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Dr. David KohlConsumer market trends in the food and fiber sector are changing at an accelerated pace. Suppressed profits in commodity agriculture over an extended period has resulted in many farmers and ranchers exploring value-added enterprises and ventures to enhance their financial situation and overall lifestyle.

Developing a responsive business plan to capitalize on these trends is essential for producers seeking to alter their business. This is a structured process that will require critical thought about opportunities that build on your passion and entrepreneurial spirit.

One of the major parts of a business plan is identifying a vision, mission, and goals. Goal setting is a particularly important step in this process. Your goals should be defined by their term of completion with short term goals being completed within one year and long term goals stretching three to five years. The goal setting process helps focus attention on those trends and ideas that are consistent and congruent with the current and future direction of the business.

A dynamic business plan entails development of a SWOT analysis; this analysis identifies the strengths, weaknesses, opportunities, and threats of the business. Identifying the strengths and weaknesses requires an internal examination of your business. Examining the possible opportunities and threats requires a macro-view to determine the external factors affecting the business. 

For example, when conducting the strengths and weakness analysis, one has to examine the land, equipment, machinery, labor, management, facilities, and capital resources available to position the business to align with market opportunities. Too often businesses and value-added enterprises fail as a result of insufficient working capital, inadequate labor, poor management, or a lack of time to meet the needs of the new venture. Conducting an internal analysis requires one to determine whether the new venture is competitive or complementary to the other segments of the business and/or management’s time.

The opportunities and threats section requires one to critically think about and examine market opportunities. Is it a fad, or is it a trend? Who are the competitors? What will be your business’ competitive edge to capture the market? The study of secondary data, such as census and trend information, and general observation are all part of the business planning process to analyze the market. This examination requires one to think about how long it will take to build a brand or gain market share on a profitable basis. You must also consider the initial capital requirements and the ongoing working capital needs required to launch a value-added business enterprise. Of course, along with opportunities come threats. Anticipated changes in regulation, dietary trends, foodborne illness in the U.S. or abroad, or animal welfare perceptions can alter a business plan very quickly.

A powerful part of a responsive business plan is the projected cash flow, which comprises about 80 percent of the business plan because it requires thinking through many different facets of the business. Some of these facets include production, sources and timing of revenue, expenses, debt service, possible withdrawals, taxes, marketing, and operational plans. A business plan comes to life when you periodically compare the projections to your actual results. This comparison will enable you to tweak and alter the business plan as conditions change.

After completing your projected cash flow, you should also consider several “what-if” scenarios testing different price, cost, market demands, and changes in interest rates. This is a proactive method to establish both positive and negative boundaries and possibilities in your business plan.

In addition to a comprehensive business plan, proactive farmers and ranchers that have value-added businesses often have a team of advisors such as lenders, crop consultants, and non-agricultural consultants. These individuals can provide valuable perspectives, input, observations, expertise, and guidance in navigating the white waters of value-added enterprises.

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