FPE 3253Chapter 1

After completing this lecture, the student should be able to:

Examine whether entrepreneurship is for you.

Describe the challenges of entrepreneurship.

Prepare a business plan

Explain the five major areas of agribusiness management

Planning &

Organizing

Entrepreneurship

Characteristics

Challenges

Agribusiness

venture

Business Plan

Section 1:

The Business

Section 2:

Financial Data

Section 3:

Supporting

Documents

Major areas of

agribusiness

Self-employed OR work for someone else

Entrepreneur” is a person who accepts all the risks pertaining to forming and operating a small business.

“Entrepreneurship” is the process through which entrepreneurs create and grow enterprises.

Reasons people choose it: Work for themselves

Set their own hours

Test their own theories

Set prices, determine production levels, control inventory

Solve problems

Set company policy

An entrepreneur should first have knowledge or skill in the area he/she wants to start a business, but he/she must also be the following:

Independent, self-confident, energetic, organized, visionary, persistent, optimistic, committed, problem solver, self-nurturing, risk taker, action oriented, flexible, emotionally stable, and have a sense of urgency

Total Responsibility: Must manage workers, manufacturing, and shipping

Must find customers, sell the product, and be certain orders are met

Long, Irregular Hours Longer hours than working for someone else

Often over 60 hours/week

Financial Risks Take money to start a business, run a business, and grow

a business

Only half of all small businesses reach a fourth year

Failure is usually the result of four factors:

Management (a mismanagement of resources, people, or products, by failure to fully plan)

Labor (unqualified and/or undependable workers can cause failure of any business)

Finances (inability to allocate resources, debt, and taxes can all cause an agribusiness to fail)

Undercapitalization (do not have adequate startup capital to survive one-to two-year)

Prior to starting a business, one must first recognize a need (type, product, service), then take into account several factors:

Agribusiness startup factors to consider What financial resources are needed? what labor will be required? what management requirements exist? does a market exist for this service or product? where should the business be located? should an agribusiness be started or purchased?

Applying business fundamentals Conducting a business survey (market

potential)

Size consistent with capital

Devote adequate time

Keep employees fully employed

Maintain an inventory level

Set price – reasonable profit

Buy good-quantity materials at the lowest price possible

Treat customers and employees fairly

etc

Businessman Entrepreneur

Low Risk Taker Moderate Risk Taker

Engages in Business activities for the purpose of profit to support his living and his family

Starts venture, assumes leadership and expands the venture to fulfill personal goals and attains self accomplishment

Follow others and invests only in tested and proven market

Takes circulated Risk

Conventional Manager Entrepreneur

Very Conscious of Rules Views rule as guidelines

Sensitive to the future and willing to postpone reward

Concepts of the future based on personnel goals.Low threshold of Frustration

Has a power need for acceptance Ambivalent toward control, success and responsibility. Can be manipulative and exploitative others

Able to identify problems in any course of action. Makes detailed plan

Impatient with discussion and theories. Is prone to action and seems impulsive

Want to start a business?

If so, you have to plan your business

How to plan?

Write a Business Plan

How to write?

Prior to the actual agribusiness, an entrepreneur must create a business plan.

Def: A written description of a new business that describes all aspects of the proposed agribusiness.

This plan allows the entrepreneur to be realistic, honest, detailed, and objective

Feasibility Marketing – Is there a market? How much can you sell?

Management – Does the management team have the skill?

Financial – Can the business make a profit?

Operating plan Identify opportunities and avoid mistakes

Develop production, administrative, and marketing plans

Create budgets and projections to show financial outcomes

Communicates your idea Determine the amount and type of financing needed

Forecast profitability and investor return on investment

Forecast cash flow, show liquidity and ability to repay debt

Employee

Supplier

CustomerBank / lender

Shareholder

Management team

Cover Sheet (Business Name, Address, Phone Number, Principals, Plan Date)

Executive Summary or Statement of Purpose

Table of Contents◦ Section 1: The Business

◦ Section 2: Financial Data

◦ Section 3: Supporting Documents

A. Description of BusinessB. Products/ServicesC. Market AnalysisD. Marketing PlanE. LocationF. CompetitionG. Management and OperationsH. PersonnelI. Application and Effect of Loan or

Investment

A. Projected Financial Statements Income Statements

Cash Flow Statements

Balance Sheets

Assumptions to Projected Financial Statements

B. Break Even Analysis

C. Sources and Uses of Funds

Historical financial statements,

tax returns,

resumes,

reference letters,

personal financial statements,

facilities diagrams,

purchase orders,

contracts,

etc.

1. What general type of business is this?

2. What is the status of the business? Start-up, expansion or take-over?

Start-up: Why will you be successful in this business?, What is your experience with this type of business?, What will be special or unique about this business?, Why will your business be successful?

Take-over: When and by whom was the business founded?, Why is the owner selling?, How was the purchase price determined?, What are the current financial conditions and trends?, How will your management make the business more profitable?

3. What is the business form? Sole Proprietorship, Partnership, Corporation or Limited Liability Company?

4. What are your products?

5. Who are (will be) your customers?

Age

Sex

Income Level

Education Level

Geographic Location

Occupational Area

Leisure Interests

Buying Habits

Goals and Aspirations

1. What products/services are you (will you be) selling?

2. What are the features and benefits of what you sell?

3. What Position do you have (or want to have) in the market?

4. How do your products/services differ from the competition?

5. What makes your products unique and desirable?

6. Why do (will) customers buy from you?

Questions for Existing Businesses:

1. Who are your current customers? (List largest customers or

categories.)

2. What do they buy from you?

3. Why do they buy from you? (Quality, Price, Reputation, etc.?)

Basic Questions:

1. Who are the purchasers of your products or type of products?

2. What is the size of the market? Is it growing?

3. What is (will be) your share? How will your share change over time?

Product Strategies1. How will products be packaged?

2. How broad will your product line be?

3. What new products will you introduce?

4. What Position or Image will you try to develop or reinforce?

Pricing Strategies1. What will be your pricing strategies? (For example: Premium, Every Day Low Price,

Frequent Sale Prices, Meet Competitor Price, etc.)

2. How will you compare with competition and how will they respond?

3. Why will customers pay your price?

4. What will be your credit policies?

5. Is there anything about your business which insulates you from price competition?

6. Can you add value and compete on issues other than price?

Promotional Strategies1. Who are your Target Markets?

2. How will you reach your Target Markets? (What Media will you use?)

3. How will you motivate them to buy? (What Message will you stress?)

4. What is the cost and timetable for implementation of the marketing plan?

1. What is the business address?

2. Is it owned or leased? If leased, what are the terms?

3. Are renovations or modifications needed, and what are the costs?

4. Describe the property and the surrounding area.

5. Why is this a good location for your business?

1. Who are (will be) your largest competitors? List them.

2. How will your operation be better (and worse) than your competitors?

3. How are competitors doing? What are their sales and profits?

4. (If Start-Up) How will competition respond to your market entry?

1. What is the business management experience of the management team?

2. What are the functional areas of the business?

3. Who will be responsible for each functional area?

4. Who reports to whom?

5. What will salaries be?

6. What management resources outside the company are available?

7. How will your products/services be produced? (Describe manufacturing processes, proprietary technology and key supplier relationships.)

1. What are the personnel needs now? In the future?

2. What skills must they have? What training will you provide?

3. Are the people you need available?

4. What is their compensation? What fringe benefits will be provided?

1. What is the total investment required?

2. How will the loan or investment be used?

3. How will the loan or investment make the business more profitable?

4. When will the loan be repaid?

5. If you are seeking equity (selling part of the business to an

investor): ◦ What percent of the company are you willing to give up?

◦ What rate of return is possible for the investor?

1. Submitting a “rough copy”

2. Outdated historical financial information

3. Unsubstantiated assumptions (be prepared to explain the “why” of every point)

4. Too much “blue sky”

5. A lack of understanding of financial information

6. Lack of specific, detailed strategies

7. No indication that the owner has anything at stake equity capital invested in the business

8. Unwillingness to personally guarantee any loans

9. Starting the plan with unrealistic loan amounts or terms

10. Too much focus on collateral

7-10: Especially important if the business plan is prepared for a lender

The ability to manage is probably the single most important quality for the entrepreneur. Management must take place in several areas:

◦ Planning (what, when, where, how)

◦ Organizing (grouping together activities, people, and resources)

◦ Directing (leading by instruction and guidance to employee)

◦ Staffing (recruitment, selection, training, and retention)

◦ Controlling (setting standards, solving problems, monitoring,

communicating)

Goals should be set prior to and during business operations.

These goals can take three forms: Immediate goals are accomplished daily, weekly, or

monthly.

Short-term goals are set for accomplishment in a year or two and often lead toward long-term goals.

Long-term goals are set with the future of the business in mind.