Guide to Developing a Business Plan for Farms

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  Building aSustainable Business A Guide to Developing aBusiness Plan for Farms andRural Businesses Developed by: the Minnesota Institute for Sustainable Agriculture Saint Paul,MNCo-published by: The SustainableAgriculture Network  Beltsville,MD Handbook SeriesBook 6 Minnesota Institute for Sustainable Agriculture  Project Coordinators Gigi DiGiacomo,Economic ConsultantDebra Elias Morse,ConsultantRobert King,University of Minnesota Authors Gigi DiGiacomo,Economic ConsultantRobert King,University of MinnesotaDale Nordquist,University of Minnesota Contributors Vern Eidman,University of MinnesotaDebra Elias Morse,ConsultantSusan McAllister,Marketing ConsultantKenneth Thomas,Professor Emeritus,University of Minnesota Farmer Business Plan Participants and Reviewers Nancy AspelundMabel BreljeMary Doerr,Dancing Winds FarmsFrank Foltz,Northwind Nursery and OrchardsDave and Florence Minar,Cedar Summit FarmGreg Reynolds,Riverbend Farm Technical Reviewer  Damona Doye,Oklahoma State University  Editor  Beth Nelson,Minnesota Institute for Sustainable Agriculture Production Nancy Goodman,copy editor Karol Keane,cover  Jim Kiehne,layoutValerie Berton,Sustainable Agriculture Network  Cover photo collage:top,Greg Reynolds;right,Frank Foltz’s son;lower left,Florence and Dave Minar;upper left,Mary Doerr  2 BUILDING A SUSTAINABLE BUSINESS This publication was developed by the Minnesota Institute for Sustainable Agriculture in cooperation with the Center for FarmFinancial Management,with funding from the Minnesota StateLegislature.This publication was co-published by the Sustainable AgricultureNetwork (SAN),under a cooperative agreement with USDA’sCooperative State Research,Education,and Extension Service.To order copies of this book ($14.00 plus $3.95 shipping andhandling),contact (802) 656-0484,sanpubs@uvm.edu,(800)9096472,or misamail@umn.edu.This publication can be viewedon-line at www.misa.umn.edu/publications/bizplan.html.Copyright © 2003,Minnesota Institute for Sustainable Agriculture Library of Congress Cataloging In Publication Data Building a sustainable business : a guide to developing a business planfor farms and rural businesses / by the Minnesota Institute forSustainable Agriculture.p. cm. – (Sustainable Agriculture Network handbook series ; bk. 6)Includes bibliographical references.ISBN 1-888626-07-0 (pbk.)1. Farm management. I. Minnesota Institute for Sustainable Agriculture.II. Sustainable Agriculture Network. III. Series.S561.B84 2003630'.68–dc212003005514 The SARE program provides information to everyone,without regard to race,religion,national srcin,sex,age,disability,familial or veteran status.Every effort hasbeen made to make this publication as complete and as accurate as possible.It isonly a guide,however,and should be used in conjunction with other informationsources and in consultation with other financial and production experts.The edi- tors/authors and publisher disclaim any liability,loss or risk,personal or otherwise,which is incurred as a consequence,directly or indirectly,of the use and applica- tion of any of the contents of this publication.Mention,visual representation or inferred reference of a product,service,manufacturer or organization in this publi-cation does not imply endorsement by the USDA,the SARE program,MISA or  the authors.Exclusion does not imply a negative evaluation.  3 BUILDING A SUSTAINABLE BUSINESS Sustainable Agriculture Information Exchange  This publication was developed through the Sustainable Agriculture Information Exchange, a clearinghouse of sustainable agriculture information and materials in Minnesota. The Information Exchange is a program of MISA, the Minnesota Institute for Sustainable Agriculture. MISA is a partnership between the University of Minnesota’sCollege of Agricultural, Food and Environmental Sciences and the Sustainers’ Coalition, a group of individuals andcommunity-based, nonprofit organizations. MISA’s purpose is to bring together the agricultural community and theUniversity community in a cooperative effort to develop and promote sustainable agriculture in Minnesota and beyond. To ensure that all of the Information Exchange’s publications are applicable and user-friendly, they are developed by  teams and reviewed by individuals who will use the material, including farmers, researchers, extension educatorsand other agricultural community members.Other publications in the Sustainable Agriculture Information Exchange series (available through the University of Minnesota Extension Service Distribution Center) include: Collaborative Marketing: A Roadmap & Resource Guide for Farmers (BU-07539-S)  Discovering Profits in Unlikely Places: Agroforestry Opportunities for Added Income (BU-07407)  Hogs Your Way: Choosing a Hog Production System in the Upper Midwest  (BU-07641)  Minnesota Soil Management Series (PC-07398-S) Organic Certification of Crop Production in Minnesota (BU-07202) Whole Farm Planning: Combining Family, Profit, and Environment  (BU-06985)For more information on this series, the Information Exchange, or MISA, contact: Minnesota Institute for Sustainable Agriculture, 411 Borlaug Hall, 1991 Buford Circle, St. Paul, MN 55108-1013; (612) 625-8235, or toll-free (800) 909-MISA (6472); Fax (612) 625-1268; misamail@umn.edu; www.misa.umn.edu. Sustainable Agriculture Research and Education (SARE)Sustainable Agriculture Network (SAN) SARE is a program of USDA’s Cooperative State Research, Education, and Extension Service. For more informationabout SARE grant opportunities and informational resources, go to www.sare.org. SAN publishes information about sustainable agriculture under a cooperative agreement with CSREES. For more information about SAN, or other SAN publications, contact: Andy Clark, SAN Coordinator, Sustainable Agriculture Network, 10300 Baltimore Ave.,Bldg. 046 BARC-West, Beltsville, MD 20705-2350; (301) 504-5236; Fax (301) 504-5207; san@sare.org Funding for this project was approved by the Minnesota State Legislature and the Energy and Sustainable Agriculture Program of the Minnesota Department of Agriculture. Center for Farm Financial Management  The Center for Farm Financial Management at the University of Minnesota cooperated in the development of thispublication. The Center’s mission is to improve the farm financial management abilities of agricultural producersand the professionals who serve them through educational software and training programs. Contact: Center for Farm Financial Management, University of Minnesota, 130 Classroom Office Building, 1994 Buford Avenue,St. Paul, Minnesota 55108; (612) 625-1964 or toll-free (800) 234-1111; cffm@cffm.agecon.umn.edu; www.cffm.umn.edu.  Preface 4 BUILDING A SUSTAINABLE BUSINESS Business planning is an important part of owning and managing a farm.Producers traditionally go through the business planning process to:ãEvaluate production alternatives;ãIdentify new market opportunities; andãCommunicate their ideas to lenders, business partners and family. As agricultural entrepreneurs define and create themselves away from more“conventional” farming models, business planning has become more important  than ever.Producers considering innovative management practices and immaturemarkets use business plans to map out strategies for taking advantage of new opportunities such as organic farming, on-farm processing, direct marketing andrural tourism. A business plan helps producers demonstrate that they have fully researched their proposed alternative; they know how to produce their product,how to sell what they produce, and how to manage financial risk. “Building a Sustainable Business: A Guide to Developing a Business Plan for  Farms and Rural Businesses”   was conceived in 1996 by a planning team for theMinnesota Institute for Sustainable Agriculture (MISA), to address the evolving  business planning needs of beginning and experienced rural entrepreneurs.From the onset, the planning team envisioned a truly useful guidebook that  would be relevant to the alternative farm operations and rural businesses of  today. There are certainly more detailed business planning, strategy building,succession planning, marketing and financial planning resources available. It  was not our intention to replace these materials. Many of these existing resources are listed in an extensive “Resources” section at the end of thisGuide. Instead, our objective was to compile information from all availableresources, including farmers and other business experts, that could be used tocreate a business planning primer—a guide that will help today’s alternativeagriculture entrepreneurs work through the planning process and to begindeveloping their business plans. This Guide was developed over a period of seven years by a team of University of Minnesota faculty and staff, individual farmers and consultants. Two formal reviews were conducted by MISA throughout the 1998–2000 period to test and refine this Guide. During these reviews, six farmers were asked to
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