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Agricultural Business Plan Guidelines agriculture, forestry & fisheries Department: Agriculture, Forestry and Fisheries REPUBLIC OF SOUTH AFRICAAgricultural Business Plan Guidelines June 2011 Directorate Co-operative and Enterprise Development DEPARTMENT OF AGRICULTURE, FORESTRY AND FISHERIESTable of contents 1. Executive summary ..............................................................................................................................1 2. Problem statement ...............................................................................................................................1 2011 3. Objectives .............................................................................................................................................2 Printed and published by 4. Part 1 ......................................................................................................................................................2 Department of Agriculture, Forestry and Fisheries 4.1 Overview of agricultural business plan guidelines ............................................................................. 2 Design and layout by Directorate Communication Services 4.2 Definition of a business plan ............................................................................................................. 2 Private Bag X144, Pretoria 0001 4.3 Reasons for drafting a business plan ................................................................................................ 2 4.4 The benefits of a well-prepared business plan .................................................................................. 3 4.5 Reasons for business failures ........................................................................................................... 3 4.5.1 Management reasons: ............................................................................................................. 3 4.5.2 Financial factors: ..................................................................................................................... 4 4.5.3 Other:…………………………………………………………………. ............................................ 4 4.6 Common mistakes in the drafting of business plans ......................................................................... 4 4.6.1 Cash flow ................................................................................................................................. 4 4.6.2 A vague business plan ............................................................................................................ 4 4.6.3 Unrealistic assumptions ........................................................................................................... 4 4.6.4 Risks ........................................................................................................................................ 4 4.6.5 Competition ............................................................................................................................. 4 4.6.6 Suppliers .................................................................................................................................. 4 5. Part II ......................................................................................................................................................5 5.1 Methodologies and sources for information collection ...................................................................... 5 5.1.1 Methodology…………………………………………………………... ........................................... 5 5.1.2 Sources……………………………………………………………….... ..........................................5 5.1.2.1. Find a similar business in or around your area .............................................................. 5 5.1.2.2. Scan local newspapers or other media ......................................................................... 5 5.1.2 3. Government departments ……….……………………...……… ........................................5 5.2 Step-by-step approach in drafting a business plan ........................................................................... 5 5.2.1. New farming enterprise .......................................................................................................... 5 5.3 Recommended production system size………………………... ......................................................... 6 5.3.1. Recommended minimum farm size for cattle…………………… ............................................ 6 5.3.2. Recommended farm size for grain production under dry land ................................................ 6 5.3.3. Recommended minimum farm size for vegetables…………….. ............................................ 6 5.3.4. Recommended minimum farm units for broilers……………….. ............................................. 6 5.3.5. Recommended minimum farm units for layers…………………. ............................................. 6 5.4 Supporting documents required by financiers/investors/sponsors .................................................... 6 6. Available funding programmes and other funding institutions ........................................................7 7. Part III .....................................................................................................................................................7 7.1 Framework for an agricultural business plan ..................................................................................... 7 7.2 Finances .......................................................................................................................................... 12 7.2.1 Cash flow ................................................................................................................................ 12 7.2.2 Balance sheet ......................................................................................................................... 14 7.2.3 Income statement ................................................................................................................... 15AgriculturAl Business PA l n g uidelines 1 1. EXECUTIVE SUMMARY The Medium Term Strategic Framework (MTSF) mandate accentuates the need to create a nation united in diversity to work together to ensure a more equitable distribution of the benefits of economic growth and to reduce inequality. Cognisance of the differentiated and heterogeneous resource requirements in agricultural entities in terms of challenges, opportunities and potentialities has been the underlying reason for the ap- proach taken in this intervention. This document is a result of numerous calls for help from potential farmers, aspiring entrepreneurs and government officials from all the provinces requesting guidance with drafting bankable business plans. Research has shown that prospective entrepreneurs are not familiar with the contents of their business plan, because they seldom contribute (input) into the development of a business plan. This is a recipe for disaster. Consultants/agencies that draw up business plans for these entrepreneurs operate commercial businesses and they are seldom interested in whether the outcomes of the business plans are attained. The intention of this document, therefore, is to provide guidance and to capacitate entrepreneurs and pro- spective entrepreneurs in the agricultural sector to access opportunities successfully and in managing and sustaining enterprising activities from farm level through to the entire agricultural value chain. Studies have shown that low-income entrepreneurs are more vulnerable to risks than their high- income counterparts. Grant beneficiaries operating agricultural activities often lack knowledge and expertise in managing the finan- cial aspects of the business, resulting in them being exposed to the smallest economic shocks. The Business Plan Guidelines is developed to provide comprehensive, simplified and not too complicated information required by funding institutions/investors/sponsors for prospective farmers/entrepreneurs want- ing to make inroads into the agricultural sector. Details on the purpose and process of drafting a bankable business plan will be provided by unpacking, with explanations, the different components of the business plan. Information on how to access the funding pro- grammes will be provided. It is envisaged that the professionals engaged in Business Plan Formulation, i.e. Agricultural Scientists in- cluding Economists from the provincial offices; government institutions entrusted with the responsibility of distributing financial assistance for agribusinesses/entrepreneurs like the AgriBEE fund, CASP and Mafisa and those individuals seeking to start their businesses, will find these guidelines useful. The structure of the document will provide the objectives for the Business Plan Guidelines and encompass Part I, Part II and Part III as detailed below. Part I of the guidelines will provide an overview of the Business Plan Guidelines; the definition of the Business Plan; the reasons for drafting the Business Plan; the benefits of a good business plan; the failures of busi- nesses and, finally, common mistakes in drafting business plans. Part II of the guidelines will attempt to cover methodologies and sources that can be utilised in information collection; the steps to take in preparing the business plan/proposal and the pertinent information required by funding institutions/investors to ensure successful applications/bankable business plans. Part III will provide a generic format/structure that can be used. 2. PROBLEM STATEMENT One of the great challenges facing the agricultural sector is to increase the number and variety of viable and sustainable economic agricultural enterprises. The global downturn in the past few years has further ampli- fied this challenge. Government is of the view that strengthening competitiveness and promotion of small and medium-sized enterprises and cooperatives remain cornerstones for the growth of the economy and the creation of decent work opportunities. In the agricultural sector, it is found that entrepreneurial and manage- ment skills/abilities are lacking in many individuals who are trying to access enterprising opportunities. Employment opportunities in the commercial agricultural sector were limited to unskilled labour where the in- comes were very low. Downstream (input suppliers) and upstream (processors of food and fibre) were in the hands of a few commercial producers, depriving rural people of economic opportunities. These factors were d ePArtment of Agriculture , forestry And f isheries AA gricultur l Business PlAn g uidelines 2 3 responsible for creating the extreme dualism and inequality in the sector as well as the uneven income dis- A business plan can be used as a powerful sales document for raising money. A business plan is a prereq- tribution. Notably, agriculture comprises a first and second economy, both competing for the same resources uisit for engaging with a venture capitalist, and/or investors. To raise funds for a start-up business venture and markets. Participants in the second economy were compromised owing to limitations in accessing large, or to raise additional capital, your document must fulfil the requirements of a funding institution or sponsor stable and sustainable markets. and this will give the reader an insight into what you will be doing in your proposed or existing business. The organisations that lend money to your business also want to get a return on their investment. They want a Many projects receiving funding from government programmes and/or sponsors and and/or loans from fund- ‘safe’ investment with relatively low risk. A thorough business plan can accomplish this. ing institutions have either failed or failed to meet their financial obligations. Your plan will assist you in what to do and when to do it. Entrepreneurs should use their business plan for the critical start up. Entrepreneurs should use their business plan for start up of operations; or during expansion 3. OBJECTIVES of operations to ensure that they stay on target and within the budget at all times. 3.1 To provide a guide to existing and new entrepreneurs on the practicalities of business plans. Prospective entrepreneurs involved in the process of formulating their own business plans from the onset, will 3.2 To contribute to better managed business ventures. be more objective and critical towards their business than if it is prepared by outside consultants or individu- 3.3 To empower and capacitate entrepreneurs in understanding the various elements of the business plan. als. 3.4 To provide details and composition of the relevant information required for drafting business plans. 3.5 To explain the merits of a good business plan 4.4 The benefits of a well-prepared business plan 3.6 To enhance and support decision making in SMMEs A business plan will provide you with a clear strategy and objectives. A good business plan will give you direc- tion and keep you and your staff focused. In writing your business plans you may make mistakes which can 4. PART 1 be corrected on paper prior to implementing your plans, which can save you money. 4.1 Overview of agricultural business plan guidelines The business plan demonstrates the seriousness of your intentions to banks, investors, colleagues Business Plan Guidelines is a document aimed at guiding the writer through providing criteria on the drafting and employees. It can be used as a measure for you to foresee/anticipate problems and take appro- or formulation of business plans. Various business plan formats are available from all the provincial depart- priate action timeously. All your ideas can be incorporated into the business plan to become a reality. ments and private sector organisations and are obtainable from them. The approach used in developing The planning process affords you the opportunity of adopting a step-by-step approach in preparing for the these guidelines is to provide substantive information in support of the various formats currently existing and future achievement and risks of your business venture. At the end of the process, you should be confident being used for drafting business plans. that the plan will work. This document will assist in addressing the lack of capacity to draft a proper business plan for an entrepre- The good business plan involves research on the external and internal business environment like competi- neur who wants to start a new enterprise/venture, expand or diversify his current operations and to those tors, suppliers, consumers, etc., which can be translated into a detailed action plan showing the areas of who want to be in control and make sound management/business decisions. Furthermore, it will try to assist competitive advantage and how you will combat problems. You can use the business plan to identify oppor- in securing finances for the business given the present agricultural environment. tunities, analyse the life cycle of the business and each activity in the business and plan for capital require- ments. Milestones with timeframes can assist the business in achieving its objectives within the stipulated The format proposed in this document will be a generic one. The guidelines are designed to cover a diversity schedules. of situations and can be adjusted to address the specific needs of the agricultural business venture. 4.5 Reasons for business failures 4.2 Definition of a business plan The reasons mentioned down below are just a few and are not limited to these only. A business plan is a document/plan of how a business owner, manager or entrepreneur intends to organise an entrepreneurial endeavour and implement activities necessary and sufficient for the venture to succeed. 4.5.1 Management reasons: It is an essential tool for planning, direction and running a business. It clarifies the operational and financial • A poor management team with insufficient experience and/or the wrong skills mix for the needs of the busi - objectives of a business and contains the detailed plans and budgets showing how the objectives are to be ness. realised. • A narrow customer base and inadequate marketing skills. • Inadequate marketing planning. 4.3 Reasons for drafting a business plan • Under or overpricing products and/or services offered by the business. • Overtrading and running short of working capital. Businesses need plans to optimise growth and development according to priorities. A business plan is not • Poor product and service quality. only to look for financial assistance or for initiating a business start-up, but it is an evolving working docu- • Owner/managers who are autocratic, inflexible and make strategic decisions based on emotion. ment that should be reviewed regularly and adopted to the business circumstances as and when the internal • A weak business concept, in that the product/market mix is not clearly defined and developed. and external environment changes. It will always be a useful tool to persuade others to invest time, money • A failure to identify and manage risks. and effort in the business. Failure to plan is a plan to fail. A business plan with well-defined goals is a necessity for business management. Planning properly for your 4.5.2 Financial factors: business is a tool for success, as a good plan maps the course of action to achieve your business goals and • Businesses without proper record/account of the financial transaction of the business. aspirations. • Insufficient information on financial performance required for basic decision making. Farmers/producers/entrepreneurs in agriculture, especially the smallholder farmers, should use a business • Financial information based on incomplete or inferior technologies. plan as the operational tool that directs each and every step in the business. Entrepreneurs want to see a • Insufficient supporting evidence on financial track record to obtain additional funds/loans. return on their investment as they invest time, money and emotional effort into planning the business. • Poor management of accounts payable and receivable. d ePArtment of Agriculture , forestry And f isheries AgriculturAl Business PA l n g uidelines 4 5 • Poor forecasting and management of sales and cash flow. organisation such as a market research company. Government departments. • Insufficient working capital to fund its operations. 5.1.2 Sources • The business has borrowed too much money in relation to the owner’s investment in the business (high debt/equity ratio). 5.1.2.1. Find a Similar buSineSS in or around your area 4.5.3 Other When collecting information for your business plan you need to find a similar business to visit and see what they do and how they do it. Shop there to get a hands-on feeling. Talk to people and get their perspectives, • No access to loan finance. possibly there is something that you can improve on that will give you a competitive advantage over your • No access to developed markets. competitors. • No access to managerial support. • No access to capacity development programmes. 5.1.2.2. Scan local newSpaperS or other media • Weather conditions. Local newspapers are a good source of information in your area or nationally. Financial magazines or other business related magazines can be used to collect information. The World Wide Web has abundant informa- 4.6 Common mistakes in the drafting of business plans tion that is at your fingertips. Collect all relevant information and use it for your benefit. The national agricul- 4.6.1 Cash flow tural handbook/directory is available from the Department of Agriculture, Fisheries and Forestry to assist in collecting information on the different industries in the agricultural sector. Most prospective entrepreneurs focus mainly on the infrastructure that is required and ignore the cash flow which is critical to the daily operations of the business. Cash flow assists in managing your financial resourc- 5.1.2.3 Government departmentS es, i.e. debtors and creditors control. The Provincial Department of Agriculture’s economic unit can assist and supply information which can be 4.6.2 A vague business plan useful in drafting a business plan or information to be incorporated into your business plan Prospective entrepreneurs or writers of business plans make an assumption that the reader/funding institu- tion/investor knows what the business venture is all about. Therefore, it is important to provide as much detail 5.2 Step-by-step approach in drafting a business plan as possible and elaborate wherever necessary to clarify the needs of the business. 5.2.1. new farming enterprise 4.6.3 Unrealistic assumptions 5.2.1.1 Secure the identified land – proof of ownership or lease agreement. Almost all writers of business plans assume that the business will succeed, hence they make unrealistic as- 5.2.1.2 Get a farm map or geographical map of the farm that includes farm boundaries and or watering points. sumptions. It is advisable to benchmark against existing or similar businesses in the industry for acceptable 5.2.1.3 Identify potential markets and requirements for entrance into the market. standards. The goals of the business must be realistic and achievable. Rather start small and then expand. 5.2.1.4 Identify resources available for utilisation to develop potential commodity. 4.6.4 Risks 5.2.1.5 Take into consideration your ability, knowledge and access to support before deciding on the com- Many business plans ignore the risks or do not make provision for the risks. It is critical that the business plan modity to be farmed with. should include all risks and provide information on how some of those risks can be mitigated. 5.2.1.6 Calculate viability and economic feasibility on potential commodity and possible opportunities for value add- 4.6.5 Competition ing. Many prospective entrepreneurs ignore incorporating information on competitors, either through their lack of 5.2.1.7 If favourable, go forward, and if not, repeat steps 1.3 – 1.6. knowledge of them or they are not aware of the significance of competitors to their business. It is, therefore, 5.2.1.8 Source information on the different forms of businesses. imperative, as a new or existing business, that you are aware of the competition and that you accentuate your 5.2.1.9 Decide on what business form will be the best for the situation. competitive advantages in your business plan. 5.2.1.9 If the business form needs to be registered proceed with the process. 4.6.6 Suppliers Things to be considered when embarking on a horticulture/agronomic business: Suppliers’ play a critical role in your business. It is important to know who and where your suppliers are as they contribute to the effective and efficient running of your business. Inconsistent and lack of the necessary • Soil and water need to be analysed for quality, and determine the strength of the water source for quantity. inputs from suppliers will impact negatively on production and could result in non delivery of products to the • Consider all risks. market. Hence building and strengthening relationships with your suppliers contributes to the long term sus- • Source information on the weather conditions for the area. tainability of your business. • Source information on the chemicals and fertilisers that would be required for the specific commodity to be produced. • Identify potential strategic partners like suppliers and potential mentors. 5. PART II • Identify rotational crops, if any. 5.1 Methodologies and sources for information collection • Formulate a crop production plan/crop rotation plan. 5.1.1 Methodology Things to be considered when embarking on a livestock business: • First, you start by looking for the information internally within an organisation - e.g. about production perfor- • Consider all risks. mance, sales performance, standard operating procedures, manufacturing systems, etc. • Source information on all regulations, especially if the business is close to a town. • Then you look for external information, i.e. information outside the organisation - e.g. information about • Do a veld assessment/natural resource assessment. customers and markets. The business may contract out the collection of such information to an appropriate • Seek technical advice on the number of animals that can be placed on the available land for grazing.d ePArtment of Agriculture , forestry And f isheries AA gricultur l Business PlAn g uidelines 6 7 • Do a fodder flow and establish the gaps, and identify possible gap fillers. Youth Co-ops Support Programme Umsobomvu Youth Fund (UYF) 011-651 7000 • Establish the optimal production system that would best suite a marketing strategy. General support DTI 086 184 3384 • Once relevant information is obtained, then you can start drafting the business plan. General finance Industrial Development Corporation 0860 693 888 5.3 Recommended production systems size General support SEDA 012-441 1000 It is important when drafting a business plan to take into consideration the recommended production sys- Source: The National Agricultural Directory 2009 tems. The following are only examples and it is advisable to contact your nearest provincial department of agriculture for assistance. 5.3.1 Recommended minimum farm size for cattle A minimum farm size of 198 ha for extensive cattle farming is recommended if a threshold of R30 000 net profit is targeted. Such farm should also produce maize and have a portion of planted pasture in order to achieve better results. Without grain production and planted pasture, a minimum farm size of at least 350 ha may be necessary to achieve R30 000 profit per farm family. The average carrying capacity figure for cattle in Gauteng is quoted as 8 ha/LSU (large stock units). This can be improved to even 1 ha/LSU when grain and planted pasture are provided as supplementary feedstock. On farms where grain or planted pasture is not provided, an average farm requires at least a 400 ha of land to sustain a maximum of 50 LSUs (8 ha/LSU). Fifty (50) LSUs are not good enough to create meaningful job opportunities or provide sufficient revenue to satisfy all household needs. 5.3.2 Recommended farm sizes for grain production under dry land A minimum farm size of fifty (50) ha under dry land is recommended if a threshold of R30 000 net profit is targeted. 5.3.3 Recommended minimum farm sizes for vegetables A minimum farm size of five (5) ha under irrigation for fresh fruit and vegetables is recommended if a thresh- old of R30 000 net profit is targeted. 5.3.4 Recommended minimum farm units for broilers A minimum farm unit of 5 000 is recommended. 5.3.5 Recommended minimum farm units for layers A minimum farm unit of 2 500 is recommended. 5.4 Supporting documents required by financiers/investors/sponsors Supporting documents could include: • Résumés of those individuals who would be involved in the business, which include training, experience, role in the business, credit background and a personal statement of net worth; • Credit reports, letters of reference (personal and financial); • Names of professional advisors (technical, legal, and accounting); • Copies of any contracts, leases, agreements or patents; • Copies of ID documents and other certificates. 6. AVAILABLE FUNDING PROGRAMMES AND OTHER FUNDING INSTITUTIONS Funding InstitutionContact details Micro-agricultural financial Directorate: Agricultural Development 012-319 7295 institutions(MAFISA)Finance Development FinanceLand Bank0800 00 52 59 Development FinanceDevelopment Bank of SA011-313 3911 Comprehensive Agricultural Support Directorate: Project Management 012-319 7332 Coordinationd ePArtment of Agriculture , forestry And f isheries AgriculturAl Business PA l n g uidelines 8 9 7. PART III b. Implementation group: Those individuals identified to implement and/or assist you in the implementation of your business plan. 7.1 Framework for agricultural business plan c. Member/s: I. Executive Summary This refers to the individual or group that will benefit from the business or be part of the business when the This is a summary of each aspect of the plan. You can only complete the executive summary after the busi- business plan is to be implemented. ness plan has been completed. This part of the document will be a maximum two pages. If it is the only thing IV. SWOT Analysis that a reader will read it needs to give a synopsis of what you want to do or achieve. This part gives you an indication of the Strengths, Weaknesses, Opportunities and Threats that are involved II. Introduction/Background in your new or existing business venture. It also identifies the internal and external factors that are favourable It is a summary of the business, its history and position/possible position in the market place. This part gives or unfavourable to achieve your objectives. It is important to look at ways to build on the positive issues and an overview of your business or potential business, vision and objectives. The introduction consists of the address negative issues (how will the potential risks be addressed?). The 5 Ws (what, how, where, who and following: when) can assist in drafting a plan. a. Business overview • Strengths are attributes of a person or of your business that can contribute in you achieving your objectives. • Weaknesses are attributes of a person or of your business that can lead to you not achieving your objec- • Where is your business or where are you going to establish your business? tives. • What are you going to do or what are you currently doing.? • Opportunities are external conditions that will contribute to your achievement of your objectives. b. Vision and mission • Threats are external conditions that can lead to not achieving your objectives. • Strengths and Weaknesses are factors internal to your business and The vision is a dream and this is what you will focus your energies and resources on in getting your business • Opportunities and Threats are factors, outside or externally, of your business. to work. The mission will be achieved through the objectives of your business. V. Risks c. Objectives/goals: This part deals with the different risks involved in starting or expanding your business. A risk can be defined This section needs to include production and or financial related objectives specific to your enterprise or po- as any deviation from the expected outcome. Types of risks are: business risks, financial risks and political/ tential enterprise. There must not be more than five objectives for your business. Objectives need to comply legal risks. It should also indicate what risks will be accepted by the business and what would be mitigated to the S.M.A.R.T principles as follows: and how. S–Specific: An objective need to be specific and not vague, it needs to say this is what you want to achieve. VI. Assumptions M–Measurable: You need to be able to measure the objective, otherwise you will not be able to distinguish what you have achieved. There may be external circumstances or events that must occur for the business to be successful. If you be- A–Achievable: Take in consideration your available resources or potential resources to achieve your objec- lieve such an event is likely to happen, then it would be an assumption. The assumptions need to be realistic tive; and relevant to your environment or business. R–Realistic: Do not set unrealistic objectives which you will not be able to achieve or reach. The objective VII. Business Preparation Process needs to be understandable to the reader. This is the part that deals with where your business is situated and what you are doing or going to do and how T– Timeframe: The objectives need to be for a specific period so that you can measure them in time to de - you are going to do it and with what resources are you going to achieve this. This will give the person who is rive where you are and how long it will take to get there. This pertains to the projected time that you antici- pate it would take to achieve the objectives.reading your business plan the feeling of where your business is and in the reader’s mind he/she needs to be able to see how and what you are doing or going to do. This part of the business plan consists of: N.B. Objectives need to be linked to expected outcomes (how much). The objectives need to be thought through thoroughly. Spend some time to derive your objectives and they must be in line with what you want to achieve and what you are saying in the rest of your business plan. Refer back to your vision. Will the objec- A. ProPosed business tives have an outcome that will reach your vision? Description of your business An example of an objective is: Growing your business to a client base of 600 by 2010. This is just a brief description of your business and where your business is located and what product or III. Ownership, Implementation group and Members service you are going to give to your clients or customers. This part needs to relate to your introduction and objectives, here you need to indicate, for example, if you want to farm, when the planting season will be and This part of the business plan consists of: when harvesting will take place. a. Ownership: Business processes This is a form of business you want to register or has registered. Each one except partnerships is controlled This is the how part. It is not necessary to explain in detail how you will do things, this will give the reader in under a specific legislation, i.e. a cooperative is regulated through the Cooperatives Act. There are different his mind the chance to see what and how you will do things in your business venture and if you are going forms of businesses namely: to plough back money into your business. This will also indicate if you will have your business processes in • Company place. You need to explain your operations. Do not forget to include your monitoring and evaluation part of • Partnership your business, how you will monitor and when. The evaluation part is: Are you achieving your objectives and • Cooperative are you following your business processes? If this is not the case, what corrective measures will you follow • Joint venture to get back on track?d ePArtment of Agriculture , forestry And f isheries AgriculturAl Business PA l n g uidelines 10 11 B. ResouRces aailvaBle• Organisational structure This is the structure of your business and it clearly shows the appointment of responsibility and authority It is important to take into account the resources that you have available prior to the drafting of your business among members of the business. Different forms of structures can be used. Examples of organisational plan. Do a proper resource assessment. The types of resources that you may have at your disposal can be structures are: Functional, matrix and line. The constitution for the specific type of business can be used as identified as follows: Human resources, Financial resources, Natural resources. a guiding document for daily operations and how to handle internal matters. B.1 Human resources• Technical design This will provide the technical information of the enterprise in regard to the layout of the business/structures, This deals with the human resources you have available and what contribution they would make to the busi- for example, how the broiler/layer/piggery structure will look like or how the dairy will look like. ness. The CV of the management must be included. This is critical as it could influence the reader or potential financier to know who will be in the driving seat of the business and what the ability of that person is. The • Production information number of staff and management you have or will have will be put into this section. This section will include the production programmes, i.e. when will planting start and harvesting begin or a feeding programme, rearing programmes for chickens or pigs. B.2 Financial resources VIII. Infrastructure Fixed assets This is the current infrastructure that is available to you and your business. Examples of infrastructure: A fixed asset is a long-term, tangible asset held for business use and not expected to be converted to cash Roads, water, electricity and telecommunication. This is important because, depending on your planned in the current or upcoming financial year, such as real estate and buildings. venture or current venture, infrastructure can have an influence on your business sustainability and profit. Movable assets IX. Skills/Training These are considered furniture and equipment that is not part of a building (also includes commonly moved Did you or your staff undergo training and what type of training do you or your staff have. Was the training business items such as laptop computers). formal or informal, and by this it is meant did you receive a certificate or not? Own capital X. Marketing strategy If you are going to invest in your own business you need to include this in the business plan. Investing in your Marketing strategy is a process that can allow a business venture to concentrate its limited resources on own business capital wise will also be an indication for the reader/financier that you will try to make a success the greatest opportunities to increase sales and achieve a sustainable competitive advantage. A marketing of your business. Capital contributed by the owner or entrepreneur of a business, and obtained, for example, strategy should be centred on the key concept that customer satisfaction is the main goal. Without customers by means of savings or inheritance, is known as own capitaL you will not survive or exist. PoSSIble QueSTIonS T o aSk when forMulaTIng a good MarkeTIng STraTegy B.3 Natural resources • What will your marketing strategy be, are you growing your business or are you entering into a new market? These are water and land available. The availability of the natural resources will determine your operations • When and how will you sell your products? What gives you the competitive edge, how will you penetrate the and the size of it. market? CrITICal ISSueS To look aT when forMulaTIng a M arkeTIng STraTegy c. nstitutional sti RuctuR es • It is always good to have a market before you start your business. This provides critical information to a C.1 Type of institutional structure financier for a decision to be taken on a loan application as it provides information on your projected sales The form of business that you are going to use and income • In your marketing strategy you need to identify and list your competitors. • Company (Pty Ltd) • Another important part of a marketing strategy is the 4 Ps which are price, promotion, package and place. • Partnership oTher TIh ngS To look aT when deVeloPIng your M arkeTIng STraTegy are: • Cooperative • Joint venture • Market requirements: e.g. traceability and preferences of customers. It is important to get information from the dti, CIPRO or SEDA on the types of businesses to determine if the • Possible market obstacles, e.g. competitors, what do they have which you can do better? type will fit your idea or operation. • Opportunities for value adding reQuIreMenTS whICh need To be adhered To when enTerIng InTo The MarkeT: C.2 Design/layout of the business The macro environment your business will operate in. There are six major macro environment forces: cul- Management and organisational structures tural, demographic, economic, natural, political, and technological. The cultural environment includes institu- tions and other forces that affect the basic values, behaviours, and preferences of the society—all of which These structures are very critical as they clearly stipulate the roles and responsibilities of individuals within have an effect on consumer marketing decisions. The demographic environment includes the study of human the business venture. populations in terms of size, density, location, age, sex, race, occupation, and other statistical information. The economic environment consists of all factors—such as salary levels, credit trends, and pricing patterns— • Management structure that affect consumer spending habits and purchasing power. The natural environment involves all the natural This part deals with the management structure of your business, the names of the management, job titles resources, such as raw materials or energy sources, needed by or affected by marketers and marketing ac- and job descriptions. The roles and responsibilities of each manager must be clearly stated and they need to tivities. The political environment includes all laws, government agencies, and lobbying groups that influence understand and accept their roles and responsibilities.d ePArtment of Agriculture , forestry And f isheries AgriculturAl Business PA l n g uidelines 12 13 or restrict individuals or organisations in the society. The technological environment consists of those forces consists of: Cash flow; balance sheet, income statement and enterprise budget. The financial statement that affect the technology and which can create new products, new markets, and new marketing opportuni- should also be interpreted by using financial ratios which can be obtained from the internet. The financial ties. ratios can indicate if the business will be sound and viable or not. Do not leave any open-ended decisions to XI. Partnerships be made by a possible investor. Do you have any existing partnerships/linkages or are there any potential partnerships/linkages? Partnerships/7.2.1 Cash flow linkages can contribute positively towards the success of your business. The cash flow and sales projection may be the most difficult to prepare. Basically, it is an educated guess XII. Resources required for achieving the objectives about when and how much money will come into and go out of your business. It entails projections for 12 months ahead. Your cash flow and sales forecast will enable you to decide what you can afford, when you Consists of: can afford it and how you will keep your business operating on a month-to-month basis. This information is • Human— Any additional human capital (seasonal),training needs useful to indicate the projected increases or decreases of a bank loan that may be required during the year. • Financial — Any additional fixed or movable assets, sales, cash flow forecast (12 months), profit or loss, Quarterly summaries are often adequate but occasionally monthly summaries are required for the first year fixed cost,vVariable costs, budgets, break-even point, financial ratios. If abusiness exists and is seeking of operation. As part of the business plan, a cash flow and sales projection will give you a much better idea additional funding, it must be indicated if previous funding was received (funding history) and from which of how much capital investment your business idea needs. institution. Utilisation of required funding must be indicated as well, what items will be purchased with the funding? Who will do the banking and mention the bookkeeper/s? When to use a cash fW lo • Natural—Any other natural resources required. Cash flow is a tool for preparing cash flow and sales projections for a business. It will be especially useful to the business if it needs to improve its future net cash flow. The cash flow plan will help you to plan cash ESTIMATED START-UP CAPITAL REQUIREMENTS (AN Ex AMPLE) requirements and thereby improve control over your business’ cash flows and to conserve its cash resources. The cash flow must be linked to the production plan and based on enterprise budget. Farm Price R2 500 000 Capital Budget unit Cost Value Importance of a cash floW There is a positive cash flow and a negative cash flow. A positive cash flow is a good sign and it, at the end Equipment R200 000 of the day, shows that the business is able to generate more cash than it spends. A negative cash flow is Truck 4 ton(Tata) 1 R200 000 R200 000 always bad; the business is generating less cash than it spends. Below is an example of a cash flow: Fixed improvements R560 000 CASH FLOW 9 Chicken houses and equipment 9 R15 000 R405 000 Period _________________ until _________________ Electricity and water reticulation 1 R50 000 R50 000 Establish digitaria erantha patures 30 R3 500 R105 000 Total Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Livestock Business income Goat herd R280 000 1. Does 140 R1 850 R259 000 2. Bucks 5 R4 200 R21 000 3. Kid R400 R0 4. Total capital budget(farm excl) R1 040 000 5. 6. XIII. Legislation 7. Here it is important to note all relevant legislation that you are required to comply with as well as the business 8. venture which you are using. 10. Non-farming XIV. Conclusion income The final convincing statement of why you think you have a winning business venture and why potential 11. Total income stakeholders should invest in your business. Working ex- penses 7.2 Finances 12. Seed As the process of creating financial projections for business revenue and expenses, cash flow and financial 13. Fertiliser position requires the examination of all other key components, the financial plan is the backbone of your 14. Petrol and business plan. In doing this work you will be able to describe your plan in rands and detect any discrepan- lubricants cies, gaps or unrealistic assumptions made earlier. The financial plan is valuable for creditors or government agencies when evaluating your company’s needs and uses of funds. The finance part of the business plan d ePArtment of Agriculture , forestry And f isheries AgriculturAl Business PlAn g uidelines 14 15 7.2.2 Balance sheet Total Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec The balance sheet describes the assets, liabilities, and equity of your business at a particular point in time. It is a widely used accounting statement that indicates the economic resources of your organisation and the 15. Labour claim on those resources by creditors. This information will allow you and your creditors to compare your 16. Chemicals estimates, as well as your past performance, against industry averages. 17. Insecticides Balance sheets (R ) 18. Feed December 2009 19. Repairs of Assets machinery and 2009 2008 equipment Current assets 20. Repair of Cash buildings and improvements Marketable securities 21. Transport Accounts receivable 22. Marketing Inventories costs Total current assets 23. Packaging Gross fixed assets (at cost) and storage Land and buildings 24. Tax Machinery and equipment 25. Insurance and licences Furniture and fixtures 26. Electricity Vehicles 27. Telephone, Other (includes certain leases post and sta- Total gross fixed assets (at cost) tionery Less: Accumulated depreciation 28. Rent Net fixed assets 29. Salaries Total assets 30. Bank costs Capital ex- Liabilities and stockholders’ equity penditure Current liabilities 31. Livestock Accounts payable 32. Machinery and equipment Notes payable 33. Total ex- Accruals penditure Total current liabilities 34.Surplus/defi - Long-term debt cit (11-33) Total liabilities Bank balance Stockholder’s equity 35. Available balance Preferred stock 36. Opening Common stock – R par, shares outstanding Balance(34+35) in 2009 and 2008 37. Interest Paid-in capital in excess of par on common earned stock 38. Closing bal- Retained earnings ance(36+37) Total stockholders’ equity Example of a cash flow It is advisable that a cash flow is not only done per month but also per year for a period of five years; this will indicate the cash flow required and Total liabilities and stockholder’s equity indicate costs affected by inflation per year. It will give the reader an insight into the financial situation of the business. Example of a balance sheetd ePArtment of Agriculture , forestry And f isheries 16 7.2.3 Income statement Notes The income statement is a summary of the income and expenditure of the business for a specific period, production year, financial year or tax year. For an existing business, include information for at least the last ....................................................................................................................................................................... one or two years. ....................................................................................................................................................................... Income statement calculated on a cash basis (R000) for the year ended: XXXXXXX, 20XX ....................................................................................................................................................................... Sales revenue ....................................................................................................................................................................... Less: Cost of goods sold ....................................................................................................................................................................... Gross profits ....................................................................................................................................................................... Less: Operating expenses ....................................................................................................................................................................... Selling expense ....................................................................................................................................................................... General and administrative expense Depreciation expense (noncash ....................................................................................................................................................................... charge ....................................................................................................................................................................... Total operating expense ....................................................................................................................................................................... Operating profits ....................................................................................................................................................................... Less: Interest expense Net profits before taxes ....................................................................................................................................................................... Less: Taxes ....................................................................................................................................................................... Cash flow from operations ....................................................................................................................................................................... Example of an income statement ....................................................................................................................................................................... Annexures To The documenT ....................................................................................................................................................................... Annexure 1: Funding Institutions ....................................................................................................................................................................... Annexure 2: Finanacial ratios ....................................................................................................................................................................... Annexure 3: Agricultural economic concepts ....................................................................................................................................................................... Annexure 4: Business framework ....................................................................................................................................................................... ....................................................................................................................................................................... ....................................................................................................................................................................... ....................................................................................................................................................................... ....................................................................................................................................................................... ....................................................................................................................................................................... ....................................................................................................................................................................... ....................................................................................................................................................................... ....................................................................................................................................................................... ....................................................................................................................................................................... ....................................................................................................................................................................... ....................................................................................................................................................................... .......................................................................................................................................................................Directorate Co-operative and Enterprise Development Department of Agriculture, Forestry and Fisheries Private Bag X250 PRETORIA 0001 Tel: +27 12 319 8154 Fax: +27 12 319 8132 E-mail: MaligaMdaff.gov.za Website: www.daff.gov.za
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