© 2009 Delmar, Cengage Learning

Chapter 5

Planning and Organizing an Agribusiness

© 2009 Delmar, Cengage Learning

Essential Questions

• What are the benefits and challenges of entrepreneurship?

• What is a business plan?

• What makes for a successful agribusiness?

© 2009 Delmar, Cengage Learning

The Small Business

• Defined by the SBA (Small Business Administration) as a business that is independently operated, is not dominant in its field, and meets certain size standards in terms of number of employees and annual receipts.

• Ninety percent of the nation’s new jobs in the private sector are in small business.

• Accounts for more than 40% of GDP.• The number of women and minorities opening

small businesses has grown significantly since the 1960s.

© 2009 Delmar, Cengage Learning

Entrepreneurship: General Characteristics

• Entrepreneurship: All the risks pertaining to forming and operating a small business.

• Reasons people choose it:– Work for themselves

– Set their own hours

– Test their own theories

– Set prices, determine production levels, control inventory

– Solve problems

– Set company policy

© 2009 Delmar, Cengage Learning

Personal Characteristics of Entrepreneurs

• An entrepreneur should first have knowledge or skill in the area he/she wants to start a business, but he/she must also be the following:– Independent, self-confident, energetic, organized,

visionary, persistent, optimistic, committed, problem solver, self-nurturing, risk taker, action oriented, flexible, emotionally stable, and have a sense of urgency

© 2009 Delmar, Cengage Learning

Challenges of Entrepreneurship

• Total Responsibility:– Must manage workers, manufacturing, and shipping– Must find customers, sell the product, and be certain orders are

met

• Long, Irregular Hours– Longer hours than working for someone else– Often over 60 hours/week

• Financial Risks– Take money to start a business, run a business, and grow a

business– Only half of all small businesses reach a fourth year

© 2009 Delmar, Cengage Learning

Reasons Agribusinesses Fail

• Failure is usually the result of three factors:– Management (a mismanagement of resources, people,

or products, by failure to fully plan)

– Labor (unqualified and/or undependable workers can cause failure of any business)

– Finances (inability to allocate resources, debt, and taxes can all cause an agribusiness to fail)

© 2009 Delmar, Cengage Learning

Analyzing an Agribusiness Venture

• Prior to starting a business, one must first recognize a need, then take into account several factors:– What financial resources are needed; what labor will be

required; what management requirements exist; does a market exist for this service or product; where should the business be located; should an agribusiness be started or purchased?

© 2009 Delmar, Cengage Learning

The Business Plan

• Prior to the actual agribusiness, an entrepreneur must create a business plan.

• A business plan is a written description of a new business that describes all aspects of the proposed agribusiness.

• This plan allows the entrepreneur to be realistic, honest, detailed, and objective.

• It also serves as a formal document when seeking credit from various financial institutions.

© 2009 Delmar, Cengage Learning

Preparing the Business Plan

• A business plan includes six major sections:– Introduction: Statement of purpose/objectives

– Table of contents

– The organizational plan (see slide 11)

– The marketing plan (see slide 12)

– Financial documents (see slide 13)

– Appendix: Support material for any of the previous sections (resume, credit report, etc.)

© 2009 Delmar, Cengage Learning

The Organizational Plan

• Includes two major areas:– Summary of the agribusiness

• Mission; business model; strategy; strategic relationships; analysis of strengths, weaknesses, opportunities, and threats

– Detailed description of administration• Products or services, intellectual property (copyrights, patents,

etc.), location, legal structure, management, personnel, accounting, legal, insurance, security

© 2009 Delmar, Cengage Learning

The Management Plan

• Sets out all the elements of components of the marketing strategy.

• This plan will provide the following:– Overview of goals, market analysis, marketing strategy,

implementation of marketing strategies, customer service, assessment of marketing effectiveness

• It is important to first understand the current market trends (what works, what doesn’t) and the state of the economy before writing this plan.

© 2009 Delmar, Cengage Learning

Financial Documents

• This portion of the overall business plan will address the quantitative interpretation of everything set out in the organizational and marketing sections.

• In other words, what’s everything going to cost and what monies are currently available?

• This will include the following: – Summary of financial needs– Loan fund dispersal statement– Pro forma cash flow statement (budget)– Three-year income projection– Projected balance sheet– Break-even analysis

© 2009 Delmar, Cengage Learning

Major Areas of Agribusiness Management

• The ability to manage is probably the single most important quality for the entrepreneur. Management must take place in several areas:– Planning (what, when, where, how)

– Organizing (grouping together activities, people, and resources)

– Directing (leading by instruction and guidance)

– Staffing (recruitment, selection, training, and retention)

– Controlling (setting standards, solving problems, monitoring, communicating)

© 2009 Delmar, Cengage Learning

Goal Setting for the Agribusiness

• Goals should be set prior to and during business operations.

• These goals can take three forms:– Immediate, short-term, and long-term

• Immediate goals are accomplished daily, weekly, or monthly.

• Short-term goals are set for accomplishment in a year or two and often lead toward long-term goals.

• Long-term goals are set with the future of the business in mind.