I recently read an article on CNNMoney.com about some organic farmers who wanted to expand their farming business, but it meant taking on bank debt. Courtney Lowery Cowgill and her husband had a small organic farm specializing in vegetables, turkeys and ancient heritage grains in Conrad, Montana.
They started the farm using borrowed funds from friends and family. It was a three year loan at a very low rate of 3%. Different than most farming businesses, the Cowgill’s were just working leased land as their farm without living there. Their business model used a subscriber base, where the participants paid in advance for a portion of the crop. Although they were doing well, they wanted to expand which meant they needed capital to grow their business. They wanted to buy equipment, land, live on the farm and increase the grain business. They decided they needed more capital which meant a loan from the bank.
Going to the bank, no matter how successful you are is daunting. Bankers ask a lot of questions and want a business plan. The Cowgills were scared, but they had a successful business. Now they are asking for a loan to make it a full blown business. Farms have history of failing under the burden of debt particularly in hard economic times. Farming is a risky business anyway because crops can fail, weather can wipe you out, disease can destroy animals or crops, and market conditions can put you out of business too. One year you’re looking through a selection of John Deere tractors to buy and the next you’re trying to eke out a living. Why would anyone want to enter this kind of business? I am sure the bankers asked many more questions.
What would you do? It was the Cowgill’s dream to take this fledgling business and turn it into a real business. They were scared of the debt, but needed it to expand! Anything less, they might as well sell it off, because without the expansion the business cannot grow. They had to face realty, if they were serious farmers they needed to expand. Have you ever wanted to do something, but afraid to do it? Many people go through these decisions, the successful ones were afraid, but overcame that fear.
The Cowgill’s had to come up with a business plan. What is a business plan? It is a road map for the business over a period of time to show the owners, bankers or investors how the company will be successful. What is in a business plan? Business Plans usually include these eight (8) steps: Most plans start with the company name and a description of products or services they are selling. A vision statement will describe in broad terms what the company will look like in five years. Next is a mission statement which will define the business activities and how the business distinguishes itself. Goals and objectives would define what will be achieved in the business. Strengths, weaknesses, opportunities threats (SWOT) analyze your business, industry, marketplace, competition and technology that could affect your success. Strategic action plan is describing your strategy for sales and marketing. Financial plan would include a budget, cash flow statement, five year projection and financial statement. Last, measuring and evaluating your goals. You will monitor your performance compared to your budget in the business plan on a regular basis for the bank or investors.
Working through your business plan will give you a realistic view, if your business will ultimately be successful or not. That and the bankers or investors will make sure that the business is viable. If you need outside capital to start or expand a business, you will need a business plan. This is scary, but waiting has a cost associated with it too. Are you willing to give up your dream? There are alternatives to getting a bank loan or any loan; you can ask investors to buy into your company. You still need your business plan, but you will give up some ownership in this option. This option has no debt, but you end up dividing the profits. How much would you give up? That is negotiable, and depends on risk and valuation. Either way it will cost you something, but you have a chance to achieve your dream. What would you do?