Can I Make It Pay?Chuck Schwartau

Regional Educator – Livestockcschwart@umn.edu

Purposes

• This program was put together to address common questions from people considering new enterprises for their small acreages or farms in southern Minnesota

• Assist with business planning• Help avoid pitfalls of entrepreneurship• Increase awareness of resources available

Audiences

Small Farm University– Program designed to help small land parcel owners

explore business enterprises that may be appropriate for themselves and their families

– Included many urban residents considering purchasing rural properties

– Audience proved to be true small acreage owners (<10 acres) and owners of larger properties looking to add enterprises to their farms

Audiences

Local Foods – 3rd Crop Producers’ Meeting– An offering of the Rural Advantages Program

designed mainly to help farmers explore additional crops to diversify beyond the typical corn:soybean rotation found in much of southern Minnesota

Points to Ponder• Purpose of your business/enterprise• Assets you have at your disposal• Skills you possess• Availability of resources• Labor necessary and available• Marketing your product• Budgeting• Miscellaneous

What is your purpose?

• Is this a business or a hobby• Do you want to make a profit or simply cover

most of your expenses?• Is this intended to replace full or part-time

employment by an individual?• Is the expectation to recover some of the

cost of owning a parcel of property?

Reality Hits!

• Five out of ten new businesses fail within 5 years.

--Small Business Administration

• For some types of businesses, the rate is closer to nine out of ten that fail within 1 year!!

Why Do Businesses Fail?• Lack of Experience• Insufficient Capital• Poor Location• Poor Inventory Management• Over-investment in Fixed Assets• Poor Credit Arrangements• Personal Use of Business Funds• Unexpected Growth

• --Small Business Management, Michael Ames

Why Do Businesses Fail?

• Competition• Low Sales

--Do It Yourself Business Book, Gustav Berle

Assets Available

• Personal– Discipline to put in the time and effort– Self-starter

Assets Available

– or do you need a push?

Assets Available

– Spare time? Need to make time?– How much time is necessary?– Seasonal or year-around?– Time off?– Impact on your family?

Site or Facilities

• Buildings and land base– Use existing?– Build new?

Equipment or Tools

• Equipment necessary– Do you have it now?– Do you need to purchase some?

• New or used?

– Can some be rented?

Skills

• Utilizing existing skills– Possess some reasonable skills?– Over your head?

Skills

• Developing new skills– Technical– Manual– Marketing– Customer service

Labor

• Your own labor• Family labor

– Are they as sold on it as you are?• Outside labor

– Availability– Cost

• Legalities of being an employer

Is There a Market?

• Is it something others use or will want?• Uniqueness of product or service• Price differentiation• Geography/travel routes• Population• Selling on site or delivering to a marketplace• Salesmanship

Now here was a salesman!

Summary of Questions to Ask

• What ag interests do I have?• What resources are available?• Can I afford to produce what I

want?• Will the farm support what I select?

Summary of Questions to Ask

• How will I establish, manage, harvest, store or feed my selection?

• Is there a market for my product?• Is there a knowledge or support

base?• Will there ultimately be a profit?

A Beach Tale

A couple lived near the ocean in a house with a view of the beach. One summer they noticed a girl who was at the beach pretty much every day. She wasn't unusual, nor was the travel bag she carried, except for one thing; she would approach people who were sitting on the beach, glance around furtively, then speak to them.

Generally, the people would respond negatively and she would wander off, but occasionally someone would nod and there would be a quick exchange of money for something she carried in her bag.

The couple assumed she was selling drugs and debated calling the cops, but since they didn't know for sure they just continued to watch her.

After a couple of weeks the wife said, "Honey, have you ever noticed that she only goes up to people with boom boxes and other electronic devices?" He hadn't and said so. Then she said, "Tomorrow I want you to get a towel and our big radio and go lie out on the beach. Then we can find out what she's really doing.“

Well, the plan went off without a hitch and the wife was almost hopping up and down with anticipation when she saw the girl talk to her husband and then leave.

The man walked up the beach and met his wife at the road.

"Well,? Is she selling drugs?" she asked, excitement pouring out with her voice.

"No, she's not." he said, enjoying this probably more than he should have.

" Well,? What is it, then? What does she do?" his wife fairly shrieked.

The man grinned and said, "She's a battery salesman.“

"A battery salesman?", cried the wife.

"Yes," he replied

"She sells 'C' cells by the sea shore!"

Support Systems

• Suppliers of inputs• Is further processing needed?• Is shipping necessary?

– In or out• Service for your systems• Distribution system

Moral of the Story?

• Product people want• Provide the product they want when they

want it• Provide the product they want where they

want it• Customer service

Budgeting • Partial budgets

– FinBin (http://www.finbin.umn.edu/)

– Iowa State budget page (http://www.extension.iastate.edu/agdm/livestock/html/b1-21.html)

• Be thorough– Use your business plan outline– Be conservative on income and liberal on your

costs, it will avoid some of the nasty surprises later

Budgeting

• Finpack (http://www.cffm.umn.edu/)

– Financial planner• Balance sheets• Enterprise budgets• Whole farm projections• Cash flow

– Free trial version can be downloaded

Legal Items

• State registration of business– Sales tax?

• Employment items– I-9’s– Withholding – state and federal– Unemployment insurance– Workers’ compensation

Legal Items• General liability insurance• Product liability insurance• Personal liability for business• Wind/fire/hail for the business, not just the

residence• Risk insurance?

– Consider this if you embark on a high value ag product with significant input costs

Back to the Farm

• Develop a business plan– It makes you think about what you want to do

and asks the questions often forgotten when starting a business

– AgPlan.umn.edu

On the Upside of Your Small Business

• While there are many reasons to not start your own business, for the right person advantages can outweigh the risks

• You will be your own boss• You will benefit from your hard work rather than someone

else benefiting• A new venture can be exciting• Running a business provides endless challenges and

opportunities for learning• --Small Business Administration

Resources for Small Farms

• Small Farm Funding Resources - USDA– http://www.nal.usda.gov/ric/ricpubs/small_farm_funding.htm#ORG

• Family & Small Farms – USDA– http://www.nifa.usda.gov/familysmallfarms.cfm

• ATTRA – USDA– http://attra.ncat.org/

• Small Farms – U of M Extension– http://www.extension.umn.edu/SmallFarms/

Resources for Small Farms

• National Small Farms Conference – USDA– http://www.conferences.uiuc.edu/conferences/conferenceviewer2/vi

ew.cfm?conf=20033

• Farm Service Agency (www.fsa.usda.gov)

Most Typical Audience Responses

• “We’d like more information about budgets”• “Where can we get more information on

livestock enterprises?”• “Where can I get more help on business

planning?”

Questions?

Thanks for your kind attention

Chuck Schwartau

cschwart@umn.edu