Business Plan Every Business Has Essentially Three Tasks Production Marketing Financing Business Plan Describes How These Function And Convinces Bank to Give You a Loan Components of a Business Plan Description of Proposed Site & Production System Marketing Plan Financial Analysis Annual Costs & Returns Required Financing Farm Appraisal Balance Sheet Income Statement Cash Flow Budget Personal Financial Statement Brief Resume of Borrower Critical Question I What Species Will You Produce? Do You Have a Clear Understanding of the Species? Do You Have In Depth Knowledge Including Constraints & Benefits? These Must be Reviewed – Both Biologically & Economically Example: Tilapia Biological & Economic Constraints Tropical Fish That Can Die in Winter in Much of the US Must Over-Winter Indoors – Raising Costs Good Fillet Market in US. But Imported Fillets Cost Less (Visibly Lower Quality) Live Sales are Difficult, with Limited Market Example: Baitfish Biological and Economical Constraints Low Production Costs & Low Yields Live Product Requiring Extensive Distribution System Local Sales Tied to Local Fishing Conditions These are Nationwide on Holidays Market for Baitfish is Flat – Little Opportunity for Growth Baitfish II Biological and Economical Constraints Difficult Both to Wholesale or Break into Market Could Sell Baitfish Retail but Volume Will be Low Even in Prime Fishing Areas, Profits from Baitfish Sales Are Low Possible to Sell to Established Baitfish Wholesaler with Established Distribution Network Example: Freshwater Prawns Biological and Economical Constraints These Are Tropical Animals Sensitive to Temperature Shifts Total Production Will Need to be Sold Together Before Prawns Die Due to Seasonal Low Temperatures Therefore Market will be Skewed & Prawns Sold When Price Lowest Insecticides Will Also Kill Prawns Freshwater Prawns II Biological and Economical Constraints Markets Not Mature – New Grower Must Help Develop Market Production Risks are High - Severe Losses are Possible Seed Supply Unreliable and Scarce Production Costs Not Well Known Harvesting Requires Draining Ponds These – May Need Retrofitting . What About Eels Bullfrogs Turtles Alligators Eels Turtles Bullfrogs Alligators Biologically Possible but Questionable Economically Specialized Industries That Might be Profitable Only Regionally If Something is Not Being Raised Likely to be a Reason Critical Question II Are You Fully Aware of the Risks Involved? Low Dissolved Oxygen Viral, Bacterial & Protist Diseases Effects of Bird Depredation Remediating Off Flavors Market fluctuations Remember Fish Farmers Bear All Risk There are No Gov’t Programs to Help Critical Question III Have You Studied Economics of Production For the Species You Have Chosen? What Will it Cost to Produce This Species In Your Production System? Have You Factored in Cost Estimates For Disease & Bad Weather? Bottom Line Can You Raise This Species and Sell It for a Profit? Tilapia Production Costs Production Costs Tropical Ponds Tropical Raceways Subtropical Greenhouse Pond Culture US Temperate Indoor Tanks $/lb 0.74 0.75 1.12 1.03 1.62 Critical Question IV Aquaculture is Management Intensive You Must Ask Yourself Whether You Have The Skills, Management Ability & Time to Run a Fish Farm If Not, You Have to Hire a Manager Critical Question V It is Critical to Spent Time Studying the Markets Are the Markets Accessible? What Have Market Prices Been Over the Past 5 Years? Are Prices Higher During Certain Times Rather than Others? Is the Common Market Price High Enough to Cover Your Costs? The Business Plan Organized and Structured Document That… Analyzes the Market Potential Explains the Production Technologies Estimates the Financial Performance The Document is Necessary to… Evaluate Feasibility Estimate Investment & Operating Capital Secure Adequate Financing Why is the Business Plan Important? Many Prospective & Existing Small Business Owners Have Difficulty Obtaining Financing Lenders May Not be Familiar with Your Small Business (eg. Aquaculture) Adequate Business Planning May Help Avoid Mistakes Proper Planning Can Also Minimize Risks With the Market, Production & Financing The Fundamental Questions Addressed in a Business Plan How Will You Produce the Product? Description of Production System Who Will Buy the Product? Marketing Plan Is the Business Financially Feasible? Economic and Financial Analysis Description of Production System Thorough Description of The Production System Citing Locations of Similar Existing Systems Analysis of Potential Production Problems With Documentation from Other Producers These Show the Lender Your Awareness of Production Problems and How to Remediate Marketing Plan Successful Aquaculture Businesses Are Market-Oriented Have Diverse Markets Are Committed to Their Customers Decisions on Species, Harvest Size, and Volume – Based on Market Analysis Profits Are Made By Selling Fish Not Producing Them How to Begin to Analyze the Market Even If You Intend to Strictly Sell to a Processor… Talk to Retail Operations That Sell Fish It is Important to Understand the Product Qualities & Characteristics Expected by Retail Sellers and Their Customers Begin to Analyze Market Talk to Many Buyers to Learn Their Different Wants Retail Markets Processors Wholesalers Distributors, Brokers Restaurants Seafood Stores Supermarkets Consumers Buying Directly Understand Customer’s Expectations in Quality Value and Safety Analyze the Market Each Buyer Has Its Own Buying Patterns Historical Prices Paid Product Forms Dockage Fees Transportation Charges Payment Expectations – 2% 10, Net 30 Seasonality Issues Delivery Volume Requirements Quality Standards Procedures Contracts Enough Potential Buyers to Support the Business? Marketing Plan Documentation from End Users of Your Product Stating That They Will Purchase Your Fish Provided They Meet Quality Standards This Will Strengthen Your Loan Proposal Financial Analysis Includes 1. Estimated Annual Costs & Returns 2. Estimate of Required Financing 3. Physical Plant Appraisal 4. Balance Sheet 5. Income Statement 6. Cash Flow Budget 7. Personal Financial Statement Enterprise Budget Includes: Estimate of The Annual Costs & Revenues for a Typical Year After the Business is Established Indicates Generally Whether Proposed Production System is Profitable Indicates The General Level of Expected Profit Indicates The Breakeven Costs Indicates The Breakeven Yields Estimate of Required Financing Aquaculture is Capital Intensive – Some Lenders Require 50-65% Owner Equity Investment Cost – Catfish Farm: $4,900-$5,500/Acre Land 23-26% Pond Construction 33-35% Water Supply 11-14% Equipment – Feed Bins 28-30% If you Already Own the Land the Investment\ is $3,600-$4,200/Acre Balance Sheet Lists What Assets and Liabilities Would be for The New Aquaculture Business Used to Calculate Net Worth (Owner Equity) Used to Determine Solvency & Liquidity Financial Strength & Position of the Business Texas Lenders Prefer Owner Equity of 60-65% for Aquaculture Loans Income Statement Itemizes Farm Income and Expenses Also Called Profit and Loss Statement Calculates: Net Farm Income Return to Capital Return to Labor & Management Return to Equity Cash Flow Budget What Is It? It‘s a Summary of Cash Inflows & Outflows Over a Given Period of Time It’s an Important Forward Planning Tool What Is Its Purpose? Estimate Future Borrowing Needs Estimates the Loan Repayment Capacity Schedule Payments and Harvests Cash Flow Budget Shows Cash Receipts & Expenses by Month Quarter or Year Includes Only Cash Expenses Indicates When Cash Available for Loan Payment Indicates When Cash Needed to Preserve Business Includes Family Living Expenses The Business Needs to Generate Cash to Pay Expenses Cash Flow Budget III Indicates When Business Needs More Cash Can be Used to Plan Operating Lines of Credit Can be Used to Schedule Purchases of New Equipment or Major Repairs Can be Used to Plan Stocking & Harvesting Schedules to Meet Financial Obligations Components of a Business Plan Business Concept – Justification of What you Want to Do Management Capabilities – Your Management Credentials Corporate Structure – Sole Proprietor, LLC, etc. Operations/Production – Technologies You Will Employ Competitive Analysis – Competition & Why You’re Better Marketing Plan – How to Place your Product in Market Financial Analysis – What it Costs & Projected Returns Capitalization – Who Pays What & How Much to Borrow Borrower’s Resume – Documenting Relevant Experience