Making Money on the Homestead: How to Write a Small Farm Business PlanNov 10, 2020
Despite your desire to be self sufficient, or perhaps get outside the city, if the money is not there you cannot survive. This is why financial matters must be squared away before you run off to the hills and forsake city life. But the good news is that there are numerous ways to generate money from the homestead. But like anything else, there needs to be some forethought and planning. It is not that difficult to establish a small business and generate some income. However, one of the most frequent things that is overlooked is simply having a solid business plan. At a minimum, it will at least put some sort of structure to your plan to make money on the homestead.
Making money from the homestead can be as simple as producing a few products and selling them at the local farmers market. Or you can develop a small business that ends up funding most if not all of your lifestyle. No matter what the scale of your business ends up being, it is best to have a plan in place for that business. Having a plan is the best way to ensure success in any endeavor. But when it comes to business, having some sort of written business plan is best.
The formal definition of a business plan is that it is a written document that describes the nature of the business and how that business is going to achieve its goals. This includes sales and marketing strategy, financial background, and a projected profit and loss statement. A written business plan, whether formal or informal, provides an overall direction for the business, helps to plan for the future, and also helps with investment and loan strategies if that should be necessary.
That said, let’s dive a little deeper. Depending on your goals for making money on the homestead, the information here may be a bit over the top for your taste. But, it is a short read and will give you some valuable framework for a business plan whether that is simple or complicated.
Reasons to Write a Business Plan
Starting a business requires a certain amount of forethought and planning. A well thought out business plan not only increases your odds of succeeding but also helps in several other ways:
- Defines your estimated start up costs. Projects your initial investment and the potential for borrowing money.
- Guides you through each stage of starting and managing your business.
- Defines your potential profit
- Defines your market and potential revenue from the start
- Convinces lenders and investors to fund your business
- Defines your competition and helps to identify their weaknesses and your strengths
- Outlines potential problems
Sections of a Business Plan
Title Page and Contents
Especially if you are trying to attract investors present your business plan in a binder and make it look as professional as possible. You should include the name of the business, name (s) of the owner or principle, address, phone number, email, website address, and logo if you have one. This should be short and succinct.
Think of this as your mission statement. It is your statement of purpose and is a brief summary of your reason for writing the business plan. It tells your reader what you want and why right up front. If you are asking for a loan, then why? How will you repay the loan. The summary or mission statement should be no longer than half a page in length and should touch on the following concepts:
- The basic business concept, a description of the business, your product, the market you serve and what is your competitive advantage.
- Financial features of the business: amount of start up capitol needed, amount of capital needed for expansion, how money is used and what collateral is available.
- Current business situation: legal form of operation, when the business was formed, principal owners and any key personnel
- Any noteworthy achievements such as patents, prototypes, important contracts.
Description of the Business
This is where you provide information about your business that is far more detailed than in the summary. Think of it as providing back ground information about your business.
- Where are you located?
- How many acres of land are you farming?
- When did you start your farm and how you are currently operating?
- What general farming practices do you use?
- What type of business is this? Sole proprietor, partnership, C or S corp?
- Details of what type of industry you are in
- When describing your business, discuss the present state of the market you are in and where you think it will go.
- Describe who your customers are, the size of your market and how your product will be marketed and distributed.
Description of the Product or Service
This section should be several paragraphs in length depending on your business plan and the complexity. If your purpose is not complicated, then describe your business in one paragraph, the product in a second paragraph, and your potential for success in two or three more paragraphs.
When describing your product or service, it is imperative to make certain that your reader clearly understands your purpose. Explain why your product or service is different from others. What specifically sets your business apart from others in the market. Explain why your business will be competitive and profitable.
If you are seeking to secure a loan, use hard facts to support your claim. Why will the loan make your business more profitable? How will the money be used?
A market analysis helps to establish pricing, distribution, promotional strategies, as well as define your prospects. Initially you need to define your market in terms of structure, size, demographics, trends, and potential growth. What are your potential annual sales? How often will your product be purchased. What is your potential market share? You must realize that no have 100% of the market share and that 25% is considered excellent.
Next describe your market position. How you differentiate your product or service from your competitors and what niche you fill in the market is your “market position”. Your positioning statement identifies your product in the eyes of your customer. It needs to point out your target market, how you will communicate with them, who your competitors are and you unique selling proposition. This statement also needs to contain information about how you will price your product or service.
The last part of your market analysis is your promotional strategy. How will you make customers aware of your product and services? You need to address advertising, public relations, sales, packaging, and distribution.
Farm Strategy and Competitive Analysis
This is the part where you start to look into the future and make projections for the next 5 years or so. You also need to do a SWOT analysis. This is an acronym for strengths, weaknesses, opportunities, and threats.
- Analyze your internal strengths and weaknesses.
- Analyze the industry and discuss business opportunities as well as potential threats such as government regulations, economic conditions, and competitors.
- Discuss direct and indirect competition in your market.
- Look at general market demands and industry trends.
- Create alternative strategies that give you a distinct market advantage.
- Analyze all of your strategies and relate that back to your mission statement.
- Write a plan to implement your new strategy.
Operations and Management
This is the part of your business plan that describes your business functions on a day to day basis. It should highlight logistics, management responsibilities, tasks assigned to each division if your farm is large enough.
There are three primary financial statements that form the core of your business plan: income statement, cash flow statement, and balance sheet.
- Income statement: This shows just how your company makes or looses money during the year. It includes cost of goods, sales, expenses, profit or loss, and net revenue.
- Cash flow: Describe how much cash is needed to meet your obligations, when you need it and where it comes from. This should show a profit or loss at the end of each month and the end of the year.
- Balance sheet: This includes assets, liabilities, and equity. This is used to calculate the net worth of the business or individual by measuring assets against liabilities. If this is a new business, you will need to include personal financial statements.
This section should include any documents that you think may be of interest to your reader. It can include any of the following:
- Three years of tax returns
- Reference letters
- Copies of contracts with suppliers, clients, or customers
- Letters of intent
Putting it all together
When it comes to making money on the homestead, a little forethought and planning will go a long way to ensure your success. Depending on the scale of your business, you may not even need a formal business plan. However, taking the time to put together an informal business plan may help you determine whether you should even enter a specific market. So it is important to go through this process to some degree.
If this is something you have never done, follow these tips to ensure success:
- START SMALL!!
- Know your local laws and keep things legal.
- Do some market research to make sure there is a demand.
- Invest enough money to get things going on a small scale.
- Establish a few customers and see how things go.
- Make it a point to produce a good product.
- Make it a point to exceed your customers expectations.
- Make it a point to establish a good reputation and rapport. Word of mouth recommendations are worth their weight in gold.
Stay tuned for more posts that focus on making money on the homestead. I hope this post was helpful.
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