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Tools for Risk Management Centered Decision-Making Dee Singh-Knights (Ph.D.), Extension Specialist WVU Ext. Service

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Presentation on theme: "Tools for Risk Management Centered Decision-Making Dee Singh-Knights (Ph.D.), Extension Specialist WVU Ext. Service"— Presentation transcript:

1 Tools for Risk Management Centered Decision-Making Dee Singh-Knights (Ph.D.), Extension Specialist WVU Ext. Service Cindy Martel, Marketing Specialist WV Dept. of Ag Daisy Bailey, Extension Agent WVU Ext. Service

2 Have a good and safe product that consumers want and are willing to pay for. Promote your product to the right set of customers. Sell the right amount to be profitable. Offer product/service at the right price. Being in the right location. All of the above

3 Diversify the income stream Generate new income Improve cash flow Help community development Educating visitors Work at home Social rewards

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6 What experience can I offer the public that will make my operation unique and profitable? Does my region have the necessary characteristics to draw people to the area? Does my farm have the necessary resources/characteristics to draw people to this enterprise? Do we have the necessary personal characteristics to make this enterprise successful?

7 PART A: REGIONAL CHARACTERISTICSSCORE 1.Natural Beauty 2.Cultural and Social characteristics 3.Recreational Offerings in Your Region 4.Shopping and Commercial Characteristics 5.Public Infrastructure to Support Tourism 6.Attitudes Towards Tourists 7.Accessibility of your Region 8.Existing Tourism Activity Max. Score 25 Gross Total Max. Score 200 Divide Gross Total by Standardizing Factor20 NET REGIONAL CHARACTERISTIC SCORE MAX 10 PART B: PROPERTY CHARACTERISTICSSCORE 1.Natural or Farm Features 2.Built Features and Cultural Artifacts 3.Site Infrastructure and Safety 4.Business Potential and Human Resource Features Max. Score 25 Gross Total Max. Score 100 Divide Gross Total by Standardizing Factor10 NET PROPERTY CHARACTERISTIC SCORE MAX 10 Adapted from the Farm and Country Tourism on your Property: Assessment Tool of the CRC for Sustainable Tourism Development, Queensland, Australia.

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9 This module provides questions for you to think about as you explore who am I in business with?

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11 Link offerings - The region is the destination. Make it easier for travelers to locate options Make a connection with already established trails, groups, packages, etc. Collaborate! Work to create the entire tourism experience or the tourism package!!. Similar businesses or nearby communities arent competition, they are part of your tourism product! The more there is to do, the more appealing a place becomes.

12 Understanding your Target Market (Customer)

13 Authentic Farm or Ranch Experience Memorable Social, Recreational and/or Educational Experience Effective Customer Service Adequate Public Facilities Safe and Accessible Environment Meaningful Community Relations Source: Agricultural Marketing Resource Center, Iowa State University,

14 Agritourism Agri-Entertainment Specialty Market (price premiums for value- added, unique value)

15 What is the economic feasibility of this enterprise? What are the potential returns relative to the costs from this investment? Are there considerable upfront costs to be incurred? Do I have the necessary financial resources to make this successful?

16 repay debt When a farm business borrows money it has an obligation to repay debt. If you invest in this agritourism business: afford the interest Can I afford the interest (cost of capital) meet cash obligations Can I meet cash obligations when due make a profit grow equity Can I make a profit and grow equity cost of productionrevenue What is my cost of production relative to my revenue - will my business pay for my inputs and give me enough to live on many visitors/customers How many visitors/customers must I pursue to meet financial goals charge How much should I charge for my product make a living What does it take to make a living with this business

17 Farm Goats Petting and play area Gift Shop (clothing, cheese, milk, meat) Sheep Farm Tours Agritourism operation only – Petting zoo

18 Sample Enterprise Budget – On Farm Festival/Activity Sample Enterprise Budget – On Farm Festival/Activity Sample Enterprise Budget – Christmas Tree Farm Sample Enterprise Budget – Christmas Tree Farm Sample Enterprise Petting Zoo

19 Enterprise Budget Start with Main Enterprise Budget (main profit center) Sweet Corn Enterprise Budget Maple Syrup Enterprise Budget Strawberries Enterprise Budget Meat Goats Enterprise Budget Partial Budget How will my main enterprise change if I add an agritourism enterprise – Partial Budget Changes in returns Changes in costs

20 Increases in Net Income Decreases in Net Income Increase in Income Decrease in Income Entrance fees$10,000 $0 Gift shop sales$4,000 $0 Total Increase$14,000 Total Decrease$0 Decrease in Cost Increase in Cost Eliminate need for one employee $3,000 Adding seating, washrooms, signs$500 $0 Play area for kids$500 $0 Construction and utilities for gift shop$1,000 $0 Liability insurance$100 $0 Employ one part-time employee$6,160 Total Decrease$3,000 Total Increase$8,260 Increase in Net Income$17,000 Decrease in Net Income$8,260 Change in Net Income$8,740

21 What is the economic feasibility of this enterprise? Can I deliver this product at a reasonable cost? Can I attract enough people to my enterprise to make it profitable ?

22 Total Fixed Costs (TFC): $4,000 Insurance - $1,000 Parking Lot Improvements - $1,000 Farm Market Improvements - $1,500 Child play area - $500 Break-Even Point (BE) = TFC/(P - VC) BE = $4000/($120 - $40) BE = 50 farm tours to cover Wages and Promotion Total Variable Costs (VC): $80 Wages/hour (5 $7/hr.) - $35 Desired proprietor income - $40 Giveaways/Promotion - $5 Cost charged per tour (P): $120 Cost charged per tour (P): $120 Break-Even Point (BE) = TFC/(P - VC) BE = $4000/($120 - $80) BE = 100 farm tours to cover all Variable Costs BE = 100 farm tours to cover all Variable Costs

23 Changes in Cost per Tour: Cost per Tour $100 = need 200 tours Cost per Tour $120 = need 100 tours Cost per Tour $140 = need 67 tours Changes in Proprietor's Income: Proprietor's desired Income/Tour $20 = need 67 tours Proprietor's desired Income/Tour $40 = need 100 tours Proprietor's desired Income/Tour $60 = need 200 tour s

24 Will I be able to generate enough cash on a regular basis to pay daily operating expenses ?

25 Can I pay my bills when they come due - Liquidity ? Provides information on the farms ability to meet financial obligations when they come due Helps to identify the sources and uses of cash in the business Early warning system for cash flow shortages Does NOT provide an estimate of profitability Helps plan for cash fluctuations in the business

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28 legal actions. Uncertainty due to legal actions. Civic responsibility – serious health issues, even fatal Required in some instances What regulations apply depends on: Type of product/service Level of interaction with hazards Another petting zoo, another e-coli outbreak Another petting zoo, another e-coli outbreak

29 Developing an on-farm food safety plan Familyfarmed.org food safety plan Agritourism General Farm Safety Plan Agritourism General Farm Safety Assessment Checklist Agritourism Emergency Response & Legal Liability Agritourism Emergency Response & Legal Liability Assessment Checklist

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31 Understanding the market Who is the potential customer? What is the potential market size? Knowing your competition What is your unique marketing position/advantage? How you will reach your potential customer? Making the sale Remember, selling is just one part of marketing! Customer follow-up and retention Building a brand and creating community Continuously monitor and enhance your firms reputation and image

32 Online marketing goals mirror those of traditional marketing. You are trying to: Reach the customer Give your product pitch Make the sale Provide customer follow-up and support Retain customers Establish and maintain your business image Build a brand Trying to do all of this PROFITABLY!!!

33 This module provides questions for you to think about as you explore the question of should I develop a business plan?

34 A business plan help you to: Identify an opportunity Understand how you can meet that need Determine if you can do it profitably Determine how you will let customers know you are in business and how your business can benefit them. Planning does not begin after production, but well before the first seed is planted.

35 Where are you and what have you got? Where do you want to go? How can you get there? How can you get there? Identify Values–Whats important to you?. Which routes will you take? How will you monitor progress?

36 This module provides a 3-day of successful agritourism operations in North Carolina

37 Cindy Martel, Marketing Specialist WV Dept. of Agriculture Daisy Bailey, Extension Agent WVU Ext. Service


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