Understand your investors

UNDERSTANDING INVESTORS‘ expectations is key to producing an effective business plan, according to Micheal Summers, HSBC Bank‘s south of England agricultural manager.

“Talk to your stakeholders early on in the project. Understand that their expectations may be different from a new, diversified venture than from a traditional farming business,” he said.

“Stakeholders need to understand the assumptions that underlie the business plan; what, when and how? Operational aspects are important to underpin the financials and bring them to life.”

Diversifying farmers must appreciate that a new venture‘s business plan is likely to differ considerably from that of a traditional farming business, particularly from a stakeholder‘s perspective.

“The business plan enables you to assess your needs,” said Mr Summers. “Then you can begin to assess the availability of finance.

“Each potential source of finance, be it family, banks, private investors or your own reserves, will assess risk differently and expect a different level of return.”

Diversification ventures are likely to be treated differently from traditional agricultural businesses when it comes to loans, said Mr Summers.

“A diversified business – say, on-farm milk processing – has a much shorter production cycle. It uses assets that are not as certain in value or marketability as the farm business‘s.”

Plans for a new venture should also be subject to careful sensitivity analysis, said Mr Summers.