Farm Credit West: Notebook: Financial Tips

Building a business plan

Why do I need a formal business plan?
Operating any business without a plan is like building a house without blueprints. A good business plan provides you with a profile of where you want your business to be in one year, three years, five years or maybe even longer.

The most important characteristic of a well-constructed business plan is that it provides your business with short- and long-term objectives. Without objectives, it will be difficult for you to measure progress during the year and your degree of success at the end of the year.

What should be included in a business plan?
A good business plan features a short-term component and a long-term component:

The short-term component is a cash flow statement that shows when and how your business generates and consumes cash.
The long-term component outlines your long-term business objectives.

What benefits does the short-term component provide?
The short-term component of the business plan — your cash flow statement — is a useful planning tool. The short-term component can identify:

Short-Term Component
Objectives	For Example
Financial objectives	Decrease total debt by $20,000 by year end.
Production goals	Ship 3,000 trays of fresh strawberries.
Expense and management goals	Stay within 2 percent of budgeted expenses.

What does the long-term component provide?

The long-term component articulates your long-term objectives by detailing specific targets you expect to reach at three months, six months, nine months and the end of the year. Your long-term component can identify a wide range of objectives:

General Objectives
Objectives	For Example
Financial goals	For revenues, expenses or debt reduction
Production targets	For cases of wine shipped
Capital acquisitions	Such as a new harvester or bottling line
Labor management	To increase/reduce work force by two employees
Specific Objectives
Identify long-term debt levels per operating unit
Determine liquidity levels that will help meet unexpected adversity
Set conditions under which expansion is feasible
Itemize targets for expense management

Credit
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Management
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     Building a business plan
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