by Jaco Cilliers
The life of a farmer is often romanticised as peaceful with wide open spaces, an early morning sunrise with a coffee in the hand. The truth is that the farmer needs to have the same business approach as the CEO working in Sandton.
A farm is above all a business and should therefore be operated on sound business principles to be successful. One of the first steps in any business is having a business plan. This article will guide you through the process of setting up a business plan for your farm.
What is a business plan?
A business plan is a document of how a business owner, manager or entrepreneur intends to organise a new business and put activities in place for the business to succeed.
Businesses need plans to optimise growth and development according to priorities. A business plan is not only to look for financial assistance or for initiating a business start-up, but it is an evolving working document that should be reviewed regularly and adopted to changing circumstances.
To raise funds for a start-up business venture, or to raise additional capital, your document must fulfil the requirements of a funding institution or sponsor.
A good business plan involves research on the external and internal business environment like competitors, suppliers, consumers, etc., which can be translated into a detailed action plan showing the areas of competitive advantage and how you will combat problems. You can use the business plan to identify opportunities, analyse the life cycle of the business and each activity in the business, and plan for capital requirements.
Common mistakes in the drafting of business plans
Most prospective entrepreneurs focus mainly on the infrastructure that is required and ignore the cash flow, which is critical to the daily operations of the business. Cash flow assists in managing your financial resources, i.e. debtor and creditor control.
Vague business plans
Prospective entrepreneurs or compilers of business plans assume that the reader/funding institution/investor knows what the business venture is all about. Which may not be the case. Therefore, it is important to provide as much detail as possible and elaborate wherever necessary to clarify the needs of the business.
Almost all writers of business plans assume that the business will succeed, hence they make unrealistic assumptions. It is advisable to benchmark against existing or similar businesses in the industry for acceptable standards. The goals of the business must be realistic and achievable. Rather start small and then expand.
Many business plans ignore the risks or do not make provision for risks. It is critical that the business plan should include all risks and provide information on how some of those risks can be mitigated.
Many prospective entrepreneurs ignore incorporating information on competitors, either through their lack of knowledge of them, or they are not aware of the significance of competitors to their business. It is, therefore, imperative, as a new or existing business, that you are aware of the competition and that you accentuate your competitive advantages in your business plan.
Suppliers play a critical role in your business. It is important to know who and where your suppliers are as they contribute to the effective and efficient running of your business. Inconsistent and lack of the necessary inputs from suppliers will impact negatively on production and could result in non-delivery of products to the market. Hence building and strengthening relationships with your suppliers contribute to the long-term sustainability of your business.
Recommended production systems size
It is important when drafting a business plan to take into consideration the recommended production systems. The following are only examples and it is advisable to contact your nearest provincial department of agriculture for assistance.
Recommended minimum farm size for cattle farming
Cattle needs lots of space. If you want to farm with cattle and make enough money to support your family, you need to plant feed for the animals too.
The average carrying capacity figure for cattle in Gauteng is quoted as 8 ha/LSU (large stock unit). In other words, for every cow on your farm you need 8ha of land. Therefore, if you have 35 cows your farm needs to be at least 280ha. If you plant grain for extra food for the cows you can keep more animals. Instead of 35 cattle on 280ha, you can keep 200 cattle on 280ha if you plant feed for the animals.
Recommended farm sizes for grain production on dry land
A minimum farm size of fifty (50) ha under dry land is recommended if a threshold of R30 000 net profit is targeted.
Recommended minimum farm sizes for vegetables
A minimum farm size of five (5) ha under irrigation for fresh fruit and vegetables is recommended if a minimum of R30 000 net profit is targeted.
Chickens: Broilers and Layers
Recommended minimum farm units for broilers is a minimum farm unit of 5 000 broilers and for laying hens the minimum recommended number of hens is 2 500.
For additional information and assistance with your farming business, contact any of these institutions:
- Micro-agricultural financial institution South Africa (MAFISA): Tel: 012 319 7295
- Land Bank: Telephone 0800 005 259
- Development Bank of SA: Telephone: 011 313 3911
- Umsobomvu Youth Fund (UYF): Telephone 011 651 7000
- Department of Trade and Industries (DTi): Telephone 086 184 3384
- Industrial Development Corporation (IDC): Telephone 0860 693 888
- General support SEDA: Telephone 012 441 1000
(*Source: South African Department of Agriculture, Forestry and Fisheries)