Business planning for agribusiness

Maria Chiara Forte

“Plan for what is difficult while it is easy,

do what is great while it is small.”

Sun Tzu1

1
McNeilly, M. R. (2012), Sun Tzu and the Art of Business - Six Strategic Principles for Managers, Oxford University
Press, Inc., New York.
Introducing Business Planning

In the words of Benjamin Franklin, “By failing to prepare, you are preparing to fail”.2 Entrepreneurs
that accurately analyze competition, market dynamics, customer information, and take actions in a
proper and timely manner will gain a competitive advantage. In addition, how organizations break
down data, modify strategy, and move their assets creates competitive advantage. Planning does not
only mean arranging the way of getting things done. A good plan is the best approach to accomplish
organization results in intense business conditions as a road map and should include adaptability and
contingencies to deliver successful results.
There are suggested formats that will help control the planning process, yet they ought to be tweaked
to the requirements and phase of business the organization winds up in (startup, growth,
consolidation, and so forth). Planning can be viewed as a hierarchy of reasoning and thoughts that
meet up to complete an image and turns into the vision without bounds both in the long term (strategic
plan) and for the time being (business plan).
Startup-centered plans distinguish the means that a new business will stick to, in order to start
production, services, and build customer base. It will highlight the standard aspects including the
organization culture and values, product or services, market specifics, trends, execution processes
and timing, core team, and financial analysis. The financial analysis incorporates forecasted deals,
volumes, income, accounting reports as key aspects of making the underlying course of action.
Inside-centered plans are not meant for outside financial specialists, banks, or third parties. They
may avoid data that is not closely connected to inward plans purpose, like the organization history
and culture, ownership data, while including just the sections with the fundamental elements that
apply to their key business decisions and goals. One case of an inside centered arrangement is one
that accentuates activities and spotlights on interior abilities. This sort of plan is more focused on
particular execution turning points, due dates, and duties that help the business.
Development-centered plans will stress the open doors that may exist for new product offer, new
business gains, or making a noteworthy extension of the current business. Frequently, these plans are
connected to money related prerequisites or potentially venture openings.
Feasibility-centered plans are basically startup plans that incorporate the fundamentals of the
strategy, linking it to potential business gains to help decide whether the new opportunity has the
sufficient return on investment to push ahead.
Business planning can be defined as a yearly process intended to achieve one-year targets that
connects to the strategy previously built up by management. The reason behind a business plan is to
define the assets and resources expected to start and expand the business, raise capital or as a guide
for carrying on the business more profitably and evaluate results.3

Building an effective Business Plan

The business plan is the centerpiece of the planning process. It links the longer-term view of strategic
planning to the tactical or annual plans for business units, functions, departments and teams, and
individuals.4
Since business plan elements should reflect the company vision and show the execution plan and the
costs required, it has a few advantages and assists companies to keep a distance from the issues
normally recognized by effective business managers.
Main benefits of developing a Business plan can be listed below:

2
Anon (2011) 7 Must Read Life Lessons from Benjamin Franklin. Business Insider, http://www.businessinsider.com/7-
must-read-life-lessons-from-benjamin-franklin-2011-6?IR=T [Accessed on 6 May 2018]
3
Cokins, G. (2013), Strategic Business Management - From planning to performance, American Institute of Certified
Public Accountants, Inc., New York.
4
Capezio, P. J. (2010), Manager’s Guide to Business Planning, McGraw-Hill, New York.
• Determining the resources and timing required. It demonstrates the current assets of the firm,
the assets required and a few potential providers of these assets. This enables the company to decide
how much cash is required in different circumstances to get these assets and the way to acquire the
cash and some other assets from outside capital suppliers.
• Establishing the core team of the firm. Since the business plan is an extensive paper, it completely
highlights all the significant opportunities to be dealt with. This empowers Management to establish
techniques and business continuity plans to decrease the effect of any issue.
• Guiding and assessing. By defining objectives and due dates, the business plan outlays the goals
and rules of conduct. Achievements and successes can be estimated, and any discrepancies adjusted
in a proper way. By being reassessed and revamped periodically, the business plan can be utilized to
manage choices and help maintain a distance from clashes.
The sections contained in a business plan would differ to a certain extent in view of the purpose of
the plan, as stated above, but most business plans have the same components. These can be grouped
into two main sections.

Business Plan - Section 1:

Section 1 should contain the title (cover) page, table of contents, and executive summary.5
The title (cover) page is an essential piece of each business plan since it has:
• The organization name, address, phone, fax, email address, and webpage;
• Name and position of each member of the core team;
• The objectives behind the plan and the resources required.
The table of contents should follow the title (cover) page all sections and subsections including page
numbers, as well as figures, exhibits and tables.
The last element to be included in the first section is the executive summary. Some capital suppliers
just read the executive summary to conduct a pre-assessment of the company and then the complete
business plan is required. The executive summary should include the name of the organization and
address, website, characterize the nature and size of the business, markets served, business structure,
main destinations of the business, competitive advantages, raising suggestions and explaining
business opportunities and identify potential deals to be gained, making information accessible to
stakeholders and external suppliers.
Profit and losses should be highlighted over a 5-year time, including total revenues, cost of goods
sold, gross margin, operating expenses, and profit (loss) before taxes, data to be detailed more deeply
in the pro forma income statement summary in the financial plan, to be included in Section 2. The
executive summary should end with an announcement of the assets and/or capital required and contact
data.
An example of a farm Business Plan executive summary could be found in Appendix 1.

Business Plan - Section 2:

Section 2 should start with a Business overview, company vision and mission, highlighting the nature
of the business, depicted to give an awareness on the activity, how products and services fit with
customer needs, in enough detail to be effortlessly comprehended.
Entrepreneurs should answer following questions in this section:
• What is my business?
• Where do I make profit?

For example, Ag Ventures Alliance (AgVA) is a business development organization for value-added
agricultural ventures, formed in 1998 by a group of farmers and agriculture related individuals in

5
Lipman, F. D. (2010), The Family Business Guide - Everything You Need to Know to Manage Your Business from
Legal Planning to Business Strategies, Palgrave Macmillan, New York.
northern Iowa, aiming to increase the incomes of farmers and other rural residents by participating in
agriculture related businesses beyond the farm gate. Ag Ventures supports ventures that:
• Provide economically sound business opportunities for its members;
• Produce high quality products that are safe for consumers;
• Meet the changing needs and desires of consumers;
• Practice high ethical business standards;
• Respect and protect the environment.

AgVA's Vision: A vibrant rural economy driven by value-added agriculture.

AgVA's Mission: To create and facilitate the development of value-added agriculture business
ventures6.

An Industry overview is also needed in this section, to examine the industry patterns over the last
3– 5 years, forecasts and developments, and Diagrams, figures, tables and exhibits could be added in
the Appendixes of the Business Plan. A chart demonstrating the market trend and market share is
essential in view of the recent patterns of the industry.
Following question should be answered:
• Which market am I in?

A competition analysis should follow by using information from legitimate sources, to identify the
competitive environment. This means:
1. Determine the role of price in your product positioning;
2. Define what kind of competitive reaction can be anticipated to price moves in various
situations;
3. Determine competitive strengths & weaknesses;
4. Assess what industry supply & demand factors should be considered in judging competitive
reaction;
5. Clarify who’s buying what;
6. Determine past & emerging trends;
7. Determine how price & other actions can be used to manage competitors effectively &
promote industry profitability rather than set off a price war;
8. Identify how customers respond to price changes;
9. Manage conflicting objectives like profit & volume when making pricing decisions;
10. Measure the role of variable & fixed costs.7
Following question should be answered:
• Who is my competitor?
A useful tool to perform a competition analysis is provided in Appendix 2.
Following the Business and Industry overviews, a Technology Plan could be mentioned. The
technology plan outlines the shape and stage of the innovation and a new technology or innovation
adopted or to be launched should be extensively explained in this section.
Following element to be included would be a Marketing Strategy, where the customer is the focal
point. As a first step, product and market offer should be defined for the identified types of customers,
size of opportunities, benefits to the company, price value positioning versus competition, availability

6
Anon (2018) Our Mission. Ag Ventures Alliance, http://www.agventuresalliance.com/agva/mission/ [Accessed on 29
April 2018]
7
Tomczak, T., Reinecke, S. and Kuss, A. (2018), Strategic Marketing - Market-Oriented Corporate and Business Unit
Planning, Springer Gabler, Wiesbaden, Germany.
of information and where possible define the necessary steps to either beat or get the competition to
follow.
To quantify product values offered to the customer it is crucial to assess:
1. Base price decisions on the customer’s perceived value rather than on cost;
2. Quantify value of product advantages (internally or using tools);
3. Determine whether value differences with competition are hard or of soft value;
4. Define if competition is within a price tier or across a price tier;
5. Manage the movement of customers both trading-up and down to lower price tiers;
6. Recognize & manage price changes in same-tier competitors;
7. Analyze individual competitors to assess their drawing power.8
To reflect possible competitive outcomes is important to knowledgeably speculate about the
competitive tactics to be employed, evaluate the impact on segments which will likely be targeted,
identify the approaches that might be implemented for short- & long-term category performance.
Moreover, developing a communication strategy that reflects value trade-offs for prices charged for
the appropriate customer segments survival is key.

Following the Marketing Strategy, a Production (or outsourcing) Plan should be arranged to demonstrate
how the offering will be created and delivered. Understanding the way costs behave in various situations
is critical in understanding the business and how to optimize profit. Cost can be split into two main
categories – Fixed and Variable.

A fixed cost is one that stays constant, regardless of $

the volume of sales (e.g. rent, depreciation, light and
heat). Since fixed cost are cost that are not associated with
activity (volume), these have to be incurred no matter
what the activity (volume) is. Examples of fixed costs are
warehouse rental and expenses, depreciation, salary,
wages and benefits.
Sales units

Over a wide range of sales units, a fixed cost will $

have a stepped graph. Taking rent, the fixed cost will
be constant until business activity is so strong that the
current building is insufficient, and an extra building
is required. Fixed costs increase in steps, examples
are rent and depreciation.

Volume
A business with high fixed costs, such as an airline, will be more vulnerable to a fall in volume
because the fixed cost must be paid whatever the level of sales. However, in boom times once the
fixed costs are covered the business very rapidly makes a profit.9

8
Wittmann, R. G. and Reuter, M. P. (2004), Strategic Planning - How to deliver maximum value through effective
business strategy, Redline GmbH, Heidelberg, Germany.
9
Stadtler, H., Meyr, H. and Kilger, C. (2015), Supply Chain Management and Advanced Planning - Concepts, Models,
Software, and Case Studies, Springer, Heidelberg, Germany.
A variable cost is one that varies with volume of sales (e.g.
materials and packaging). Variable costs increase
proportionally to volume; examples are raw materials and
packaging. Variable Cost is cost that fluctuate with activity
(volume): the higher is the activity (volume), the higher is the cost.
Examples of variable costs: delivery cost, sales commission, etc.

A business with high variable costs, such as a supermarket,

will be able to save on cost when volume falls. In boom time
more variable costs will have to be incurred to meet sales
demand and thus profit growth is not as rapid compared to a high fixed cost business.

When fixed and variable costs are shown on the same graph a business model starts to materialize.

A key point on the graph is where the business breaks even.

Break-even is where Revenue = Fixed + Variable Costs and it is calculated as:

Fixed Costs/(Revenue – Variable Cost)x Revenue.

A sales level above this point will

yield a profit. A sales level below this
point will yield a loss. Break-even is
where profit is zero and total revenue
equals total costs. To calculate the
level of revenue needed for break-
even, the following formula is used:
revenue x fixed cost/contribution (see
Appendix 3).

Contribution is the amount of money left over after variable costs are deducted from sales.
Contribution is used to pay fixed costs with any surplus being profit. Contribution can be expressed
as a percentage of sales. For optimization a high fixed cost business should focus on increasing
volume and outsourcing non-core fixed cost while a high variable cost business should focus on unit
cost efficiencies. The effect of these efforts will move businesses towards the “ideal” position.
Ironically, a business that reaches “ideal” is unsustainable without patent protection. This is because
competition will eventually drive market prices down, raising the variable cost proportion.10

The Business Plan should now continue with the Organizational Structure, that predominantly
reveals two parts of the business: the type of ownership, authority and obligations. Entrepreneurs’
and managers’ resumes could be included here as well.

10
Plank, P. (2018), Price and Product-Mix Decisions Under Different Cost Systems, Springer Gabler, Wiesbaden,
Germany.
After the Organizational Structure, an Operational plan should be included. This explains in detail
how the organization will work, including the delivery of goods and orders. Desired return on equity
and exit strategy should be well stated for investors.

To conduct a business evaluation, a Financial Plan should be published. Because of the rising
number of commercial transaction and access to investments, the value of equity should be assessed,
as a difference between the value generated by the whole business minus the value of debt. The three
main financial statements that are used to monitor a business are as follows:

1) The Income Statement: A statement showing the incomes earned and the expenses incurred over
a period of time. Subtracting expenses from income leaves profit. Also known as “Profit & Loss
Account Statement” gives an account of all the Income (Revenue) and all the costs for a pre-
determined period (normally one year).

Income statement reflects Revenue & Cost:

• Profit (+)
• Loss (-).

An example of Income Statement could be found in Appendix 4.

2) The Balance Sheet: A snapshot of the business showing the items a company owns (assets), the
balances it owes (liabilities) and the investment put by the company’s owners (shares and retained
profit).

Assets (what you own) - Liabilities (what you owe) = Equity (Left for the owner).

Main elements of Balance Sheet are mentioned in Appendix 5,6,7.

3) The Cash Flow: A statement summarizing the cash received and paid by a company over a period
of time. Cash flow statement tells how much cash does the business have on the same date as the
Income statement, it also tells us for the same period as the Profit and loss account on how the cash
was generated, where is the source of cash coming in, how is the company spending the cash. Cash
flow shows company’s ability to meet its commitments (ability to pay its bills). Profits do not equate
to cash flow, they merely contribute to it. Elements of Cash Flow Sheet could be found in Appendix
8.11

11
Hisrich, R. D. and Ramadani, V. (2017), Effective Entrepreneurial Management - Strategy, Planning, Risk
Management, and Organization, Springer International Publishing, Cham, Switzerland.
 How much income What is the state of Where is cash
has been earned? affairs? coming from and

Income Balance
Statement Sheet Cash Flow
Statement

Supplemental Information:
Notes to Accounts
Auditor's Report

Evaluate

The addition of all positive and negative cash drivers will add up to company change in cash position:

Positive operating cash flow is not necessarily a good thing since business may be declining and
liquidating its operating assets (inventory/acc. receivable) or business may have delayed paying its
accounts payable. At the same time, negative operating cash flow is not necessarily a bad thing:
growth in sales and profits can cause an increase in operating assets causing negative cash flow. Over
time operating cash flow must be enough to at least provide for the daily operating expenses and
short-term debt payments and negative Cash Flow before financing will harm the business in the long
run.12

12
Capezio, P. J. (2010), Manager’s Guide to Business Planning, McGraw-Hill, New York.
Cash Flow statement states the amount of cash the business has on the same day as the Income
Statement:

• States how the cash was generated for the same period as the Income Statement,
• States the sources of the cash inflow,
• States how the company spent cash.

When the financial results of a business, division or department are produced, one aim is to understand
how well the unit has performed and identify the actions that need to be taken to remedy any
problems. On their own the results can be a fairly meaningless set of numbers. To understand
performance, the results need to be compared to something. One of the easiest comparisons is to past
results (see Appendix 9). This can reveal growth in revenue and costs etc. However, this process can
become quite introspective; a better comparison might be with major competitors to identify relative
performance. Competitor comparison is difficult to fulfill in absolute terms due to the different sizes
of the businesses. Therefore, a set of ratios becomes the most practical tool of financial measurement.
There are three key types of financial measures, that will be further explained in next chapter:

• Performance ratios for assisting business management;

• Liquidity ratios for appraising the ability to meet short term obligations;
• Solvency ratios for assessing funding status.

The distribution of profits and losses depends on partnership agreements and investments by partners.
That’s why after the Financial Plan, a Loan or Investment Plan should be added. Investors are
individuals or groups that provide a significant amount of capital at the start up and early growth
stage of the firm. Crowd funding is a relatively new way for an entrepreneur to raise financial
resources and include equity (share sale), debt (financing through various types of loans), rewards
and charity.
At this regard, the entrepreneur must rank risks based on priority in context of consequences that can
be caused if they appear. Based on this, risks can be divided into critical (damages that can cause
liquidation of the company), significant (damages that require additional investments in order to
continue with company’s operations) and irrelevant (damages can be covered with actual funds).
Then, they should define the likelihood that a certain risk will occur.13

13
Hisrich, R. D. and Ramadani, V. (2017), Effective Entrepreneurial Management - Strategy, Planning, Risk
Management, and Organization, Springer International Publishing, Cham, Switzerland.
Decision Making Factors include:

• Evaluate risk associated with new business growth;

• Evaluate cost associated with new business growth:
o Opportunity cost (Credit offer),
o Financing cost,
o Credit management cost,
o Bad debt cost,
o Selling expenses,
o Other cost.
• Look into financial benefits;
• Evaluate the affordability by looking into:
o Impact to operating cash flow,
o Financing resources,
o Company financial status.

Factors to Consider When Setting Prices

Revenue Management commitment is to identify and capture optimum value opportunities through
effective and efficient revenue management systems and processes that are proactive, data driven,
and integrated into the overall Marketing offer. This means aligning toward sustainable methods to
increase revenues, improving awareness of the customer’s value perception, identifying and capturing
optimum value opportunities, developing integrated systems and processes, and developing
knowledge based in pricing theory. Revenue management is a priority for all businesses.14
Price is the reward you receive for creating (product & service), capturing (Value) and
communicating the value to your customers. Many companies get hung up in what they produce while
ignoring what customers buy. The price is based on the utility ascribed to specific attributes from the
selling organization about their business operations Pricing strategy supports overall long term
business financial objectives and the main purpose of a pricing architecture is to have a consistent
Pricing Strategy across the different channels (e.g. B2B vs. B2C). Strategy should be integrated and
fully supports product line management activities, in particular the introduction and elimination of
products, consistent with the relative product positioning and value extraction objectives.

Pricing is measured as gain against baseline:

• Measured by product & customer;

• Baseline time periods may vary;
• Achievement aggregated on a Territory, Region, & National basis;
• Gain is expressed as both a $ and % measure.
Pricing process effectiveness is measured by:

• How much volume flows below baseline;

• How much volume flows against List vs. Discount;

14
Shy, O. (2008), How to Price - A Guide to Pricing Techniques and Yield Management, Cambridge University Press,
New York.
 • Price variations when price is discounted.
Performance is monitored by:

• Product & Customer, by time periods;

• Achievement aggregated on a Territory, Region & National basis.
Before entrepreneurs play with prices, the business needs to identify its objectives in terms of market
share, profitability, revenue and Return on Investment (ROI). You cannot have strategies & tactics
until you have objectives. Market share is defined by following elements: total market, share of
available market, share of retained market, share of relevant market. The key to profit-enhancing
pricing plans is the ability to engage in price discrimination via what economists call market
segmentation. Price discrimination prevails if different (groups of) consumers pay different prices
for what appears to be the same or a similar service or good. Market segmentation prevails whenever
firms manage to divide the market into subgroups of consumers in which consumers belonging to
different groups end up paying different prices.

There could be 4 types of Pricing Architectures:

• Cost Plus (also called “general”)

• Competition – Based Pricing
• Perceived Value Based
• Dead Stock.15
Cost-based pricing is perhaps the oldest form of pricing. It involves adding a fixed mark-up to a
product's cost to ensure a target margin.
Cost formula: Price = ( 1 + target margin ) x ( product cost )
This strategy is common where it is difficult to know the competition’s price, relatively easy to
implement and use on a day-to-day basis, effective at ensuring the product is sold at the target margin.
It may not be effective at ensuring the product achieves other important objectives especially when
transfer or other allocated fixed costs are added to the cost formula to make the product cost
uncompetitive. It is also difficult to launch new products with a cost not matching customer
expectations of value.
If you diagram cost-plus pricing, it would look like this:

What prices do we need to cover our costs and earn a profit?

Firms earn much higher profit if they set prices according to consumer value as opposed to basing all
pricing decisions on unit cost only. It is not rare to hear managers state that their profits are generated
by charging consumers a certain fixed markup above unit cost. In most cases, such cost-based pricing
techniques fail to extract a large part of what consumers are actually willing to pay.16

15
Plank, P. (2018), Price and Product-Mix Decisions Under Different Cost Systems, Springer Gabler, Wiesbaden,
Germany.
16
Shy, O. (2008), How to Price - A Guide to Pricing Techniques and Yield Management, Cambridge University Press,
New York.
Competition-based pricing (often called “Reference Pricing”) sets a product’s price by adding a set
premium – or discount – to the price of a competing product (or basket of products).

Price = { 1 + ( target premium or discount ) } x ( competition’s price)

This strategy is common in environments where the competition’s price is very visible and/or rapidly
changing e.g. Cell Phones, Laptops, Airlines. It is relatively easy to implement and use on a day-to-
day basis, effective at ensuring the product is sold at the target premium or discount but may not be
effective at ensuring the product achieves other important objectives.

Perceived Value Based Pricing sets the price of a product by tying it to the dollar (value), the product
delivers as perceived by the customer versus the best available alternative in the market. It is common
for new product pricing – especially in the case of very innovative products, common when products
mature, product differentiation requires measurement and common for understanding the value of
alternative choices e.g. bundles in order to avoid price transparency. This approach cannot be
implemented rapidly, requires careful consideration of alternatives and their pros and cons. 17

Price = base + some incremental economic benefit vs. best alternative

If there is no competing alternative, then best alternative should measure total benefit derived by
Customer.

Perceived Value Based Pricing inverts the cost-based pricing chain by recognizing the economic fact
that the customer is the ultimate arbiter of value:

What costs can we afford to incur on this project given the price obtainable from the customer and
still earn an adequate profit? Customers buy what happens when they use suppliers products or
services and profitability emerges from the benefit of the customer using the product. Discussion
progresses to… “What’s the Right Value” instead of “What’s the Right Price” and value discussion
forces customer to reveal more.

Perceived Value Based Pricing is driven by the value we expect to extract from our products by
looking at components such as brand equity, technological advantage, product offer, services and
market environment. Translating product features into customer value means:

17
Cokins, G. (2013), Strategic Business Management - From planning to performance, American Institute of Certified
Public Accountants, Inc., New York.
 • Product Focus:
- What we sell;
- What are the features;
- What the product is;
• Application Focus:
- What the customer buys;
- What the product does;
• Customer Focus:
- What the benefits are worth;
- Economically and perception.18
Firms should attempt to differentiate his or her brand from competing brands, by adding more features
and services.
Value of the brand = Reference value + “Positive” differentiation values−“Negative” differentiation
values.
Value-Based Pricing often involves measuring some or all of these players:
• Who’s the User;
• Who’s the Influencer;
• Who’s the Buyer;
• Who’s the Decision Maker;
• Who’s the Undertaker.
A matrix would help the firm organizes its strategies & tactics to make a well-informed pricing
decision and hold price appropriate for value offered:

Hold Strategies (1, 5 and 9) could be used for stabilized markets, when there are clear lines of
demarcation among competitors and customers tend to classify products and services in boxes 1, 5,
and 9.

Penetration Strategies (2, 3 and 6) are difficult to execute unless they can be sustained for the long
term with the risk of falling into box 9.

18
Tomek, W. G. and Kaiser, H. M. (2014), Agricultural Product Prices, Cornell University Press, Ithaca, New York.
Skim Strategies (4, 7 and 8) are small, opportunistic but very profitable, usually take advantage of a
captive situation and should be considered as part of the profit portfolio of every company.
Dead Stock strategy, with lower pricing architecture than the Perceived Value Based or Cost-plus
strategy, is used to support old stocks depletion at attractive pricing. It can only be used when
product/material will be retired across the storage locations. If support is required for local stock
depletion for products in saleable condition price support can be granted via lowering the LP or via
discount mechanism.
All Pricing architectures contain a so called “Target & Floor” corridor:
• Target Price should represent the price level at which the majority of business
transactions occur, it is the desired price positioning for a product and should represent a
price level that returns margins that are aligned with the financial objectives;
• Floor Price should be the lowest price at which the company is willing to sell under
normal business circumstances, tt is based on internal judgment and/or market survey data
and should be set above zero delivered margin for premium and standard products and
above zero net margin for flagship products.19

Pricing Waterfall
List Price
- Discounts (or Surcharges)
= Net Price / Invoiced Price
- Early Payment Adjustments
- Rebates
= Pocket Price
While assessing how much discretion on price the firm’s sales force should have, it is crucial to
consider centralization and decentralization advantages and disadvantages.

CENTRALIZATION DECENTRALIZATION
Advantages: Advantages:
Control is maintained so that Sales Reps do not Quicker response to customer requests
give deep discounts to boost volume
Effort on communicating value, not negotiating “Price Menu” option pushed, as customers only
a discount, if they do not have authority to pay for attributes received
discount
Disadvantages: Disadvantages:
It takes longer for a customer to get a quotation Strict control measures must be set in place to
on price assure discounts are earned
May lose customers if not flexible Encourages customers to negotiate

19
Shy, O. (2008), How to Price - A Guide to Pricing Techniques and Yield Management, Cambridge University Press,
New York.
2.4 Appendixes
APPENDIX 1:

Farm Business Plan Executive Summary example

Greenway Farms Executive Summary20

Greenway Farms LLC is dedicated to sustainable, profitable and unique agricultural products. Our
mission is to produce and grow quality, specialty greens, baby vegetables and fruits to supply local
restaurants and consumers on the Eastern Shore of Maryland. Our goals include high quality products
to sell both wholesale and retail. Production methods include new technology utilizing sustainable
agriculture and best management practices. We hope to increase production by 20% and sales by 30%
in the next five years. Greenway Farms is owned and operated by John and Mary Green. The farm is
25 acres and has two round style greenhouses for production and to reduce production risk. The Green
family has been farming for 2 years and is relatively new to the industry even though John grew up
on a grain and dairy farm. The enterprise is a part-time venture since John and Mary both work off
the farm. Mary teaches school and plans on doing much of the selling and marketing during summer
vacation. John helps on the production side as well as daughter Julie who plans to take over the farm
in 10 years.

Through market research it is evident that consumers are interested in high end specialty products.
There is a move toward health and local that will benefit our operation. Some limitations include time
and labor to devote to the operation and being new growers we are still learning. Our advantage is
the specialty aspect as well as season extension. Greenway Farms has a net worth of $154,484. Our
income statement and cash flow for 2009 is negative due to capital expenditures, start-up costs and
low production. Over time these are expected to increase with the addition of fruit production and
increased greens and vegetable production.

20
Anon (2016) Greenway Farms – Farm Business Plan. Virginia Tech Department of Horticulture,
http://www.hort.vt.edu/ghvegetables/documents/Economics/Business%20Planning/MD%20Farm%20Business%20Plan
%20Case%20Study.pdf [Accessed on 28 April 2018]
APPENDIX 2:
Competitive Analysis Template:

My Competitor Competitor Competitor Importance

FACTOR Strength Weakness
Business A B C to Customer

Products

Price

Quality

Selection

Service

Reliability

Stability

Expertise
Company
Reputation

Location

Appearance

Sales Method
Credit
Policies

Advertising

Image
APPENDIX 3:

Break-Even Analysis
$25.000

$20.000

$15.000 TFC
TVC
$10.000 TC
Sales
Profit
$5.000

$0
0 400 800 1.200 1.600 2.000 2.400 2.800 3.200 3.600 4.000

($5.000)

Break-Even Point (units) = 2.000 Break-Even Point ($'s) = $10.000

Total Fixed Costs TFC = $3.000 Formulas:

Variable Cost per Unit VCU = $3,50 BEP (units) = TFC/(SPU-VCU)
Sales Price per Unit SPU = $5,00 BEP ($'s) = BEP (units) * SPU
APPENDIX 4:

Income Statement example:

Sales – COGS = Gross Profit

COGS: Cost of Goods Sold
Gross Profit – OPEX = Operating Profit Operating
Profit + Other income – Other Exp. (interest) =
EBIT(Earnings before Income Tax)

EBIT(bf.tax) – Tax = IAT (Income after Tax)

IAT – Dividends = Retained earnings

Operating Expense consist of such items Salaries; Commissions; Advertising; Rent; Travel;
Entertainment; Insurance; Legal fees; Office Supplies; Bad debts; Auto Expenses etc.

The term Accrual is also often used as an abbreviation for the terms accrued expense and accrued
revenue. Accrued revenue: revenue is recognized in the book before cash is received. Example: A
company delivers a product to a customer who will pay for it 30 days later in the next fiscal year,
which starts a week after the delivery. The company recognizes the proceeds as revenue in its current
income statement, even though it will get paid in cash during the following accounting period.
Accrued expense: expense is recognized in the book before cash is paid out. Example: A salesperson,
who sold the product, earned a commission at the moment of sale (or delivery). The company will
recognize the commission as an expense in its current income statement, even though, he will actually
get paid at the end of the following week in the next accounting period. The commission is also an
accrued expense (liability) on the balance sheet for the delivery period, but not for the next period the
commission (cash) is paid out to her/him.

Depreciation is the fall in value of an asset due to use, wear & tear, passage of time, depletion of an
asset or technological obsolescence.
APPENDIX 5:

Elements of Balance Sheet:

Equity: owners’ stake in the business, represents the invested capital plus any earnings not distributed
by way of dividend and retained in the business.

Working Capital, sometimes also referred to as Net Working Capital: Current Asset – Current
Liabilities.

Current Assets are assets likely to turn to cash within a period of 12 months from the date of the
balance sheet. Prepaid Expenses are assets, since it is cash paid in advance for expenses like rent,
advertising, insurance etc. Current Assets are generally valued at cost or net value, whichever is
lower. Examples of current assets are: Cash; Inventory.

Fixed Assets are assets likely to be used to facilitate business and have a life exceeding one year.
Including tangible assets and fixed assets: land, building, plants, equipment, vehicles etc. and also
intangible assets like goodwill, patents, copyrights. Fixed Assets are generally valued at Cost less
depreciation.

Liabilities are divided into Current and long-term liabilities. Current liabilities are due within a period
of 12 months from the date of balance sheet; they include for example accounts payable, loans payable
on demand. Long-Term Liabilities are due after 12 months and include a mortgage or other long term
notes payable.
APPENDIX 6:

Opening Day Balance Sheet

Enter your Company Name here

Assets
Current Assets
Cash in Bank $ -
Inventory -
Prepaid Expenses -
Other -
Total Current Assets $ -

Fixed Assets
Machinery & Equipment $ -
Furniture & Fixtures -
Leasehold Improvements -
Real Estate / Buildings -
Other -
Total Fixed Assets $ -

Other Assets
Specify $ -
Specify -
Total Other Assets $ -

Total Assets $ -

Liabilities & Net Worth

Current Liabilities
Accounts Payable $ -
Taxes Payable -
Notes Payable (due within 12 months) -
Current Portion Long-term Debt -
Other current liabilities (specify) -
Total Current Liabilities $ -

Long-term Liabilities
Bank Loans Payable (greater than 12
months) $ -
Less: Short-term Portion -
Notes Payable to Stockholders -
Other long-term debt (specify) -
Total Long-term Liabilities $ -

Total Liabilities $ -

Owners' Equity (Net Worth) $ -

Total Liabilities & Net Worth $ -

APPENDIX 7:
 Projected Balance Sheet
Enter your Company Name here
Historical Projected
as of mm/dd/yyyy as of mm/dd/yyyy
Assets
Current Assets
Cash in bank $ - $ -
Accounts receivable - -
Inventory - -
Prepaid expenses - -
Other current assets - -
Total Current Assets $ - $ -
Fixed Assets
Machinery & equipment $ - $ -
Furniture & fixtures - -
Leasehold improvements - -
Land & buildings - -
Other fixed assets - -
(LESS accumulated depreciation on all fixed assets) - -
Total Fixed Assets (net of depreciation) $ - $ -
Other Assets
Intangibles $ - $ -
Deposits - -
Goodwill - -
Other - -
Total Other Assets $ - $ -
TOTAL Assets $ - $ -
Liabilities and Equity
Current Liabilities
Accounts payable $ - $ -
Interest payable - -
Taxes payable - -

Notes, short-term (due within 12 months) - -

Current part, long-term debt - -
Other current liabilities - -
Total Current Liabilities $ - $ -
Long-term Debt
Bank loans payable $ - $ -
Notes payable to stockholders - -
LESS: Short-term portion - -
Other long term debt - -
Total Long-term Debt $ - $ -
Total Liabilities $ - $ -
Owners' Equity
Invested capital $ - $ -
Retained earnings - beginning - -
Retained earnings - current - -
Total Owners' Equity $ - $ -
Total Liabilities & Equity $ - $ -

APPENDIX 8:
Elements of Cash Flow Sheet:

Share Capital: funds brought by the owner/

new partner to the business

Profit: money generated from net income

Loans: money borrowed from bank /

investment company /friends/ relatives etc.

Other Liabilities: increase in accounts

payable is also generating cash

APPENDIX 9:
Four Year Profit Projection
Enter your Company Name here
Sales
Cost/ Goods Sold (COGS)
Gross Profit
Operating Expenses
Salary (Office & Overhead)
Payroll (taxes etc.)
Outside Services
Supplies (off and operation)
Repairs/ Maintenance
Advertising
Car, Delivery and Travel
Accounting and Legal
Rent
Telephone
Utilities
Insurance
Taxes (real estate etc.)
Interest
Depreciation
Other expense (specify)
Other expense (specify)
Total Expenses
Net Profit Before Tax
Income Taxes
Net Profit After Tax
Owner Draw/ Dividends
Adj. to Retained Earnings
REFERENCES / BIBLIOGRAPHY:
2002 % 2003 % 2004 % 2005 %
$ - 100,00% $ - 100,00% $ - 100,00% $ - 100,00%
- - - - - - - -
$ - - $ - - $ - - $ - -
Notes on Preparation
$ - - $ - - $ - - $ - -
- - Note: You may -want to print this information
- to use-as reference later.- To delete these -instructions, click -
- - the border of this
- text box and then - press the DELETE - key. - - -
- - A long term forecast
- -
is not a necessary - business plan.-However, it is an-excellent tool to -
part of a basic
- - help you open up - your thinking about- the company's - future. Furthermore,
- venture capitalists- will almost -
always want a long term forecast to get a feel for growth prospects.
- - The further out you
- forecast, the less - accuracy you-can maintain, so use - round numbers, - except where you -
- - know exact amounts;
- -
e.g.: rent expense if you have- a long term lease.- - -
- - The most important
- part of the long - term forecast is-not the numbers -themselves, but the - assumptions -
underlying the numbers. So make sure your assumptions are stated clearly and in detail in a narrative
- - attachment. This - will communicate - your vision of the
- company's future- and how you anticipate
- realizing -
- - that vision. - - - - - -
- - You will note that there are some lines on the bottom of this spreadsheet which may not be on a twelve-
- - -
month P & L. This is to help you do some planning about funding growth:
- - -
- - - NET PROFIT BEFORE
- TAX is the- same as Net Profit
- on a 12-month - Profit and Loss spreadsheet.
- -
- - - INCOME TAX allows
- you to estimate
- how much of- your profit will have
- to go to the IRS. - -
- NET PROFIT AFTER TAX is what is left for you to use.
- - - OWNER DRAW/ - DIVIDENDS is-how much the owners - plan to take -out for themselves. - -
- - - ADJUSTMENT- TO RETAINED EARNINGS - is the-amount of profit actually
- -
left in the business -
to increase
- - Owners' Equity -and fund growth. - - - - -
- - - - - - - -
$ - - $ - - $ - - $ - -
- - - -
- - - -
- - - -
- - - -
$ - $ - $ - $ -
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