A guidance on preparing Agricultural Business Plan for Entrepreneurs

1. …Delivering Innovative and Proven Agricultural Information & Technologies
Preparing Agricultural Business plan
Dr. Makama, Saleh Aliyu
samakama@abu.edu.ng
National Agricultural Extension and Research Liaison Services (NAERLS)
Ahmadu Bello University, Zaria, Nigeria.
Being a presentation for participant of NITDA SMART Agricultural Project, Jigawa State
Funded and Sponsored by

2. Contents
 Introduction
 Overview of a business plan
 Advantages of well-prepared business plan
 Why business fails?
 Step-by-step approach in preparing a business plan
 Framework for agricultural business plan development
 Working out viability and economic feasibility
 Measures of business viability
 Management of Business
 Conclusion

3.  Produce saleable products at a cost low enough and sell their produce
at prices high enough to make a profit.
 Thus, entrepreneurs need to know their cost of production & fully
understand their market opportunities.
 Achieving the entrepreneurs’ goals will involve appropriate business
planning, record keeping and analysis, enterprise budgeting and
financial management.
3
Introduction

4. Introduction Cont’d
 Operating a successful business, concrete business planning &
management is needed.
 Business planning should be made as a routine part of management
of the entrepreneurs.
 Intend to provide guidance and build the capacity of participants as
well as the prospective entrepreneurs in the agricultural sector to
access the opportunities successfully and in managing sustainable
enterprise activities along the entire agricultural value chains.

5. Overview of a business plan
 A written document that describes a business, its objectives;
strategies; market and financial forecasts
 It states the business goals, argues why they are believed attainable
and shows a plan to reach them.
 According to DAFF (2011), business plan is defined as a
document/plan of how a business owner, manager or entrepreneur
intends to organize an entrepreneurial endeavour & implement
activities necessary & sufficient for the venture to succeed.

6. Overview Cont’d
 Is the most important document an entrepreneur will ever prepare for
his enterprise.
 As it describes all aspects of business ventures: from what products he
intends to produce, how he intends to produce them, through to
financing and marketing strategies.
 It is like a road map: as agricultural business takes new pathways
there is a need to recognize the milestones along the way & take a
reliable route to the planned destination.
 Truly, it is essentially a blue print for businesses however it serves
many other purposes; yardstick by which a business owner measures
success or otherwise, & a tool for obtaining credit facilities among
others

7. Advantages of well-prepared business plan
 Provides a basic strategy, objectives & indicates direction to focus on
 Mistakes done can be corrected on paper prior to implementation.
 Demonstrates the seriousness of entrepreneurs’ intentions to banks,
investors, colleagues & employees
 Can be used to predict problems & take appropriate action in good
time.
 Affords farmer the opportunity of adopting a step-by-step approach
in preparing for the future achievement & risks of his business
venture

8. Disadvantages of Business Plan
 Participants should think and come out with what they think
are the disadvantages of business plan

9. Why business fails?
 Failure is a topic most of farmers would rather avoid. But ignoring
conspicuous & slight warning signs of business trouble right from
planning stage is a guaranteed way to fail.
 The following were observed by DFF as major reasons for Agribusiness
failures;
1. Management reasons: Poor management team with insufficient experience, narrow
customer base and inadequate marketing skills, Inadequate marketing planning, Under or
overpricing products and/or services, failure to identify and manage risks etc
2. Financial factors: Businesses without proper record, Insufficient information on financial
performance required for basic decision making, Poor management of accounts payable and
receivable, High debt/equity ratio
3. Others: Poor access to loan finance, Poor access to developed markets, Weather conditions etc.

10. Step-by-step approach in preparing a business plan
a. Acquire the identified land
b. Get a map of the farm that includes sources of water, soil type
& farm boundaries.
c. Identify potential markets, untapped market shares &
requirements for entrance into the market.
d. Identify resources available for utilisation to produce potential
output(s).
e. Take into consideration your ability, knowledge & access to
support before deciding on the crop(s) to produce.

11. Step-by-step approach Cont’d.
f. Work out viability & economic feasibility on potential
commodity & possible opportunities for value addition.
g. If favourable, go forward to h, & if not, repeat steps c – f.
h. Source information on the different crops that can be possibly
produced using the same resources
h. Decide on what crop(s) to produce that will maximize the net
return.

12. Framework for agricultural business plan development
i. Executive Summary:
A summary of each aspect of the plan which should be short & precise to a
maximum 2 pages. It needs to give a synopsis of what business want to do or
achieve.
ii. Introduction/Background
Summary of the business, its history & position/possible position in the
market place. It gives an overview of your business or potential business,
vision & objectives.
It consists of the following:
- a. Business overview
- Where is your business or where are you going to establish your business?
What are you going to do or what are you currently doing?

13. Framework Cont’d.
b. Vision and mission
The vision is a dream and this is what you will focus your energies and
resources on in getting the business to work. The mission will be achieved
through the objectives of the business.
c. Objectives/goals:
This section needs to include production and/or financial related objectives
specific to the enterprise or potential enterprise. Objectives need to comply
to the S.M.A.R.T principles
iii. SWOT Analysis
 Gives you an indication of the Strengths, Weaknesses, Opportunities &
Threats that are involved in your new or existing business. It also
identifies the internal and external factors that are favourable or
unfavourable to achieve business’s objectives.

14. Framework Cont’d.
iv. Risks
Deals with the different risks involved in starting or expanding an existing
business. A risk can be defined as any deviation from the expected outcome. It
should also indicate what risks will be accepted by the business and what would be
mitigated and how.
v. Assumptions
There may be external circumstances or events that must occur for the business to
be successful. Believing that such an event is likely to happen, and then it would be
an assumption. The assumptions need to be realistic & relevant to the environment
hosting the business. Assumption on price, market, political stability, technology
etc needs to be made.
vi Business Preparation Process
 Deals with where the business is situated & what entrepreneurs are doing or
going to do & how they are going to do it & with what resources are they going
to achieve the objectives of the business. This will give the person who is reading
your business plan the feeling of where the business is.

15. Working out viability and economic feasibility
 Finances
Financial plan is the backbone of business plan. In doing
this, the entrepreneur will be able to describe his plan in
naira & detect any inconsistencies, gaps or unrealistic
assumptions made earlier. The finance part of the business
plan consists of:
Cashflow;
Balance sheet;
Income statement and
Enterprise budget.

16. Cash flow
 Is a forecast of cash funds a business anticipates receiving
& paying out throughout the course of a given span of time,
& the anticipated cash position at specific times during the
period being projected.
 The forecast will enable a farmer to decide what he can
afford, when he can afford it and how he will keep his
business operating.
 The cash flow plan will help you to plan cash requirements
and thereby improve control over your business’ cash flows
and to conserve its cash resources.

17. A Sample Cash flow
S/NO ITEMS 1 2 3 4 5
INFLOW
Sources of Fund
Total Equity 5,760 4,552 4,763 4,790 5,273
Cash Inflow
Revenue 5,855 5,972 6,151 6,397 6,717
Total Inflow 5,855 5,972 6,151 6,397 6,717
Application of Funds (Cash outflow)
*Material Inputs 4,020.00 4,221.75 4,435.00 4,460.00 4,942.68
Management Bills 240.00 240.00 240.00 240.00 240.00
*Buildings and Structure 1,500.00 90.00 90.00 90.00 90.00
Total Outflows 5,760.00 4,552.00 4,765.00 4,790.00 5,273.00
NET CASH FLOW 95 1,420 1,386 1,607 1,444

18. Balance sheet
 The balance sheet describes the assets, liabilities, and equity of a
business at a particular point in time.
 It is a widely used accounting statement that indicates the economic
resources of an organisation and the claim on those resources by
creditors.
 The BS will allow an entrepreneur and his creditors to compare firm
estimates, as well as the firm past performance, against industry
averages.

19. A Sample balance sheet of Mr. Yusuf Farm as on 29.05.2019
Assets Amount (N) Liabilities Amount (N)
1. Current assets 1.Current liabilities
Cash in hand 11,000 Short term loans 7,000
Cash in bank 8,000 Fertilizers, etc., bought on credit 4,000
Value of grains & feeds 28,500 Accounts payable 11,000
Livestock products (eggs, birds) 50,000 Hand loans 5,000
Value of Fruits, vegetables 9,000 Money owed to input supplies 25,000
Value of bonds & shares 5,000 Annual installments of MT & LT Loans 19,000
Sub-total 111500 Sub-total 71000
2. Medium term assets 2.Medium term liabilities
Machineries (old tractor) 2,50,000 Loans on machineries 1,80,000
Equipment& livestock, etc., 40,000 Equipment& livestock etc 30,000
Sub-total 290000 Sub-total 210000
3. Fixed assets 3.Fixed liabilities
Land 5,50,000 Long term loans 2,75,000
Farm buildings 75,000
Sub-total 6,25,000 Sub-total 2,75,000
Total of all assets 1026500 Total of all liabilities 556000

20. Income statement
 Is a summary of the income and expenditure of the business for a
specific period, production year, financial year or tax year.
 For an existing business, include information for at least the last one
or two years.

21. A Sample income statement of Mr. Yusuf Farm as on 29.05.2019
Particulars Amount (N)
I. RECEIPTS
A. Returns from the sale of crop output 52,000
B. i. Revenue from milk and milk products 5,000
ii. Revenue from poultry enterprise 12,000
Revenue from supplementary enterprise ( i+ ii) 17,000
C. Gifts 2,000
D. Gross cash income(A+B+C) 71,000
E. Appreciation on the value of assets 3,000
F. Gross income(D+E) 74,000
II. EXPENSES:
Operating expenses or costs
A. Hired human labour 10,500
B. Bullock labour 900
C. Machine labour 1,500
D. Seeds 1,100

22. E. Feeds 5,000
F. Manures & fertilizers 3,000
G. Plant protection measures 1,550
H. Veterinary aid 500
I. Irrigation 250
J. Miscellaneous 2,000
K. Interest on working capital 2,100
Total operating expenses (A+B+C+D+E+F+G+H+I+J+K) 28,400
III. FIXED EXPENSES OR COSTS
L. Depreciation 3,00
M. Land revenue 200
N. Interest on fixed capital 3,200
O. Rental value of owned land 10,000
P. Total Fixed costs (L+M+N+O) 16,400
IV. Net cash income : 71,000-28,400 = 42,600
V. Net operating income : 74,000-28,400 = 45,600
VI. Net farm income : 45,600 – 16,400 = 29,200

23. Measures of business viability
The Net Present Worth (NPW)
 Is the most straightforward discounting cash flow measure of project worth which is
calculated by finding the difference between the present worth/value of the benefit stream and
the present worth/value of the cost stream. Mathematically, it is written as; NPV = PVB – PVC
 Internal Rate of Return
It is the rate of discount at which the total discounted cash benefit expected from the projects
equals the total discounted cash cost required by the investment. interpreted as the highest rate
of interest an investor could afford to pay, without losing money if all funds to finance the
project are borrowed and if debt service was paid by use of cash proceeds from the investment.
IRR = Lower Discounting Rate + Difference between the two discounting rate x (NPV@lower discounting
rate/sum of the two NPVs)

24. Management of Business
 Managing an organization is more than just the desire to be
the boss. It demands dedication, good decisions, and
management of both employees and finances.
 Management plan directly addresses the
organization’s/farm’s strengths and weaknesses and
explores areas where new personnel and resources may be
needed.
 Responsible Management provides full consultation services
on all aspects of business plan development.

25. Conclusion
 To ensure sustained growth and development in the economy and to
attain a self-sufficient nation in terms of food production, agricultural
businesses plays a vital role.
 Poor or inadequate planning and planning management may lead to a
high rate of failure in agricultural business, which consequently leads
to an adverse effect on the economy and food situation particularly
developing economies with a limitation of capital, like Nigeria.

26. QUESTIONS

27. Thank You for Listening
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