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for the person or people who are developing it. It will tell you whether your ideas are going to make you a profit, it will tell you how much rent you can afford and how much money you need to fund the business.
Assuming you have convinced yourself that the plan will work, the plan can be used to convince financiers, landlords, agents and authorities that you have a good idea. It is the tool which will open doors for the new entrant and demonstrate that you are not just ambitious, but also capable, entrepreneurial and business-like.
What needs to be in a business plan? The business plan needs to address the short, medium and long-term plans for the business.
The short-term for a dairy farming business is the first three years and this part of the plan will need to be very detailed. You need to include a detailed cashflow forecast for this period which identifies all of your predicted income and expenditure.
For each enterprise, the forecast needs to be broken down by month and into useful subsections which separate not just your fixed and variable costs, but each enterprise and each major category. In
The business plan needs to address the short, medium and long-term plans for the business
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this way you will be able to identify, for example, your predicted expenditure on vet medicines for your heifer rearing enterprise in March 2017.
The detailed cashflow forecast is important because it will help you calculate how much money you will need to borrow in each month for the first three years. By lifting data from the forecast you will be able to calculate gross margins for each enterprise and benchmark them against industry standard margins. Benchmarking will help you establish the level of financial performance you are aiming for. Your gross margin calculations and the cashflow forecast also form the basis of your profit and loss forecasts. Without a prediction of the profits from your business it is not going to be possible to convince a bank manager, business partner or landlord that you plan is going to work.
The figures that go into the cashflow forecast need to be based on reality and not guesswork, wherever possible. This means you will need to know about the milk contract you plan to supply, your feed suppliers, contractors and interest rates for your borrowing. You need to know how many animals you will be feeding as well as predicting stocking rates and silage requirements. In short, you need to investigate every single part of the business that you are planning to reduce the risk of failure to the absolute minimum. The medium term part of the plan covers years three to eight. Because the reliability of predictions for this period is so low, you can get away with more guess work, but the professionals reading your business plan need to know which direction you plan to take the business as it matures. What will you do differently in the medium term? By now, home reared heifers will be entering the herd, herd numbers and culling rates will begin to stabilise. Borrowings will be lower and you will be familiar with the land and neighbourhood, so performance might be expected to be higher. Finally, the longer term, 8-15 years hence. Do you plan that the business is going continue to develop and if so, which direction will it take?
THE JOURNAL APRIL 2015 85
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