Many people are familiar with the term “business plan,” and if starting a new business, think they need one. But what exactly is a business plan, and why might you need one? A Business Plan is a document that describes the vision of a business and how it will achieve it. It has specific sections that describe various aspects of a business, like the relevant qualifications of key people, how much money is needed to get started, and how the business expects to sell its products or services. Much of the business plan focuses on two areas: financial and marketing.
Simply doing a business plan will help your business, even if you throw it away when you’re done! Completing the document forces you to think through various areas more completely than you might otherwise and do research to validate your assumptions. A business plan is only as useful as it is accurate so it should be a dynamic document that you will be updating as info/plans change. We will be looking at what makes up the typical sections of a business plan and providing links to various small business resources or sample plans for you to take a look at.
Sections of a Business Plan
Business plans can be prepared for external parties (when you are seeking loans, investors, grant funding or land leases) or for internal reasons (to validate your business idea and assumptions, tell you what to expect as far as resources needed and profit potential, and/or flesh out a plan of action) and while there is no single formula or template for its structure, they generally include the following sections:
- Executive Summary
- Company Overview
- Operational Overview
- Marketing
- Financials
Executive Summary
The executive summary is usually prepared last and summarizes the other components of the business plan, highlighting key topics or information. It should provide a concise overview and not delve too deeply into the details. Basically recap your business model, highlights of your sales projections, and any key milestones (e.g., opening retail store, selling to first restaurant, reaching positive cash flow, etc.). Depending on the purpose of the plan it would typically end with the “ask” or the amount of funding you are seeking, any terms or conditions and the potential return to the investor (if applicable).
Company Overview
The company overview section should include a description of the purpose of the plan itself as well as a description of the business and business model. This is also the section in which you would describe your vision for the company and any mission statement or business goals and objectives.
This is also where the ownership and legal structure (sole proprietor, LLC, etc.) of the business is described as well as the management or leadership in the key functional areas of:
- Administration
- Sales/marketing
- Production/operations
- Financial management
There’s a reason many venture capitalists look at the Management section first, and say they invest in people, not companies. You’re going to describe the key players in your company. Small farms or entrepreneurs are often one man operations so it is understandable if owner is listed for all of the functional areas above. However, this is the ideal place to describe any advisors or experts you have developed relationships with or can turn to for assistance to address any skills you may be lacking in any of the functional areas (for example the GoFarm AgBusiness Program, your accountant, CTAHR extension agents, marketing resource, mentor, etc.).
Operational Overview
In this section you’ll describe the operational parts of your business—the parts that produce the products, execute the services, keep the books, etc. The point of this section is to show you have the parts in place to achieve your goals—for a business-to-be, it forces you to think through the parts you’ll need. In this section you should address the following:
- Provide a description of the products or services or combination of both that you will be selling. If you are concerned about the information being shared with your competitors, consider including a non-disclosure page as part of your business plan.
- Production Plan and Schedule – By crop and/or field, list the activities you need to perform in the appropriate week and the timing and volume of your projected harvest (yield). Take into account growth cycles, seasonality, harvest periods, and fallow periods. Knowing your production plan and yield schedule helps you estimate the amount and timing of expenses and potential sales, and also impacts your marketing efforts and timing.
- Location/Facilities – Physical locations and descriptions of your fields, cleaning and packing facilities, business address, etc.
- Description of any quality control measures you may have in place.
- Labor – Based on the activities and their timing of your production schedule, you should be able to estimate the amount of labor needed each week. Your production schedule may be more useful if done by week instead of by month. The labor projections help you determine what labor is needed, when, how much, and ultimately, the associated cost. Note that you cannot always hire exactly the amount of hours you need, so by seeing the amount of hours per role, you can see where that person is underutilized and therefore have the potential to schedule other activities to use their time.
- Supply and Distribution – Describe your distribution methods or how your product will get to your customers and how often.
- Sales/Order Fulfillment/Customer Service – Basically this section will describe your sales channels and methods for taking orders and dealing with your customers. Be as descriptive as possible.
- Equipment/technology – if there is any significant equipment or technology related to your operation you would want to describe that as well, as it may create an advantage over a competitor’s products, allow you to be more efficient in terms of production, etc.
- Financial Controls – Describe how you will track and maintain financial/accounting information. Will you be using accounting software, outsourcing this function to a third party, etc.
- Certifications – Describe any relevant certifications your business may have and how you are positioned to maintain your certified status (i.e. organic, food safety, GAP – Good Agricultural Practices, GHP – Good Handling Practices, etc.).
Marketing
Marketing can generally be thought of as the efforts your company undertakes to encourage potential customers to buy your products or services. Marketing/Sales should be a function of your business, instead of something you think about once in a while. Furthermore, if you want your marketing efforts to be successful, they should be based on a plan, which is in turn based on real information (versus intuition). Marketing is one of the main elements of a business plan, and in practice, is what separates the successful farms from the ones just getting by.
We discuss marketing in more detail in the “How will you market your product?” and “Who is your competition?” sections of the Guidebook, but this section should address the following:
Industry Analysis (What does your market look like?)
- Describe the industry. What is the market outlook? For example, is there a movement/support for locally grown or organic foods?
- Is there enough room in the market for you or are you able to get enough of the market share (and if so, what will it take for you to do that)?
- Who is your Target Market, who do you plan to sell to? Are they high-income, moms who tend to do grocery shopping, millennials? How big is that market? Where do they shop (i.e. natural food stores, farmers’ markets)?
Competitive Analysis (Who is already competing in your market?)
- Understand the competition…what would make people buy from you instead of others?
- Keep in mind you are not only competing with local growers but mainland growers as well if you plan to grow an import replacement variety of produce.
- Where possible, describe specific competitors, relative market share (if known) and strengths and weaknesses.
- Describe your competitive advantage(s)
- Future competitors (if known)
- Pricing comparison (you vs. competitors)
Branding
- How will customers identify with you?
- What do you want customers to think when they think about your company?
- How will they remember you?
Marketing and Sales Plan
- How will you get and keep customers?
- What is your marketing and sales plan?
Financials
Generally, in our opinion, the most important part of the financial section is the cash-flow projection (Discussed in greater detail in the Guidebook section “Do you have a cash flow projection?). This is life and death for a business. Most business fail because they “go out of cash,” not go out of business. If you don’t have a good handle on your projected cash flow (and operate accordingly), running a business will be much harder and stressful, and you will be forced to make poor decisions simply to have enough cash now at the expense of profitability later. It is typically displayed on a monthly or weekly basis and is a detailed estimate of the cash going in (sales, investments, etc.) and being paid out (operational and administrative expenses) of your business with a running balance at the end of each period. If you are applying for a loan or lease it will show the balance at the end of the month available to pay for the loan or lease obligation. If you are applying for a grant it should show how and when you plan to use the grant funds. For internal purposes financial projections can be estimated on a scale ranging from conservative to optimistic to analyze the feasibility of a business idea.
How long should your financial projections extend? For new businesses the rule of thumb is to include projections for at least 3 years into future. At the very minimum you want to show projections to the point where you start operating profitably. Existing businesses will generally include up to 3 years of historical data. Keep in mind that any external party you may be preparing the plan for may have their own requests for the number of years of financial projections to include.
Other financial information you may want to include in your business plan are:
- A detailed list of your startup expenses. These are usually one-time costs, or in the case of recurring items like insurance or fertilizer, the initial payment or supply.
- Planned funding sources to cover your start-up expenses or operational costs during the initial growing/production period before you begin generating sales revenues.
- Operating costs which are the expenses you’ll incur on an ongoing basis. These may already be reflected in the cash flow projections and include direct and indirect costs. Direct Costs are those that are related to producing whatever you’re selling—these go up and down somewhat linearly with production and sales. Indirect Costs are expenses that apply to the entire business and, while necessary, are not directly related to production or sales.
- A traditional income statement (profit and loss statement including non-cash items such as depreciation and amortization) and balance sheet (statement of assets and liabilities).
- Details of the production schedule presented in the Operational Overview section including projected yield, sales, and labor requirements.
- Marketing schedule and related costs.
- Cost of production analysis. While not included in all business plans, calculating your cost of production is critical for any agribusiness. Your cost of production (COP) reflects the dollar amount associated with producing a specific crop for sale. It is usually expressed in the selling unit quantity (e.g. $1.34 per pound if you sell by the pound). COP analysis is discussed in more detail in the section “How much does it cost to grow or produce your product?”
Sample Business Plans
In addition to the sample plan you can get from contacting the GoFarm Hawaiʻi AgBusiness program, there are several online resources you can turn to:
Cornell University has a small farms program that covers many of the topics we discuss in this guidebook here: https://smallfarms.cornell.edu/guide/guide-to-farming/business-plans/
AgPlan is website developed to help rural businesses develop a business plan created by the Center for Farm Financial Management at the University of Minnesota. https://agplan.umn.edu/Default.aspx
BeginningFarmers.org is an online compilation of information resources on farm financing, finding land, business planning, agricultural production and marketing, and more and has a list of online resources for business plan development. https://www.beginningfarmers.org/farm-business-planning/
Additional Resources for Business Plan Development
Get personalized help in drafting your business plan from:
- GoFarm Hawaiʻi AgBusiness: https://gofarmhawaii.org/gofarm-business-services/
- Hawaiʻi Small Business Development Center: https://www.hisbdc.org/
- The Kohala Center: http://kohalacenter.org/business