Writing a business plan is a fundamental yet often overlooked part of starting or expanding a farm or food business. A well thought through business plan can help establish the foundation of your business. It can also be used as a tool to communicate your intended business direction to possible investors and future team members.
When should you write a business plan?
If you are you looking to start a farm or food business, now is the time to write a business plan. Additionally, if you are seeking a loan, a grant, or an investment to purchase equipment in order to expand or get to your next milestones, a business plan will be a crucial time investment.
Why write a business plan?
Any investor, grant or lending organization will want to review a business plan, complete with financial projections, before providing funds. Even if you are not actively seeking funds, the time you spend thinking through the elements of a business plan will give you a solid foundation for launching your business. A business plan will force you to think through the operational, sales and marketing aspects of your business, making it less likely you spin your wheels getting your new idea off the ground.
The business planning process, done properly, will give you the confidence to move forward. Ultimately, the final document will give investors or lenders the information they need to make an informed lending, granting or investing decision.
Business Plan Components
Investors, lenders or grantors as a whole will be seeking the common components outlined below. But depending on your audience, your business plan may take a number of shapes. For example, grant agencies will likely have specific questions or an outline they wish you to follow. Lenders are likely to request information and financial projections specific to the portion of your business that their funds will be used to grow. Ultimately, your audience’s specific requirements will determine the level of detail required for each section.
Very succinctly, tell the reader what your company does, what your competitive advantage is and why you are uniquely suited to be successful.
This section shows your reader that you’ve done your homework. And it convinces them the market you are pursuing is size-able and viable to account for the funds that you are requesting.
Paint a picture with words of the market you are pursuing in its entirety. What are the national and local trends that are creating this market opportunity? How big is the market? And what percent of the market do you think you’ll be able to reach?
If your business is aimed at providing fresh, artisan food for your local community, you might start this section by discussing the growing trend of local food. Talk in terms of the dollar size of the market and percentage growth projections. If your business is targeting a specific segment, say heritage pork within a 150 mile radius of your farm, discuss the trends that are particular to your market segment in general, then get specific about your target market. Are your customers restaurants, consumers, both? How much pork is currently being purchased by your target market, and what are the growth trends? Do your best to estimate the percentage of the market that your company can access and serve, and translate that percentage served to dollars.
Demonstrate that you know something about your target customer. Describe your target customer in terms of demographics. Provide a sample profile of your target customer. Furthering the heritage pork example, what types of chefs are interested in buying heritage pork? What drives a buyer to select a heritage pork product over another product? Is there an opportunity to convert non-pork buyers into heritage pork buyers? Why would a target customer select your product?
Here’s where you can outline your unique qualifications and possibly the qualifications of your team. Describe what sets you apart. Be specific about how each team member contributes to the success of your team. If you don’t have a specific person selected for a roles on your team, describe the ideal candidate. You’ll want to answer questions such as: Will you depend on paid or voluntary labor? Interns? If you’ve never farmed or been a part of a food business, who are your mentors? What gives you the skill set to succeed? Who is on your team and why do they make a difference?
This section allows you to dive into the details of your product. You’ll want to be able to answer questions such as: What is your unique selling proposition? What are the benefits of your product to your customer?
A thorough examination of businesses vying to service your target market is necessary. A market with some competitors can validate the market as attractive. However, in a marketplace crowded with competition, you must clearly articulate why a buyer would select your products over other competitors. How are you positioning yourself relative to your competitors? What are the buying attributes of your target audience (price, quality, freshness, etc), and how does your company compare to others targeting the same customer? A graphic depicting your audiences buying attributes showing how your product stacks up to the competitors, such as the one below, can be a quick way to convey your competitive positioning.
Depending on your funding sources, this maybe an optional section, or the material may fall under a different heading. Regardless, its good to have a sense of how you will brand your product, how you will price your product, what channels you will sell through, and how you will promote your product in order to generate sales leads. A useful framework for coming up with a marketing plan is to think through the 4 – P’s of marketing: Product, Price, Position and Promotion. We’ve written more on Marketing Plans for Small Farms, which might be helpful as you think through this section.
This is the meat of your plan. It is also the area that will be most scrutinized by any entity providing funds. The specific financial projection requests will be dependent on the funding source. But at a minimum prepare a sales and cost projection. Create a bottoms up spreadsheet outlining exactly how many widgets you think you can sell. Check your bottoms up analysis with a top down calculation – given the size of the market, what percentage of the market will you be able to serve over time, and what does that translate to implementing your pricing strategy. Get a handle on your costs projections by thinking through your cost of production, marketing, administration and support.
Know that financial projections are an educated guess. If you’ve thought through all of the components of your business plan, you are then best positioned to be able to make an educated guess regarding the financials. Be realistic, state your assumptions and outline your risks. Make sure to account for all of your startup and ongoing costs. Best to provide a 3-5 year projection. You may find that going through the process of creating a bottoms up projection will help you think through the details of your business in a way you may not have already.
Some helpful links
Below are a few link that you might find helpful when putting your plan together:
The Numbers In Your Business Plan: https://www.entrepreneur.com/article/79258
USDA new farm business planning resources: https://newfarmers.usda.gov/technical-assistance-planning-your-business
Beginning farmers Farmer https://www.beginningfarmers.org/farm-business-planning/
Good luck – we wish you success in your business venture!