You or someone you know have probably started a farming business expecting to make profits but are soon surprised by losses. This often happens because there was not a good business plan in place to inform you on what to expect. When farmers share their success stories, they often forget or are ashamed to discuss their failures. When a new farmer relies on these stories, they are surprised by the unexpected losses. If you intend to invest money in your farming business, plan to succeed using a business plan.
Business plans can be written for personal use or for third parties such as investors or funding institutions. Business plans can be lengthy documents. In our Kenyan (and in deed African) context, farmers simply want to know the financial projections of their businesses. A personal business plan is easy and realistic informing you on what to expect in your business. With basic skills in maths and excel, you can write your own business plan. A good personal business plan will have the following;
Start up costs
Start up costs finds out; what do I have? What don’t I have? This will help you estimate the amount of money you need before starting your business. These costs include one-time costs such as putting up structures and on-going costs such as feeds. Include only the costs that you cannot start a business without in the first few months. Below is a sample template.
|Start-up expenses||Amount (KES)|
|Total start-up expenses|
|Long-term Assets e.g. land|
Just like the name, cash flow projections will tell you how money moves in and out of your farm business. It will tell you which months you will make money and which ones you will use it.
|Month (do all the twelve)||Pre-start||1||2||3||Total|
|Incomes from Sales of meat|
|Incomes from Sales of eggs|
|Incomes from Sales of chicks|
|Total Money in (KES)|
|Money out (KES)|
|Total money out (KES)|
Sales and costs forecasts
This tells you how much money you will put make sales. The costs here are the ones that only change with the sales volume (variable costs).
|Sales||Year 1||Year 2||Year 3|
|Direct Cost of Sales||Year 1||Year 2||Year 3|
|Total Direct Cost of Sales|
This answers the question; “how much do I need to sell to cover all my costs?” At this point you do not make a profit or a loss because your sales are equal to your costs. It informs you on the “best minimum” units to start with.
Break-even point = Sales – Variable costs – Fixed costs
You need to determine all the variable costs (costs that depend on sales) and the fixed costs (costs that do not depend on sales such as rent and administrative costs).
E.g. you sell each chicken at KES 800 and the variable costs are KES 400 per chicken and the fixed costs are 200,000. How many chickens should you sell to break-even?
Since at break even the profit is zero, we put zero on the left side.
0 = (no. of chickens X KES 800) – (no. of chickens X KES 400) – KES 200,000
0 = no. of chickens (800-400) – 200, 000
200,000 = No. of chickens X 400
200,000/400 = no. of chickens
No. of chickens = 500 (You will need to sell 500 chickens to break-even)
Note that the above calculations are assumed.
The best way to get accurate information to help you draft a personal business plan is to talk to farmers who have succeeded in the business. Always estimate your costs on the high end and your sales on the lower end.
Did you find this information helpful or is it still Greek? Do not worry; you can contact us at email@example.com for a customized business plan. You can find an Indigenous chicken business plan with start-up costs and cash- flow statement HERE