Setting Goals

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Setting Goals Making PlansBusiness Planning
for Direct Marketers

• Denise Mainville
• Virginia Cooperative Extension
• March 14, 2008
• Business Skills for Direct Marketers
• Weyers Cave, Virginia

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Business Plan

• A framework to match your
• Values and objectives with
• Resources, and
• Opportunities

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Business Plan

• A written document that synthesizes
• formal market research and
• self-knowledge
• into a specific and implementable plan
• against which progress can be measured

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Business Plan

• Comprehensive, organized look at your business
• Goals
• Production
• Labor management
• Legal risk management
• Marketing
• Financial
• Contingency plans
• Helps relate every aspect of your operation

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Why Prepare a Business Plan?

• Roadmap for your business
• Defines where you want to go how to get there
• Identifies potential opportunities problems
• Evaluate the feasibility of a venture
• Before committing funds
• Organization reduces forgetfulness!
• Helps remove emotion focus on reality
• Keeps you honest

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Whats the Use?

• Static Business Planning
• Evaluate production alternatives and market
  opportunities
• Communicate ideas and gain legitimacy with
  partners, lenders, and others

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Whats the Use?

• Dynamic Business Planning
• Use static plan as foundation
• Define and challenge your
• Assumptions
• Risks
• Contingency planning
• Bottled milk enterprise example

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Whats the Use?

• Dynamic Business Planning
• Set tolerance standards that help you know when
  you need an initiative needs major
  reconsideration
• Balance (juggle) requirements of alternative
  enterprises and set priorities among them
• Particularly important when you are juggling a
  lot of different activities
• Beef producer example

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Business Plan Components

• Identification of your/farm/family values
• Analysis of current situation and resources
• Analysis of market opportunities
• Strategic Planning Matching of values, resources
  opportunities
• Formulation of Vision, Mission Goals
• Specification of Market Plan
• Specification of Operations, Human Resources,
  Finances to meet plan

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Steps for an existing business

• 1. Why are you in business?
• Values
• Goals
• Be sure your goals reflect your values
• Missionsummary statement of what you are in
  business forshould inspire.

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• 2. What is your business
• Product mix
• List different enterprises
• Marketing mix
• Market outlets and core clientele
• Resource mix
• Labor, land, managerial, other resources

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• 3. Performance evaluation
• How are you doing at meeting your goals?
• What are trouble areas? Do goals need to be
  revised?

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• 3. Performance evaluation
• Is your business sustainable?
• Different aspects of sustainability
• Social
• Environmental
• Financial
• For each consider (e.g. financial)
• Stability (are you covering costs?)
• Productivity (are you making enough money?)
• Sustainability (can you protect yourself against
  shocks?)
• Distribution (is distribution of costs and
  returns fair?)

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• 4. Issues analysis
• What concerns do you have when you think about
  tomorrow or next year with respect to your
  business?

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• 5. Risk analysis
• What risks do you face?
• Production
• Market
• Liability
• What are the probabilities and impacts?
• What contingency plans do you have?

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The Financial Aspects

• Financial statements
• Start-up capital worksheet
• Balance sheet
• Cash flow statement
• Income statement
• Financial analysis
• Breakeven analysis
• Measures and ratios

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Start-up Capital Worksheet

• This helps you see what assets you will need AND
  how you will pay for them
• Out of pocket (equity)
• Operating loan/line
• Term loan
• Opens your eyes to the scope of the project

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The Balance Sheet

• Lists what you own and how you paid for it
• Assets Paid by debt or out of pocket
• Assets Liabilities Net Worth
• Used to
• Measure liquidity and solvency
• See the debt structure
• Identify assets available for collateral

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The Cash Flow Statement

• The most important statement (IMO)!!
• Tracks the inflow and outflow of cash
• Used to
• Identify major costs (for cost control)
• Schedule debt payments
• Determine operating loan needs
• Manage capital purchases
• Approximate the income statement

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The Income Statement

• aka the Profit/Loss or P/L
• Shows the profitability of the operation
• All incomes
• All expenses, including depreciation
• Used to
• Measure profitability and repayment ability
• Estimate income tax liability
• Great for breakeven analysis

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Financial Statement Template

• http//faculty.agecon.vt.edu/alexwhite/
• Go to the Small Business Section
• Not formal accounting more real world!!
• Good starting point

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Breakeven Analysis

• Determine the minimum performance needed
• Where the estimates face reality
• Helps producers get a handle on reality
• What is the minimum sales level needed
• What is the minimum price to charge

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Breakeven Analysis

• Profits Revenues Costs
• Profits Revenue (Price/unit x units sold)
• - VC/unit x Units sold
• - Fixed Costs

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Breakeven Sales (Units)

• BE Units Fixed Costs / (Price VC/unit)
• Fixed Costs 10,000
• Price 3.00/lb
• VC 1.75/lb
• BE Units 10,000 / (3.00 - 1.75)
• 8,000 lbs sold

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Breakeven Price

• BE Price FC/Units Sold VC/Unit
• 10,000 / 5,000 lbs. 1.75/lb 3.75/lb
• Compare to market price

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Tying It Together

• If financials look ugly
• Identify the potential problems
• Explore these areas more in-depth
• Marketing
• Pricing, advertising, packaging, demand, etc.
• Production
• Cost control, efficiency, labor usage, etc.
• Legal
• Insurance coverage, licensing

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Take Home Points

• Every company needs a business plan
• Know what you are in business for
• Need to look at the entire business
• Must be financially feasible to survive
• Need financial statements as a base
• Know your break even costs and use those to help
  determine your target market, pricing,
• Identify risks and practice contingency planning
• Liability insurance is a key means of managing
  risk

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Resources

• Local VCE agent Farm Business Management agents
• Alex White (moneyguy_at_vt.edu)

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Suggested Reading

• Building a Sustainable Business A Guide to
  Developing a Business Plan for Farms and Rural
  Businesses, 2003, Minnesota Institute for
  Sustainable Agriculture.