining
- Important trends
3. Key characteristics of buyers
- Your customers and sales you have made
- Make sure you cover weak points too
4. Sales and marketing
- How you will position your product
- How you will sell, i.e. contract
- Who your customer(s) will be?
- Define each role and who will fill it
- Your strengths and how to cope with weaknesses
- Background and experience of each team member
- Management systems
- Outline mentors and supporters
- Pros and cons of the location
- Facilities you need to start
- Production capacity/limitations
- Realistic sales forecast – don’t assume the “best-case scenario”
- Cashflow forecast, including drawings – something farmers do not always take into consideration
- Profit and loss forecast
7. Financial requirements
- The amount of finance you want, when and in what forms
- What it will be used for
- Confirm you can afford it
- Assessing the risks
- Isolate areas where something could go wrong
- Consider what-if scenarios
- Detailed financial forecasts
- Other relevant information
Ms Rickett advises new entrants to tweak their business plans for each audience – including more financial detail for banks and more technical information for a specialist scheme, for example.
There is one piece of advice that should help new entrants avoid the most common mistake.
“Check the figures – I cannot say this enough!” says Ms Rickett. This includes whether the figures are sensible, based on research, as well as that the numbers and calculations are correct.
It is also good practice to consider where things could go wrong, she says.
“Don’t be afraid to be ambitious, but be realistic and give yourself some time for the business to get established,” Ms Rickett advises.
New entrants see themselves as going from A to B in a straight line, but things do not always go as planned and the route is more often a zig-zag, she adds.
Remember a business plan is a working document which should be updated and used throughout the year, says Martin Redfearn, head of agriculture at Barclays.
At a minimum livestock businesses should be reviewing their business plans quarterly, he says, with arable businesses being able to review less often, but good managers on all enterprises look at theirs once a month.
“There’s always going to be one day in the month where the weather won’t allow you to get out and it should be a discipline to sit down and look at it,” Mr Redfearn says.
New entrants can underestimate the importance of making sure it is comprehensive, he adds.
“Save yourselves an awful lot of time and gain yourself an enormous amount of credibility by presenting a business plan to the bank that includes all of the [information] and the credibility will carry you an awful long way.
“It won’t guarantee you that we’ll lend you the money, it won’t guarantee you an interest rate, but what it will do is guarantee your credibility above probably 70-80% of the people who want to borrow money,” says Mr Redfearn.
Martin Redfearn’s business plan advice
- If you’ve got a successful business you will pay tax. If not, either you’ve got an absolutely rubbish business, or you’ve got a crooked accountant, or possibly both. If that’s the case, that’s not a business [the bank] would want to invest in
- The balance sheet is just a snapshot in time. It tells you what you own, and it tells you what you owe. There’s only one letter different between those two words, but it’s a very important one
- Accountants are expensive – there is nothing they can do that you can’t do if you have sufficient determination and intelligence