Running your own small farm is demanding enough, but making it profitable presents a host of further challenges. In this business-savvy guide to farming on a small scale, Sarah Aubrey covers everything from financial plans and advertising budgets to web design and food service wholesalers. Learn how to isolate your target audience and craft artisanal products that will delight and amaze customers. With a solid business strategy in place, you can confidently turn your passion into a productive and profitable venture.
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About the Author
Sarah Beth Aubrey is the author of Starting and Running Your Own Small Farm Business. She holds a B.S. in Agricultural Communications from the University of Illinois and is the owner of Prosperity Consulting, LLC, a Certified Women’s Business Enterprise.
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BUILD A PLAN
The soil now gets a rumpling soft and damp,
— Robert Frost, "The Strong Are Saying Nothing"
Long before the first seed is planted and the cool earth turned to create the furrow, a farmer conceives the idea to produce a crop and make something edible from the land. This annual act of turning the soil and planting the seed, so commonplace to those of us who know agriculture, is in fact something of a miracle. Every spring, the earth renews itself, and those involved in gleaning the goods of Mother Nature's bounty play a role in this eternal cycle.
Very few people now ever get to know the daily joys and trials of building their lives from the land and homes where they live. Today, farmers make up roughly two percent of the population of the United States. The agrarian way of life is being replaced by new technology, industrialization, and sheer economies of scale. Fortunately, small farmers, or those who desire to be small farmers, have many chances at success. There are opportunities in the marketplace to remain viable and thrive, and these opportunities don't require becoming enormous to survive the commodity-market system. But you need to do more than buy a few cows or plant some soybeans and field corn. To be a successful small farmer, you must have a measure of ingenuity, a surplus of determination, the understanding of a targeted niche market, and, frankly, a high tolerance for the trial and error of entrepreneurship. If you're serious about building a company, changing your destiny, and making a living from home, your first step is drafting a business plan.
You may think you don't need a business plan if you're not ready to get started or if you're unsure if your idea will even work. Farmers tend to be doers, however, not planners. We're often the type who rises early and works hard, being task-oriented and not feeling satisfied until the job at hand is done. These are wonderful qualities, but sometimes we might not see the forest for the trees. In my view, an orderly business plan and the discipline to execute it are essential tools for success with a small-farm venture.
The more organized you are from the start, the better. A formal business plan will help you streamline and solidify your ideas; clearly visualize what works and what doesn't; organize your ideas from the start to ensure a solid approach; and gather financing from lenders or private investors.
Components of a Business Plan
A business plan may have many names, including strategic plan, operational plan, and business-direction document. This document can be extremely detailed with tables, graphs, and projections, or it can be created in a word-processing format using only text. It defines what your business is, who is involved, the goals and objectives, and the direction for the company.
Numerous resources can be found online; at the bookstore or library; from organizations like the US Small Business Administration (SBA) and Cooperative Extension Services; and other places (see Resources, page 170). I encourage you to view several of these resources, as well as those that are specific to your industry. For the purposes of this book, we'll focus on a basic business plan that will provide a sound basis for organizing your thoughts, setting your goals and your budget, and seeking financing. To provide concrete examples, sections of my original business plan have been excerpted in the following text. My entire business plan is in the Appendix (see page 157). Our business plan includes:
Tips for Writing Your Business Plan
If you aren't a good writer, please don't let this dissuade you from developing a written business plan. Hire or beg someone who is qualified to draft this for you. Or, try to fill in the blanks on a business plan template from an organization like the Small Business Administration. When writing your business plan, keep the following in mind:
Use correct grammar, punctuation, and style. When you're applying for a loan or proposing your ideas to venture capitalists, you will be evaluated on the neatness and professionalism of the document.
Don't feel you have to use the exact titles and headings noted in plans you may review. I encourage you to be creative with the format, as long as the basic elements are included, the information is structured sensibly, and the narrative is easy to read.
Modify the plan and add sections that pertain to your company or that are specific to your industry. This customization will help to organize your thought process and make your business more marketable to potential investors and bankers.
Review the document when you're done and let someone else take a look. This plan reflects you and your future; be certain it comes across as well as possible.
I. Company Name, Location, Owners, and Business Type
II. Mission Statement
III. Board of Directors/Advisors
IV. Business Vision/Executive Summary
V. Product Description and Pricing
VI. Market Segments and Target Customers
VII. Business Goals
VIII. Start-up Capital Needed
IX. First-Year Budget
X. Company Management and Roles
I. COMPANY NAME, LOCATION, OWNERS, AND BUSINESS TYPE
Comparable to a title page, this section can be as simple as listing on the front page the name and location of your company, including complete physical address, phone, fax, and e-mail, as well as the owners' names. If you haven't thought about how you will title the business and who in your family will be involved, this is the place to think through those important elements. For some, choosing a business name is as simple as using your farm or last name, but others may wish to consider developing a trade name that's unique but still conveys what you sell.
What's in a Name?
Consider selecting a name for your business that somehow describes what you do. This will make it easier for people who use search engines on the Internet to find you. This is especially important if you want people to locate you online for ordering, purchasing, and delivery.
You'll also include here the type of business you have decided to organize, whether it be a sole proprietorship, a corporation, a partnership, or a limited liability company (LLC). See chapter 4 for more information on business structure options.
II. MISSION STATEMENT
The mission statement is a series of sentences akin to the kind of statement at the top of a résumé, commonly referred to as the career objective. Like a career objective, you can shape your mission statement to clearly and briefly state what you're seeking. This statement could be as brief as one sentence or as long as three or four sentences, and is more philosophical than technical in style. It should set the tone for your company, letting the reader know who you are and your reasons and goals for existing.
The hard part about the mission statement is the part that makes it so useful. It's difficult to summarize who you are, what you do, and what your reasons are in a few short words, but it's worth the effort. Later, having drafted this brief statement, it will be easier for you to define your venture when someone asks. If you find this especially difficult, record your initial ideas on paper and come back to this section after you've worked through your entire plan; it may be easier to sum up then.
Here are some questions to ask yourself as you develop your mission statement:
Are you an innovator? Are you building a completely new product?
Are you making an existing idea better? If so, how?
What will be your niche? For example, will you focus on quality? Service? Customization?
Why are you in the business? Do you plan to grow and become larger, or will you support only small and local aims?
Do you want to serve urban customers or other local farmers?
Are you in this to raise a family and involve children in a small-farm business, or are you a retiree looking to get back to your roots?
III. BOARD OF DIRECTORS/ADVISORS
If you're like many small farmers, the thought of answering to a board of directors (BOD) runs completely contrary to the notion of working for yourself. But hear me out. This type of board of directors isn't necessarily your standard corporate, suit-and-tie meeting stuff. Unless you're offering shares of your company for sale or asking investors to chip in their funds (see page 57 for more information on private investors), a board of directors is not essential, and if you do elect to have one, your business's decisions are not bound by the comments your board makes. You don't need to compensate board members for their time, either. You can also elect to refer to your BOD as a BOA, or board of advisors, if that makes you feel less restricted.
You may ask: "Why would someone want to be on my BOA?" There are a number of reasons why people would want to provide guidance for your new company. For example, some professionals feel an obligation to help new people in the industry, while others are interested in helping you personally. Don't rule out the possibility that some members may want to participate on your board because they want something for their own resume. This isn't necessarily bad — ambitious folks who seek recognition are often full of useful and clever ideas that can benefit you!
How to Select a Board of Directors or Board of Advisors
Select your BOD/BOA using the following criteria:
Knowledge of the industry you're serving.
Professionalism and experience.
Creativity and ideas.
Ability to provide positive influence and networking assistance.
Personal knowledge of you and your skills.
Consider asking some of the following people:
Extension agents and university advisors in your field.
Your accountant and/or attorney.
Executives or members of associations relevant to your field.
Former employers or other mentors who know your skill set and can offer broad advice.
Community leaders, such as people from your local Chamber of Commerce, members of your farmer's market committee, or leaders of an economic development organization.
The members of your BOA don't necessarily have to be local, either. Consider inviting professionals from associations or other professionals you've met from across the country. If you do invite people from farther away, they can participate on your board through conference calls or by responding to specific questions and discussion points you send in an e-mail. The size of the BOA can be as small as one or two or as large as ten; however, small numbers of people are easier to manage. Don't worry about having to achieve a set number of members; focus more on obtaining the specific people you'd like to participate.
A BOD impresses investors: They will see that you've plugged into the industry niche you plan to serve by seeking counsel from other professionals and peers. It also shows that you're acknowledging that you are new and are willing to actively seek ways to better yourself and your operation.
Small-business ownership can be a lonely road. There will be many days ahead when you'll toil all day by yourself without the benefit of a lunch break and comrades to chat with around the office coffee pot. Sometimes, frankly, a lot of working by yourself can make you stale. By using a BOD or BOA, you can elect to set meetings at regular intervals and conduct mini market research with your new ideas. A BOA can give you motivation, and just being able to talk about your business's ups and downs without having to be in selling mode can be very refreshing.
One caveat about creating a BOD: Keep competition in mind. If you're planning to enter a business that is popular or that has a number of other small farmers involved (say natural meat production), then be certain you are aware of any proposed BOD member's connections with others in the industry. There's a fine line between someone who's involved in the business and can advise you and someone who's involved in everyone's business and might inadvertently sabotage you. Also, be cautious about inviting family to serve on the BOD, unless, of course, they're already directly involved in your business's operations. Sometimes a little family goes a long way when it comes to advice and opinions, so choose carefully from this group!
IV. BUSINESS VISION/EXECUTIVE SUMMARY
The business vision is an expanded, more detailed version of your mission statement. Clearly define who's involved and why, what you'll be selling, and who you'll be selling to. You don't need to be detailed about these here — specific areas of the plan will cover these later — but do list them here in this summary.
Consider the business vision/summary to be similar to an opening statement in a speech, a chance to make a first impression with someone you meet. Define your industry and its trends, why you believe your company will have a positive impact on that industry (how your product will be distinguished from others in the industry), and how you'll be successful and continue to grow. Also briefly outline some goals for your business relative to future growth in your industry.
The business vision, one to two pages long, should be positive and optimistic yet still realistic.
The business vision should be one to two pages long and should be positive and optimistic while being realistic, especially if you're using the business plan to seek financing. Like the mission statement, this section can be written last to ensure that it pulls together your thoughts and plans for a successful venture.
V. PRODUCT DESCRIPTION AND PRICING
Now it is time to sit down and flesh out what you want to do and how you'll do it. Clearly and thoroughly define the specific range of products you will sell and how they will look. If your product is unique, new, or not easy to explain, make the effort to describe it clearly here. If you can't describe what you're producing, your customers won't be able to describe it either! If a customer doesn't understand your product, he or she won't buy it repeatedly.
Include information on packaging and labeling, if appropriate. If you'll produce a variety of things, describe a few examples and how these products might be used by the buyer. If you're offering a service, clearly point out the features and benefits of the service — its competitive advantages.
Next, list known competitors and define how your products will be different from or superior to theirs (see box at left). If you're unsure whether competitors exist, search for them on the Internet or investigate areas where your type of product may be sold. No matter how small the business, it's always important to know what others in the industry are doing. If you're in a very competitive business, such as organic fruits and vegetables, you may find it useful to make a comparison chart.
Also include in this section how your product will be sold. Again, you may not be entirely sure of this until you conduct more market research, but write down your initial ideas. Will you sell your product on the farm, at a farmers' market, online, through the mail, through a wholesale distributor, directly to retailers, directly to consumers, or from your own store? (Chapter 8 details the pros and cons of each option.) For each one of these you choose, specify why your product should sell through this venue and give examples, if any, of why these are good routes to profits.
Lastly, list your product or service's pricing information (chapter 7 provides more information on how to derive a price). For now, note any information you may have on how you'll build a pricing model. For example, ask yourself: Will you follow commodity markets? Will you establish your prices based on your competitors' rates? Will you base your prices on past experience with the type of product you're selling, or is there an industry standard to follow? Have you solicited and received feedback from potential customers?
This section may read like a long list. It's okay if it does, as long as the reader understands what the products are, their distinct advantages, and where they can be purchased.
Excerpted from "Starting & Running Your Own Small Farm Business"
Copyright © 2007 Sarah Beth Aubrey.
Excerpted by permission of Storey Publishing.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
Table of Contents
PrefaceIntroduction1 Build a PlanComponents of a Business PlanAltering Your Business PlanProfile: Sweeter Song Farm CSA2 Test the WatersChoosing Your Research MethodologyQuestionnaire DevelopmentAdministering the QuestionnaireProfile: Leelanau Natural Beef3 Get the MoneyFinancing OptionsSimple Financial StatementsProfile: Evans Orchard and Cider Mill, LLC4 Choose Your Business TypeProfessional Financial and Legal AdvisorsBusiness Entity TypesProfile: Chaney's Dairy Barn5 Follow the RulesMake the Rules Work for YouCommon Practices and Where to Find Information Food SafetyProfile: WaxinkMoon Artisan Goat Cheese6 Protect Your AssetsSelecting Liability InsuranceInsurance Recommendations and LimitsOther Ways You're CoveredProfile: Tulmeadow Farm Store, Inc.7 Price Your ProductsSetting Your PricesWholesale versus RetailComparative PricesPricing for BreakevenMoney Collection OptionsProfile: Lee Farms, LLC8 Select Your Selling VenuesTypes of Selling VenuesProfile: Homestead Growers, Inc.9 Spread the WordCreating a Marketing PlanEffective BrandingOther Brand-Building IdeasProfile: Huber's Orchard and Winery10 Reflect and ReviseYears Two through FiveProfile: Chileno Valley RanchEpilogueAppendixesA: Business PlanB: Sample Market Research QuestionnaireC: Simple Advertising and Marketing Budget for New BusinessD: Press Release/Customer CorrespondenceE: Sample Venture Capital AgreementF: Profit and Loss StatementG: Cash Flow ComparisonH: ResourcesIndex