Agribusiness Unit 2 Starting and Running an Agribusiness
Agribusiness Unit 2. Starting and Running an Agribusiness Chapter 5. Planning and Organizing an Agribusiness 1
Objectives • • • Explain the importance of small businesses Examine whether entrepreneurship is for you Describe the challenges of entrepreneurship Describe why agribusinesses fail Analyze a potential agribusiness venture Prepare a business plan Explain the five major areas of agribusiness management Establish goals for an agribusiness Discuss the importance of problem solving and decision-making 2
Importance of Small Businesses Most agribusinesses are small businesses • A small business is independently operated, is not dominant in its field, and meets certain size standards in terms of number of employees and annual receipts Small businesses are not really small • 90% of the nation’s new jobs are in small • • businesses 2/3 of all new jobs are in companies with fewer than 25 employees Small businesses account for more than 40% of gross domestic product 3
Entrepreneur in Agribusiness - Is It for me? General characteristic of entrepreneurs • Entrepreneurs are people who have the initial • vision, diligence, and persistence to follow through An entrepreneur is a person who accepts all the risks pertaining to forming and operating a small business • This also entails performing all business functions associated with a product or service, fulfilling social responsibilities, and meeting legal requirements 4
Entrepreneur in Agribusiness - Is It for me? Why people are willing to take the risks of starting a business? • Entrepreneurs work for themselves, are • • independent, and make their own business decisions Whatever income they earn above their financial obligations is theirs to keep They can test their own theories and ideas on how to run a business They set their own working hours They themselves set prices, determine production levels, and control inventory according to the market 5
Entrepreneur in Agribusiness - Is It for me? Why people are willing to take the risks of starting a business? • They determine the product or service offered • • • and control its quality as well as the overall reputation of the business They solve the problems They perform all the human resource functions, such as hiring, training, and firing They set company policy 6
Entrepreneur in Agribusiness - Is It for me? Personal • • characteristics of entrepreneurs Independent Self-confident Energetic Visionary Persistent Optimistic Committed 7
Entrepreneur in Agribusiness - Is It for me? Personal • • characteristics of entrepreneurs Problem solver Self-nurturing Risk taker Action-oriented Has a sense of urgency Flexible Emotional stable 8
Challenges of Entrepreneurship Total responsibility • A beginning entrepreneur is in charge of • everything The success or failure of the agribusiness depends on just one person : the owner • Entrepreneurs must manage workers, manufacturing, and shipping • They have to find customers, sell the product, and be certain that orders are met 9
Challenges of Entrepreneurship Long, Irregular hours • Being your own boss requires much work • People who start their own businesses work more hours than those who work for someone else • It is not uncommon for an entrepreneur to work more than 60 hours per week • Weekends are often spent working in the business as well 10
Challenges of Entrepreneurship Financial risks • The most serious disadvantage of a small business is the need for money • While the business is getting started, the entrepreneur has to pay bills and wages, which will likely exceed income • The owner probably try to borrow money, but lending institutions are often reluctant to lend to a new business because of the high risk • The chances of a business reaching its fourth birthday are only about 50/50 11
Challenges of Entrepreneurship 12
Why Agribusinesses Fail Management • Pitfalls that have to avoid • Jumping in without first testing the waters on a mall scale • Buying too much on credit • Underestimating how much time it will take to build a market • Going into business with little or no experience and without first learning something about it • Attempting to do too much business with too little capital 13
Why Agribusinesses Fail Management • Pitfalls that have to avoid • Not allowing for setbacks and unexpected expenses • Not understanding business cycles • Failing to develop an effective marketing program • Spending too much time and/ or money on • • • nonproductive and unprofitable activities Making unnecessary capital investments to minimize income taxes Underpricing or overpricing goods or services Extending credit too freely or too rapidly 14
Why Agribusinesses Fail Labor • The strength of a business is in its people • Hiring undependable and unqualified employees can quickly destroy your business • Failure can also result if you attempt to support too many people from the business • Entrepreneur has to work hard • Some owners mistake the freedom of having their own business for the liberty to work only when or as much as they wish 15
Why Agribusinesses Fail Financial resources • Pitfalls that have to avoid • Starting with too little capital • Starting with too much capital and being careless about how it is used • Borrowing money without planning how and when to pay it back • Failing to keep complete, accurate records, so that you drift into trouble without realizing it • Extending habits of personal extravagance into the business 16
Why Agribusinesses Fail Financial resources • Pitfalls that have to avoid • Forgetting about taxes, insurance, and other costs of doing business • Depending too much on collateral • Structuring loan improperly and/or improperly matching loan repayment period with loan repayment ability • Failing to control living expenses and with drawing more from the business than the business actually earns 17
Why Agribusinesses Fail Undercapitalization • Undercapitalization is an important factor in • small business failure Many small businesses do not have adequate startup capital to survive the initial one to two year period of business establishment 18
Analyzing Your Agribusiness Venture Recognizing a Need • A business succeeds only when it fills an economic need • Thousands of firms go bankrupt each year • because they provided the wrong type of product or service or were unable to make a potentially good business work • Many new businesses succeed because they provide a product or service that others need and for which they are willing to pay 19
Analyzing Your Agribusiness Venture Agribusiness startup factors to consider • What financial resources are needed to get • • • started? What labor does the agribusiness need? What management requirements exist? Does a market exist for the product or service? Where should the agribusiness be located? Should you buy an agribusiness or start a new one? 20
Analyzing Your Agribusiness Venture Advantages of buying an existing agribusinesses • • • Allows a quicker start Provides ready-made customers Eliminates some competition Reduces the cost of getting established Has a base of financial information for estimating costs and profits 21
Analyzing Your Agribusiness Venture Disadvantages of buying an existing agribusinesses • More capital resources needed at the very • • • beginning No time to learn while the business is developing Possibility of misjudging and buying a loser Problem of having to either accept the location or move the business 22
Analyzing Your Agribusiness Venture Applying business fundamentals • Keep the size of the business consistent with the • • capital resources available and with progress in developing management capability Select a business that is labor intensive rather than capital intensive Devote adequate time to the development of management capability Keep all employees fully employed, either in the business or elsewhere Develop a good plan of operations and follow it 23
Analyzing Your Agribusiness Venture Applying business fundamentals • Study and improve the business continually • Maintain an adequate cash operating fund so that • • • you will not have to borrow at high interest rates Maintain an inventory level that allows quick response to customer requests Use as much of the profits as possible to expand the business Use the physical facilities of your home to the fullest extent possible 24
Analyzing Your Agribusiness Venture Applying business fundamentals • Set the prices charged for products and services at • • • a level that will result in a reasonable profit while still being lower than or equal to the prices charged by your competition. Buy good-quality materials and necessary supplies at the lowest price possible. Treat customers and potential customers courteously and fairly Treat employees fairly 25
Analyzing Your Agribusiness Venture Conducting a business survey • Certain basic information should be collected analyzed regardless of the type of business • What resources are needed? • Are these resources available? • What are the costs of these resources? • What level of management is required? • Does the prospective owner have the experience necessary to operate the business? 26
Analyzing Your Agribusiness Venture Conducting a business survey • Furthermore, the economic feasibility of marketing the products or services should be analyzed • Are there one or more markets for the products or services? • At what prices can the products or services be sold? • Are the prices sufficient to cover the costs and give the seller a satisfactory profit? • How reliable are the potential markets? • What is the potential for future growth? 27
Preparing a Business Plan 28
Preparing a Business Plan Business plan • Written description of a new business venture that describes all aspects of the proposed agribusiness • Writing a business plan helps you further analyze the agribusiness that you want to start • The business plan is essential for receiving help in starting the business from potential investor and financial institutions • Only a clear and logical business plan can persuade them 29
Preparing a Business Plan Business • • plan outline Introduction Company description Product and/or services Management plan Marketing plan Legal plan Location analysis Business regulations 30
Preparing a Business Plan Business • • • plan outline Capital required Financial plan Financing arrangement Competition Operating plan Appendix 31
Preparing a Business Plan The organizational plan • Summary description of the business • Mission - project short-and long-term goals • Business model - describe the model for your • • • company and why it is unique to or appropriate for your industry Strategy - give an overview of your business strategy, focusing on short- and long-term objectives Strategic relationships - describe any existing strategic relationships SWOT analysis – identify and describe strengths, weaknesses, opportunities, and threats that your company will face 32
Preparing a Business Plan The organizational plan • Products or services • For manufacturer or wholesale distributor, include • information on suppliers and availability of materials For retailer, include information about your sources of supply, handling of inventory, and order fulfillment • Intellectual property • Address issues concerning copyrights, trademarks, and patents 33
Preparing a Business Plan The organizational plan • Location • Describe your projected or current location, including advantages and disadvantages • Legal structure • Describe the legal structure of your company and why it is advantageous • Management • List the people who are or will be running the business, including their responsibilities and abilities 34
Preparing a Business Plan The organizational plan • Personnel • Detail how many employees you will have, and in what positions • Accounting • What system will you set up for daily accounting? • Who will you use as a tax accountant? • Who will be responsible for periodic analysis of financial statements? 35
Preparing a Business Plan The organizational plan • Legal • Who will you retain as an attorney? • Insurance • What kinds of insurance will you carry? • Consider property, liability, life, health, and disability, among other types • Security • Address inventory control and theft of information, and project related costs 36
Preparing a Business Plan The marketing plan • Overview and goal of your marketing strategy • Show who your potential customers are and what kind of competition your business will face • Outline your marketing strategy and specify what makes the company unique • Review industry size, trends, and the target market segment 37
Preparing a Business Plan The marketing plan • Market analysis • Identify target market with demographic, psychographics, and niche market specifics • Describe major competitors and assess their strengths and weaknesses • Identify industry and customer trends in your target market • Describe methods of market research you have used any database analysis you have undertaken; give a summary of the results 38
Preparing a Business Plan The marketing plan • Market strategy • Method of sales and distribution - stores, offices, kiosks, catalogs, direct mail, Website • Packaging - quality considerations and type(s)of packaging • Pricing - price strategy and competitive position • Branding • Database marketing and customization • Sales strategies - direct sales, direct mail, email, affiliate, reciprocal, and viral marketing 39
Preparing a Business Plan The marketing plan • Market strategy • Sales incentives and promotions - samples, coupons, online promotions, add-ons, rebates, and so on • advertising strategies - traditional, Web/new media, long-term sponsorships • public relations - online presence, events, press releases, interviews • Networking - memberships and leadership positions 40
Preparing a Business Plan The marketing plan • Implementation of marketing strategies • Detail what implementation responsibilities you will keep in-house, and what functions you will outsource • Customer service • Describe your planed customer service activities and the expected outcomes • Assessment of marketing effectiveness • This assessment is included in the business plan of an existing company after making periodic evaluations 41
Preparing a Business Plan Financial documents • Summary of financial needs • This outline briefly tells why you are applying for financing and how much capital you need • Loan fund dispersal statement • This describes how you intend to disperse the loan funds • Pro forma cash flow statement(Budget) • This document, which is also used for internal planning, shows cash inflow and outflow over a period of time • basically, what your business plan comes to in terms of dollars 42
Preparing a Business Plan Financial documents • Three-year income projection • A profit and loss statement gives projections for the next three years of your company • Projected balance sheet • Your balance sheet shows a projection of assets, liabilities, and net worth of your company at the end of the next fiscal year • Break-even analysis • This is where a company’s expenses exactly match the sales or service volume 43
Preparing a Business Plan Appendix • • (Supporting Documents) Personal résumé Owner’s financial statements Credit reports Contracts Letters of reference Other legal documents Miscellaneous documents 44
Major Areas of Agribusiness Management Planning • Planning means determining what is to be done and where, how, and when to do it • Determining the present status of the business • Surveying the environment • Setting objectives • Forecasting future situations • Stating necessary actions and resources • Evaluating proposed actions • Revising plans in response to changing conditions • Communicating effectively 45
Major Areas of Agribusiness Organizing Management • This is the grouping together of activities, people, and other resources to implement a plan • Identifying and defining required work • Breaking work into duties and tasks • Grouping duties by position • Defining the requirements of positions in an • • • agribusiness Assigning work to be performed, as well as accountability and authority for task performance Revising and adjusting the organizational duties in response to changing conditions Communicating duties, activities, and achievement expectations throughout the agribusiness 46
Major Areas of Agribusiness Management Directing (Leading) • Directing or leading consists of providing instruction and guidance to employees • Communicating and explaining objectives to • • • employees Setting standards for performance Providing motivation Coaching employees to meet performance standards Rewarding employees based on performance and achievement Praising and criticizing constructively and fairly Communicating throughout all processes 47
Major Areas of Agribusiness Management Staffing • This includes all activities involved in the recruitment, selection, training, and retention of personnel • Determining human resource needs • Recruiting excellent employee candidates • Selecting excellent employees from those recruited • Training and developing employees • Revising the number of employees according to changing conditions of the agribusiness 48
Major Areas of Agribusiness Controlling Management • It covers all the activities that are necessary to ensure that the policies of the agribusiness are being carried out • Establishing standards (achievement, performance, quality, etc. ) • Monitoring results and comparing them to standards • Correcting deviations from standards • Revising and adjusting methods in response to changes the agribusiness experiences, on an ongoing basis • Communicating necessary changes throughout the organization 49
Goal Setting your agribusiness goals • Write down your goals • Organize your gals • Immediate goals: within a day, a week, or a month • Short-term goals: within a year or two • Long-term goals: several years from now Reaching your goals • Manage your time • Avoid procrastinating • Judge your time • Schedule your time • Establish priorities • Breaking goals into manageable units 50
Problem solving and decision making Skills needed in problem solving and decision -making • Recognize problem situations • Clearly distinguish the problem from the problem • • • situation Clearly define goals and/or objectives Develop creative, imaginative solutions to problems Gather information related to possible solutions Be open-minded about possible solutions offered by others Carefully evaluate information before accepting or rejecting solutions 51
Problem solving and decision making Skills needed in problem solving and decision-making • Work with others to solve problems • Understand different types of problems and • • techniques for solving them Understand, and use, a systematic approach to problem solving and decision-making Avoid jumping to unwarranted conclusions Accept the fact that you may make mistakes Put aside opinions, feelings, emotions, and self -interests that may interfere with objective thinking 52
Various styles of decision-making • Reflexive decision-making • People with this style make decisions quickly • They typically do not spend a great deal of time considering all the different options and consequences of each action • Reflective decision-making • People with this style consider all the options and • consequences before making a decision They process as much information as possible • Consistent decision-making • People with this style consider all the options and • still make decisions in a timely manner They combine the best characteristics of the reflexive and reflective decision-maker to make the best decision possible 53
Problem solving and decision making Steps in problem solving and decisionmaking • • Step 1, Recognize the problem Step 2, Determine your alternatives Step 3, Gather information Step 4, Evaluate the alternatives Step 5, Select a workable solution Step 6, Carry out your solution Step 7, Evaluate your results 54
Daily Quiz what is the definition of entrepreneur? Three major challenges must be addressed by entrepreneur: Total Responsibility, Long, irregular Hours, and Financial Risks. What is the financial risk for an entrepreneur? 55
Daily Quiz Suppose that you are considering to open a Sushi -bar in Milyang. Answer one of the three questions. 1) What could be your immediate goals? 2) What could be your short-term goals? 3) What could be your long-term goals? 56
- Slides: 56