MANAGEMENT STRUCTURE

A business plan should specify who would be in charge. It must indicate who will have responsibility for the following necessary functions in any ranch/agribusiness: production/ranching operations, marketing/sales, and finance/administration. Also, a flow chart or diagram showing the lines of responsibility may be used to illustrate the chain of command. If one person will have responsibility for more than one management area, as is typical in agriculture, estimates of what percentage of time will be spent in each area are useful to both lenders and the managers themselves. After these estimates are made, it may become clear that insufficient time is available for a person to adequately fulfill some responsibilities, thus risking failure.Management is the most significant profit-determining factor. The firm must have competent management to follow through on the functions of planning, organizing, directing, staffing, and controlling in order to ensure a profitable undertaking. Production Process This section of a business plan analyzes the production process of the proposed operation. It analyzes the specific facility needs and labor requirements.

1. Facility determination.

This phase of the analysis involves determining the specific facility needs of the entire operation.

2. Labor needs.

Following the determination of facility needs, the decision-maker can estimate labor needs. The firm will be able to calculate this from equipment and service needs. The firm can then compare its needs to the available labor force in the area of the proposed operation.The other issue concerning labor needs involves the availability of management and technically trained persons. Some types of agribusinesses do not require many people with special training or skills, but many businesses require employees with unique talents. This is an extremely important factor that generally will dictate the success or failure of the undertaking.

3. Availability of requirements.

After the decision-maker calculates the amount of raw product required, he/she must determine whether or not this quantity is available in the required qualities and at a cost the firm can afford. An important factor in determining the cost of the inputs is the cost of transportation from the ranch to the proposed facility. Firms dealing with perishable products, such as meat, flowers, fruits and vegetables must also determine the maximum distance from the facility within which the firm must draw its raw product. This distance is dependent on the rate at which product quality deteriorates during the transportation process. Thus processing facilities are usually located much closer to customers than to the ranch.

4. Buyers.

The next task is to identify the potential buyers of the product. Specific questions that must be answered include: What types of buyers will there be? What quantities will they require? What product specifications will the buyers require? How reliable are the buyers? Have buyers indicated an interest in the product of the rancher? What kind of commitment will buyers make to get the product?

5. Selling arrangement.

The kind of selling arrangement that will be encountered must be determined. These arrangements will include many specifics: the kind of pricing arrangements to be made; the kind of delivery schedules that will be required; the types of payment schedules that will be encountered; the kind of services the rancher will have to provide with his/her product, and the costs involved; whether or not the rancher will have sales offices and, if so, the location of those offices; the number of salespeople required; the types of compensation plans the rancher will have for his/her salespeople; and the total cost of the entire sales effort.

6. Prices.

Critical to the entire analysis is the question: What price can the rancher charge for his/her product? This question can be partially answered by analysis of past prices and price trends. On the basis of this analysis, future expected prices are projected according to expected future consumption demands as affected by expected future economic conditions. This is a relatively difficult task, obviously, especially if the projections must go very far into the future. When making these projections, the decision-maker should consider the expectations of buyers and other suppliers of the product.

DEPARTMENT PLANS

The objective of a department plan is to determine the department’s needs and the operating costs required to complete its responsibilities in a given time period, whether it is one, three or five years. A department is a unit that performs some type of tasks, like marketing, finance, production, accounting, etc. Even though a small ranch or agribusiness may employ only one person, it is useful to specify plans for each "department" to identify what regular functions and special projects need to be undertaken.A department plan should begin with a charter to define its purpose and responsibility within the company structure. Charters are generally assigned by the chief executive (or ranch owner). They should specify a department’s goals and responsibilities so that they do not overlap those of other departments (this is important if more than one person is involved). If overlap occurs, it can be a source of friction and inefficiency.

Department plans should include projects that are to be accomplished within the time frame established by the plan, perhaps in the form of a simple listing of all projects, each with a descriptive paragraph or two. After all projects are accounted for, time schedules can be estimated. A chart listing the projects and their time schedule is a useful presentation tool. Personnel requirements follow logically from the project listing and time schedule. Job descriptions and pay level information can be included in the department plan to indicate what types of skills are needed and when. Finally, department budgets of capital expenditures and daily operating costs can be included. The totals establish department needs and are then used in preparing financial plans outlined in income and cash flow statements.

FINANCIAL PLANS

Financial reports are really the key to any business plan. They indicate whether it is worthwhile to proceed, to stop and reevaluate the situation, or to cease operations all together. The financial plans for a proposed operation are presented in a series of reports including an income statement, a cash flow statement, a depreciation schedule, provision for income tax, and a balance sheet. These reports provide information on four critical issues, as noted below.

1. Investment capital needs.

Once specific facility needs have been determined, the decision-maker can determine what those facilities will cost, which in turn will indicate what the initial investment needs of the firm will be. This part of the financial plan is relatively easy to prepare once it is decided exactly what types of facilities the rancher wants. The costs are simply estimates from the equipment companies, construction companies, utility companies, and so forth.

2. Cost of operation.

This phase of the financial plan analyzes the information gathered thus far. The analysis includes applying appropriate wage rates; management costs; raw material input costs; various operational costs, such as utility rate structures; and fixed costs of repairs and maintenance, depreciation, interest, taxes, and insurance. This process should involve the development of cost budgets for the various phases of the operation. The result will provide a per unit cost of operation.

3. Profitability.

Profitability of the operation can be projected using the estimation of expected prices and costs. Price projections reported in the market plan, discussed earlier, and the per unit costs are combined to find estimated profit per unit. A projected income statement must be prepared to determine the profitability of the entire operation. In addition, preparation of a "break-even" chart is often recommended. This chart will show at what level of sales, given the ranch’s costs and returns information, the rancher will be able to break even, or cover all costs of operation. The importance of a break-even chart is in knowing the minimum level of production that must be marketed to achieve the break-even point.