Business Planning for
Livestock Producers
James McWhorter
Introduction
• Why create a business plan
• Components of a business plan
• Financial statements
• Five C’s of credit
Beef Industry
• 91% of the ranchers in the United States have 100 head or less.
• This group also owns 45% of the U.S. beef herd
• 81% of the ranchers have 50 head or less
• This group owns 30% of the U.S. beef herd
Why Create a Business Plan
• Planning is the most vital part to any successful business
• It allows you to set realistic goals and compare your actual results with your anticipated results.
• This allows the owner / manager to quickly identify problems before they
get out of hand
• Having a plan explains your ideas to lenders if you are looking for financing.
Business Plan Components
• Executive Summary
• Business Description
• Operations
• Marketing Plan
• Management & Organization
Executive Summary
• The Executive Summary is the key points in your business plan
• Includes:
• Mission Statement: one or two sentences that sums what you want to do.
• Goals
Business Description
• This section describes your farm/livestock business
• This section should include:
• A business overview
• Location(s)
• Facilities: Cow pens, barns…etc and the condition.
• Business history
• Ownership structure
Operations
• This section describes what you produce, how much you produce, and how
you produce it.
• Included in this section:
• The breed of livestock
• Average production levels
Marketing Plan
• The Marketing Plan should be realistic plan explaining how you will sell your products.
• The section should include:
• What you are selling.
• Where you are selling.
Management and Organization
• This section describes who manages the operation.
• Should include:
• Qualifications and experience of managers
• What management functions they serve
• Professional services: What vet you use, any outside labor, where you
purchase vaccines and nutritional products, and what, if any, lending services you use.
Financial Plan
• This section describes how you will be financially successful.
• Includes:
• Financial position
• Historical performance
• Any financial projections
• How you manage your assets
Balance Sheet
• Included in the financial plan should be a balance sheet and an income statement.
• A balance sheet shows the ranches assets, liabilities and equity. Simply, it provides the net worth of the ranch.
• Lenders want to know what the ranch owns and what the ranch owes. It provides a snapshot of the ranches ability to pay its debts.
Balance Sheet
Assets
Current Assets
Feed Inventory Pounds Total Value Roughage 600 Grain/Concentrate 0 Protein Supplement 600 Salt/Minerals 250
14) Total Feed Inventory 1450 15) Prepaid Expenses 0 16) Cash (Checking, Savings, etc.) 5500
17) Misc. 0
18) Total Current Assets 6950
Non-Current Assets
19) Machinery and Equipment 5000 20) Real Estate Buildings and Improvements 60000 Head Base Value Total 21) Replacement Heifers (1 yr olds) 3 2000 6000 22) Bred Heifers (2 yr olds) 3 2500 7500 23) Mature Cows 10 1400 14000 24) Bulls 1 2000 2000 25) Other Non-Current Assets (Horses, etc.) 0
26) Total Non-Current Assets 94500
27) Total Assets 101450
(line 27a)
Liabilities
28) Current Liabilities 6500 (Accounts/Notes Payable, Accrued Interest, Accrued Taxes, etc.)
29) Non-Current Liabilities 20000 (Machinery, Real Estate, Livestock, etc.)
Income Statement
• In addition to the balance sheet, an income statement needs to be included in the financial plan.
• An income statement details all the incomes and expenses of the ranch to provide the net income of the ranch.
• Income statements show the profitability of the ranch and can provide insight on the cost of operating a ranch.
Income Statement Expanded
Cows
1) Exposed females. 10
2) Adjusted exposed female inventory 10
Calves
Steers/Bulls Heifers All Calves 3) Total head of calves weaned 3 5 8
4) Total pounds of calves weaned 900 1500 2400
5) Average weight of calves weaned 300 300 300
6) Average price per pound (value) of calves 2.25 2.25 2.25
Totals
7) Percent weaned calves 80%
8) Total dollar value of all calves weaned 5400
Income Statement Expanded
Revenue
Weaned Calves $ 5400
Gain / Loss on Culls Head Average Price/hd Base Value Total
Mature Cows 1 1200 1400 $ -200
Heifers $/hd $/hd $
Bulls $/hd $/hd $
Heifers Held for Replacements 1 675 -675
-875
Other Non-Calf Revenue $ 0
Income Statement Expanded
Expenses (Cash and Non-Cash)
Purchased Feed, Supplement, and Mineral $ 3000
Lease/Rental $ 0
Labor, management, family living (Paid and Unpaid) $ 0
Veterinarian/Medicine $ 250
Interest $ 0
Other (fuel, supplies, taxes, insurance, repairs, etc.) $ 250
Depreciation $ 0
Total Expenses $ 3500
(line 36)
Annual Cow Cost $ 350
AgPlan
• AgPlan is a free online agricultural business plan generator provided by the University of Minnesota
• It walks the user through all the sections of a business plan and provides examples and tips for writing each segment.
• Users can save, print, and share the business plan from the website.
Five C’s of Credit
• Lenders base their decisions on the five C’s of credit when they evaluate someone or a business for a loan.
• Character
• Capital
• Capacity
• Collateral
Character
• The owners skill for ownership or management of the ranch.
• Credit history, education, references.
Capital
• This is the business’ equity
• The equity is determined by the balance sheet.
• When writing the business plan it is important to use realistic values for your assets on the balance sheet.
Capacity
• Capacity is the business’ ability to generate enough funds to pay the operating expenses, sustain the business in the future, and provides owner’s living expenses.
Collateral & Conditions
• Collateral
• Collateral in most cases will include land, machinery, and livestock.
• The business has an obligation to maintain assets being used as collateral in
good condition.
• Conditions
• Conditions of the loan may require the business to keep a certain amount
of cash in the bank or restrict the business from borrowing additional money.
Modifying Your Plan
• Besides using a business plan for obtaining loans, a business plan keeps you focused on a set of goals.
• Unfortunately, not all goals are easily obtainable, but having a plan and keeping records of inventory, expenses, and incomes can
explain how to reach those goals.
• Over time, goals may change, or the initial goals you set may not be realistic and should be changed.
Modifying Your Plan
• We can see from the incomestatement crop expenses were
higher than the income from crops sold.
• Reviewing past financial statements can show than an enterprise within the ranch was not profitable and should be changed.
• A business plan is not set in stone, so be flexible, keep good updated
records and change the plan as needed.
Summary
• A business plan keeps you and your managers on track to achieve your business goals
• Keeping accurate records will help with business decisions and can lead to a more efficient operation
• If you do use a business plan to present to potential lenders, remember the five C’s
