Small Farm Business Planning Templates And Instrucitons Page 5
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50Lecture 1 Outline: Introduction to Business Plan-
ning and the Critical Elements of a Business Plan
Note: See also Building a Sustainable Business: A Guide to Developing a Business Plan for Farms
and Rural Businesses. Co-published by the Minnesota Institute for Sustainable Agriculture
and the Sustainable Agriculture Network (see Resources section).
A. The Rationale behind Business Planning
1. Time and money are often scarce resources
2. One will need to do research to generate accurate information on the economic viability of
a farm operation if one is to manage time and money successfully
3. Many small businesses fail
a. Wells Fargo study using data of the U.S. Census Bureau showed about half of businesses
that employ people are still operating five years after they open.The study estimates that
over the lifetime of a business, 39% are profitable, 30% break even, and 30% lose money,
with 1% falling in the “unable to determine” category (Business Week, September 30, 1999).
b. Businesses with fewer than 20 employees have only a 37% chance of surviving four years
and only a 9% chance of surviving 10 years. Of those failed business, only 10% of them
close involuntarily due to bankruptcy.The remaining 90% close because the business
was not successful, did not provide the level of income desired, or was too much work for
their efforts (Agricultural Development Center. ADC Info #24, October 1998. Agricultural
Extension Service, University of Tennessee).
4. Small-scale farming is much more difficult to succeed in financially than most other small
businesses – The financial viability of U.S. small farms (see Appendix 1: Characteristics of
Small Farms Differ Markedly from Large Farms, and Unit 1.0: Small Farm Viability Today)
a. 94% of all U.S. farms (1,945,190 out of a total of 2,068,000) are “small farms” (defined by
sales of less than $250,000)
b. 74% (1,531,760) of all U.S. farms are small farms having sales of less than $50,000/year,
with an average net cash farm income of negative $1,702
c. These farming operations rely heavily on non-farm income (e.g., off-farm jobs, retirement, etc.)
d. 20% (413,431) of U.S. farms have sales of $50,000–$250,000/year with an average net
cash income of $23,159
e. Therefore, entry-level farmers lacking supplemental or off-farm income must compete
with growers who have supplemental incomes (e.g., pensions, off-farm jobs) in an
environment where net farming income is low or negative
5. Potential disadvantages of entering agriculture without thorough business planning
– As agriculture is capital intensive it may result in the investment and loss of significant
amounts of both time and money
6. Proper business planning allows one to analyze the financial viability of the proposed
farming business and help one make more informed and strategic decisions that may
increase the chances of success and reduce the risk of financial losses
7. Business planning might also change your mind about entering farming, result in delaying
the start of your business until additional resources are secured, or might radically alter
your business concept toward options with greater likelihood of financial success
Unit 2.0 | 5
Lecture 1 Outline
Small Farm Business Planning
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