1. Business Management and Enterprise Development Shannon Dill Maryland Cooperative Extension Talbot County

2. Objectives Business Planning Marketing and Sales Customer Service Resources

3. Business Plans No matter how large or small it is necessary for you have a written farm business plan Business plans help with  Supporting a loan application  Defining a new business, goals and steps to achieve those goals  Evaluating the effectiveness of business and marketing strategies  Set a direction for the business in the next five years  Growth and development for established businesses

4. Business Plans A good business/marketing plan should be realistic, simple, specific and complete.  Is your plan realistic? Are your goals, dates and objectives realistic to your farm operation?  Is your plan simple? Can you and others read and understand the farm business plan?  Is your plan specific? Are goals, objectives and finances measurable?  Is your plan complete? Does your plan include all aspects of your farm business?

5. Contents of a Business Plan Executive Summary Mission and Goals Background Information Farm Strategy Marketing Strategy and Plan Enterprises Analysis and Plan Financial Plan Implementation Strategy Human Resource Plan Resource Inventory

6. Executive Summary It is in the front of the document BUT the last task to be completed. Overall summary of your business goals and objectives and how you plan to meet them.

7. Mission and Goals Mission Statement: purpose of your farm operation (1 or 2 sentences)  Answer – Why does your business exist, what purpose and where are you headed. Goals: Specific and measurable statements of what the business expects to achieve. Can include production, marketing, financial, etc…

8. Mission and Goals Use them in marketing MISSION GOALS

9. Background Information Logistics: Name, address, ownership, advisors, employees History: A Summary of the history of the farm operation/business Operation Layout Legal and Contractual Situation: Assets, contracts, insurance, estate plan, retirement, conservation programs, other Production: Acreage, yields, livestock

10. Farm Strategy Step 1: Gathering information and market research. Step 2: Analyzing the external and internal components of your business using the S.W.O.T. analysis. Step 3: Creating alternative plans of action and identifying areas of competitive advantage. Step 4: Formulating a strategy is selecting the best plan that fits your overall farm mission. Step 5: Implementing and evaluating the strategy.

12. Step 1: Gathering information and market research. Market Research: Research your current and potential markets to identify trends, competitors, needs and buyers. Focus groups, demographics, surveys, observation, interviews

13. Step 2: Analyzing the external and internal components of your business using the S.W.O.T. analysis. S.W.O.T. is an acronym for:  Strengths  Weaknesses  Opportunities  Threats

14. Strengths and Weaknesses Evaluation of the Internal Environment  Financial resources  Management capability  Human resources  Location  Facilities

15. Threats and Opportunities Evaluation of the External Environment  Competitor analysis  New/expanding markets  Regulations  Technology  economics

16. S.W.O.T. ACTIVITY

18. Step 3: Creating alternative plans of action and identifying areas of competitive advantage. Pulling it all together – Internal Strengths with External Opportunities Plan of Action What is unique, what is your competitive advantage, what will your consumers value

19. Step 4: Selecting the best plan that fits your overall farm mission. It is now time to select the plan that best fits your overall farm operation Keep in mind SWOT Can you see yourself doing this in 5-10 years? Include marketing, production, finances and management along with your competitive advantages.

20. Step 5: Implementing and evaluating the strategy How are you going to get it done! Following the financial plan there is a section that focuses on implementation

21. Marketing Plan Market research – Completed during the SWOT analysis Target Market - It is important to understand who is purchasing your products so that your marketing efforts will reach that segment. You cannot be everything to everyone. In order to effectively market, you need to cater your product and services to the set of customers who will see value in the product you are offering. Who are you marketing to? A target market can be developed by:  Demographics – age, gender, family size, education, occupation  Geographic – location, city, urban, rural  Psychographic – behavioral patterns, lifestyle similarities, common interests, beliefs and hobbies

22. Marketing Strategies The 4 P’s of marketing  Product  Price  Place  Promotion

23. 4 P’s of Marketing - PRODUCT What sets your product apart from others? What are the products main attributes Includes – Market research, logos, slogans, sizes and packaging Physical/service Features vs Benefits

24. 4 P’s of Marketing - PRICE How much value does your product offer? How are you going to make pricing decisions? Cost of production Break even point Market position Re-price and evaluate Perception Location Supply and competition

25. 4 P’s of Marketing - PLACE Where will you sell your product? Where does your target market shop? Locations and logistics Transportation and distribution

26. 4 P’s of Marketing- PROMOTION Where is the best value for your promotional money and efforts and how will you determine if they are working? Unpaid – Positive, PR, newspaper Paid – Advertising, publicity, sales promotions Be creative! Positive? Positive

27. Marketing Budget Research Communications Networking Promotions Advertising Public Relations Distribution

28. MARKETING ACTIVITY

29. Enterprise Analysis and Plan Divides costs and returns for each farm enterprise Helps to determine the productivity of enterprises and if a farm should continue or change enterprises

30. Net Income: Net income is the money left after subtracting variable and fixed cost. This is the bottom line. NET INCOME = Gross Revenue – (Variable + Fixed Costs) Variable Cost: Cost items that vary with production volume. Examples of such items include fertilizer, seed, fuel, electricity, piece-work labor charges, pesticides, packaging cost, and custom charges. Fixed Cost: Those cost that you will incur regardless of whether you produce any output. These costs are determined using the DIRTI 5 method which includes Depreciation, Interest, Repairs, Taxes, and Insurance. Often a piece of equipment or building will be used for more than one enterprise. In these cases it is important to estimate the percentage of use for each enterprise and allocate the cost accordingly. Gross Revenue: The total sales of product or services from the enterprise. Revenue can be calculated with the following formula: Price x Units Sold= Gross Revenue Components of an Enterprise Budget

31. Financial Plan Very important and necessary component of the business plan  Balance Sheet – Net Worth  Cash Flow – Liquidity  Income Statement – Profitability  Pro Forma Statements

32. Balance Sheet Summarizes Assets, Liabilities (Debt), Net Worth Net Worth = Value of Assets – Value of Liabilities Current ( 10 years), Non-farm “A Balance Sheet is a snapshot of the farm’s financial position”

33. Cash Flow Summarizes all cash in-flows and out-flows for a period of time Checkbook Accounting  In-Flows – crops & livestock sales, receipts, sale of capital assets, borrowed money  Out-Flows – production, capital expenditures, loan payments, living expenses Important on farms because of seasonality Projected and Actual Cash Flow

34. Income Statement Summary of revenues and expenses for a specific time period Revenue – Receipts from sales, government payments, dividends Expenses – Production expenses, interest, taxes, insurance, loans Inventory Changes – Accrual adjustment Depreciation and Capital Adjustments Revenue – Expenses = Net Income Main purpose is to determine how much income was generated by the farm operation

35. Projected Financial Statements Lender, farm operation or other factors may require projected financial statements To do this review enterprise budgets and financial statements

36. Implementation Strategy Research completed, finances in order Time to implement  Production  Management  Marketing  Human resources  Finance and accounting

37. Exit Strategy Agriculture includes many risks. These should be considered What are your exit signals  Farm profit  Set age  Estate plans and farm/business transfer  Change of markets  Property value

38. Human Resource Plan The people part of your plan Does not matter how large or small your business Parts of the Human Resource Plan  Position and duties  Organizational chart  Skills and training

39. Position and Duties Include  Position or name of who is responsible  Duties and responsibilities of the position  Skills and talents  Salary and wages  Works schedules Seasonal, part time, full time

40. Organizational Chart

41. Skills and Training Continuing education and advancement in technology is very important Includes  Skill Needed  Training available  Who in the farm business is responsible

42. Resource Inventory Gathering resources whether physical or an expertise is very important Resource Inventory Includes  Building and facility requirements  Building and structure inventory  Equipment inventory

43. Building and Facility Requirements Physical Resources  Land, Livestock, Equipment, Facilities, Transportation Expertise  Computers, marketing, record keeping, production Other

44. Building and Structure Inventory Building Purpose Square Feet Required Features Location

45. Equipment Inventory Equipment Name Model Size Year Purchased Age Condition Ownership Book Value Market Value This keeps valuable information needed for your financial statements

46. Appendix Can include maps Contact sheets Budgets

47. Marketing and Sales

48. Direct Marketing When a farmer sells commodities in a traditional marketplace the main concerns are producing the crop, selling it for a good price, and then getting paid. In direct marketing farmers have these same concerns plus the added responsibility of marketing.

49. Direct Marketing Responsibilities You will have to prepare your product in a form that can be sold. You will have to find your customers either by going to them or having them come to you. You will have to choose a location for your marketing efforts.

50. Direct Marketing Responsibilities You may have to advertise your products or operation to attract customers. You will have to deal with individual customers. Since you are selling food for human consumption you will need to address customer satisfaction and perhaps deal with a few customers who are not satisfied.

51. Direct Marketing Profits: potentially higher Cash flow: customer pays you directly Marketing control: can produce what you want and set your own profits Diversity: works well with small farms

52. Direct Marketing Volume: less product is usually sold than with other marketing ventures Time: requires more of a time commitment People skills: you are dealing directly with people (need to always wear a happy face) Marketing skills: its competitive, you are going to have to sell your product

53. Farmers Markets Form of direct marketing Preparation: requires little preparation by producer; public enjoys convenience Startup: minimal costs and marketing skills are needed Direct interaction: best feature is contact between customer and producer Weather: at its mercy for rain, heat, & cold

54. Farmers Market Comfort: you are out in the weather all day Time: you will spend the better part of a day at the market Direct competition: competing producers are all together in a small area Regulations/policies: you have to be able to follow rules set by market management

55. Pick-Your-Own Has long been a successful direct marketing venture Customer pays to pick: if it was just that simple, everyone would be doing it Cost reduction: biggest advantage (transportation, handling, storage), labor for harvesting is offset by the cost of people movers Customers buy more: PYO pickers typically purchase more than other markets Lack of privacy: you are allowing the public on your farm

56. Pick-Your-Own Liability Insurance: insurance companies get “twitchy” about PYO and having people roaming your farm Damaged crops: customers and their kids will pick-over and damage crops Bad weather: will chase away customers; this can be a problem with limited season crops Labor costs: need cashiers and people movers Price: PYO prices are often lower; customers expect compensation for their labors

57. Roadside Markets Attracting repeat customers: this is key to the long term success of your market Save costs: there is cost savings in transportation, packaging, and middlemen “Catchy” signs/displays: are necessary for attracting customers to stop at the stand Overhead costs: are higher due to the facilities

58. Roadside Stands should look neat and clean with fresh, ripe produce.

59. The appearance of your facilities and grounds reflect on your management skills.

60. Roadside Markets Planning and Zoning: government red tape, signage etc… Location: key to success (needs to be near enough to main roads to attract customers and repeaters Facilities and buildings: first thing people see of your market (you want to put the best possible look on your stand)

61. Community Supported Agriculture CSA’s are new, fast-growing direct marketing venture Members purchase shares of the farm’s harvest and accept production risks As the crop matures, it is harvested and divided up among shareholders Shareholders get a fresh supply of produce and support local agriculture (urban-rural linkage)

62. Community Supported Agriculture Shareholders have input into what is grown, varieties, and how it is grown Fees are paid in advance, this guarantees the farmer a market for everything produced, the crop is sold before it is planted Advanced payment creates working capital for the farm operation

63. Community Supported Agriculture CSA’s allow better off-season planting CSA’s help to spread out risks, everyone shares in the good and bad times Shareholders sign a contract acknowledging the risks to anticipated yields CSA’s have reduced labor costs (customers help with production)

64. Wholesale Marketing Profits: selling directly to the retailer, bypassing the middleman, is best Product identity: you can develop your own logo or packaging to enhance the product Opportunities: they are out there, if you are interested (specialty crops) Specialty crops: retailers are especially interested in crops not produced by the larger farms

65. Wholesale Marketing Transportation costs: you will have to deliver your product to the retailer Special handling and grading: some retailers have particular requirements and standards for products; these vary by retailer Special packaging: some retailers are very “picky” about how you deliver product Prices: wholesale is usually 50% less Limited diversity: less diversity is risky Pooled production: small farmers will need to work together to meet production demands

66. Wholesale Marketing Selling to Restaurants Comfortable Marketing: you will develop relationships with chefs and others Consistent income: price is established for the season Frequent deliveries: lack of storage at restaurants may require more transportation Liability: a law suit on a restaurant could reach you if your product was involved Out of business: the turnover is high in the restaurant business, so be careful

67. Wholesale Marketing Producer responsibilities to retailer Retailer’s reputation: it’s on the line with your product Be reliable: retailer needs to count on you Consistency: deliver a consistently high quality product for the retailer to sell Time: be on time with deliveries

68. Rules and Regulations Zoning and covenants: check with the county Planning & Zoning Dept. Permits and licenses: county and state (private applicators license, nutrient management plan, farm plan, more) Sign limitations on roads: roads dept. Labor laws Health Department regs: affects some value added products

69. Rules and Regulations Sales tax: you may be expected to collect taxes on sales Liability insurance: you will want to talk to your insurance agent about liability insurance “Certified Organic”: you can sell organic products, you can only use the “Certified” term when you are approved by the state

70. Customer Service Farm Business: success will depend largely on how you treat your customers Customer service: reduces loss of current customers, gains new ones, and makes current ones happier Data: shows that caring about customers can reduce the number of lost customers by two-thirds

71. Customer Service Dissatisfied Customers can ruin your business Unhappy customers will relay their unhappiness to 9/10 of their friends Usually 12% tell more than 20 people 30% will stop buying your product

72. Customer Service Basic building blocks of customer service: Find out what customer wants or needs Build a relationship with your customers Always help your customers Always keep work area neat and clean Recognize customers at once

73. Customer Service Some more customer building blocks Tell customers what you can do, not what you cannot do Angry customers should always be handled with care The owner/operator should always set the example for customer relations All employees should be familiar with the customer service policy of the business Remember the customer is always right

74. REVIEW

75. Personal, Family and Farm Considerations What are your business qualities What are your family needs and preferences Risk Taking Hopes for the future Preferences Where do you want to be?

76. Identifying Alternatives Look at resources  Physical  Marketing  Management and Labor  Financial New Enterprise ideas What are the possibilities ?

77. Production Production Information Budgets Actual Production  Climate  Soil  Water  Building and Facility  Machinery and equipment  Labor  Quality and Production Rate  Legal, regulatory and liability factors Can it be done?

78. Profitability Income Statement Estimating Receipts Estimating Expenses Enterprise Budgets are helpful Will it make Money$$$$

79. Financial Feasibility What is Cash Flow  Seasonal Financing  Capital and startup costs Can you afford to do it?

80. Making the Decision Yes No Will you start the new enterprise?

81. Good Luck on your New Enterprise!

82. Resources Poole, Terry: Ag Agent, Fredrick County Farming Alternatives, NRAES MDA USDA