Agricultural Entrepreneurship and Business Planning Agricultural Sciences Grade 12 Study Guides and Notes

Agricultural Entrepreneurship and Business Planning Agricultural Sciences Grade 12 Study Guides and Notes. Agricultural entrepreneurship is the profitable marriage of agriculture and entrepreneurship, or more specifically, turning your farm into a viable business. The discipline also involves the application of the principles of entrepreneurship to decision making in agricultural and agro-based businesses

Overview

Agricultural entrepreneurship

1. Entrepreneur and entrepreneurship
Important aspects of entrepreneurs Successful entrepreneurs must have the ability to identify market needs and find profitable ways to provide goods or services to cater for these needs. For this reason, most successful entrepreneurs are:

creative and innovative
achievement-orientated
independent thinkers
well-educated, technically knowledgeable and experienced in their fields
risk takers
good leaders who are team builders
good at working with people
committed and have perseverance.

An entrepreneur is a person who takes a novel business idea, sees an opportunity for that novel idea and converts it to a healthy and functional business. Entrepreneurship is the practice of starting, running and growing a business that an entrepreneur sets up.

Important aspects of entrepreneurship
Certain factors (aspects) are important for an entrepreneurial business to thrive. These factors are called entrepreneurial success factors.

Skilled strategic and general management
Sufficient start-up capital, adequate resources and availability of appropriate technology
Financial insight and skilled financial management, including the ability to keep costs and prices down
Knowledge of the target market and of competitors
Willingness to take risks
Strategic partnerships and the use of experts
Good client service
Good product or service quality.

2. Entrepreneurial process phases
There are four distinct phases of the entrepreneurial process

Phase 1: Identify and evaluate the business opportunity
Three scenarios can be used to identify a business opportunity. The business opportunity must then be evaluated.

Scenarios to identify a business opportunity

need for a new product.
available products are inadequate.
a challenge faced in the current business.
Evaluating a business opportunity:
A business opportunity should be evaluated by assessing:
the time it takes for the product to be ready for consumers
the value of the product
the risks involved
uniqueness of the product
whether the business venture matches the personal skills and goals of the entrepreneur
the profits or returns to be made.

Phase 2: Develop a business plan

A business plan provides answers to these types of questions:
Where will the business be located and how will the product or service be produced?
Who will buy the product or service and how much will it cost?
How will the product or service be marketed and advertised?
Who are the company’s competitors?
What standard is the business going to set in terms of quality and how will the business maintain quality?
How will the product or service be delivered to the market?
How will records be kept of stock and other operations in the business?
What staff is needed and what skills and educational qualifications should they have?
How start-up capital is needed, and how will initial operating and production expenses be covered?
What resources will be needed?

Phase 3: Determine the required resources

The type of business will determine the resources and equipment required.

Phase 4: Manage the enterprise

After resources are acquired, including premises, the business plan must be implemented and managed. This includes:
putting the operational plan into effect and monitoring it.
implementing a suitable management style
implementing suitable control measures to ensure that every activity is monitored and corrective measures are implemented if needed
making critical decisions to overcome risks and develop a growth strategy.

Sources of a business opportunity
The source or need for a new product may be identified by:

consumers
technical people
business associates
businesspeople in the distribution system.

Agri-business plan

1. The business plan
A business plan is a document that describes how a business will operate. It also states the business goals, the reasons they can be achieved and the plan for how to achieve them.

In an agri-business, a business plan is a detailed short-term and long-term goal plan, which includes activities and outcomes within a certain time frame to produce a viable income within a specific agricultural environment.

Reasons for drawing up an agri- business plan
To document your novel idea

Every business starts with a novel idea.
The business plan sets out the vision and the mission of the entrepreneur in writing, and includes the operational plan of the business.

To calculate costs

A start-up farming business needs a lot of capital and capital goods to operate.
The business plan works out complete cost calculations and anticipated income.
This then becomes the financial plan of the business, which can also be used to raise capital through, for example, bank loans.

To advertise the farming business

The business plan contains information on the product and the channels of marketing that may be useful for the product.
This can help to create market linkages even before production starts.

To attract partner(s) to your farming business

Capital and resources are required. So is expertise and linkages (networks) with markets and suppliers.
A good business plan can attract partners who can help provide finance, resources, expertise and back-up, and share the expenses and resources which will reduce the risk.

To assess and improve the plan

Potential funders may identify loopholes and mistakes when they read the business plan.
This will enable the entrepreneur to correct these mistakes.
When the business plan is implemented, some aspects may not be practical.
So the entrepreneur can then go back to the business plan and make the necessary changes.

2. Standard format and layout of an agri-business plan
A standard format should be followed, which provides a general overview of the business, a marketing plan, staff (human resources) details, and financial details.
General overview of the business (executive summary)

It should outline the business proposal and provide a written overview of the aims of the business. It should contain the:
type of business and form of ownership, including how it will be registered
location of the business
mission statement
operational plan of the business, and how the business will grow and develop
expertise required to run the business
an analysis of the business strengths, weaknesses, opportunities and threats.

Market information

The main target market for the product
Consider the needs of the main target market. Describe how your product or service will meet their needs. How will you tell them about your products (your marketing plan)? How will you promote the products (your advertising plan)? What market research have you done and what were the results?
Products to be produced
Define your products or services and their position in the market. You need to show that you know about industry trends and your market. Show how your product matches or fits with the market definition. What is the estimated price of the product? Show your product development schedule.
Distribution
Indicate the sales channels for the distribution of the product. Any partnership with the distributors should be indicated. Show how the agricultural product will reach the customers.
Competition
The nature and the number of competitors should be mentioned. Differentiate between your product and that of the competitors and how your product will have a competitive advantage.

Management and staff details

Management team
background and experience of management
composition of the Board of Directors
Labour force
number of workers employed
salaries and wages of workers
qualifications and skills required
the specialists in the farming business (but the workers can also be trained)
operational or work plans with regard to labour (a list of activities with the time frames for each).

Financial details
The following financial details should be included in the business plan:

valuation of present farming business
current balance sheet
amount of capital required to start the business
how the available capital will be used
projected profit and loss per year
projected cash flow – demonstrate how you will reach cash-flow positive status and outline your projected revenue growth
loan repayments per month
equipment and materials, who will do stock control and how it will be kept
how investors will obtain high returns
how the product or service will be priced.

Standard layout of an agri-business plan
The following standard layout will ensure that the business plan is presentable.

Guidelines for the layout of an agri-business plan

Keep the plan concise about 12–20 pages).
The plan should be realistic. Do not be over- optimistic or over-estimate aspects such as
the product or service, the target market and the profits.
Show how the business will become profitable.
Present a strong management team.

Cover sheet

This contains your name, the name of the company and contact details.

Executive summary

This should be highlighted for any business person or potential funder to see clearly. It should be clearly written in a font size of 10 points or bigger. The summary should be one or two pages and it should contain objectives, mission and keys to success.

Contents page

This is needed with page and section numbers to enable easy reference through the document.

Company description

This should include the type of ownership, the history for existing companies or a start-up plan for new companies, and company locations and facilities.

Product or service to be rendered

This must be stated and described. You must also compare your product with competitive goods and describe possible outsourcing, technology to be used or needed, and future products and services.

Market analysis

This should include market segmentation, target market, segment strategy, market needs, market trends, market growth, industry analysis and patterns, distribution patterns, competition and buying patterns.

Business strategy and implementation

It should include management responsibilities and schedules with dates and budgets.
It should also include business strategy, marketing strategy, pricing strategy, promotion strategy, distribution patterns, marketing programmes, sales strategy, sales forecast, sales programmes, strategic alliances and milestones.

Web plan summary

It should describe the website, development costs, operations, sales and marketing strategies.

Management team

It must include the key members and a description of the organisation. Also include the organisational structure, management team and the personnel plan.

Financial analyses in the form of tables and charts

It must include projected profit and loss and cash flow tables, projected profit and loss and cash flow statements, projected balance sheet, personnel listings, market analysis tables and long-term plans.

Problems encountered when drawing up an agri-business plan
Entrepreneurs may face common problems when they develop a business plan:

They may not know what to write.
They may not know how to structure the content.
It might take a long time to write.
It might contain too much detail.
They might over-estimate and be overly optimistic in terms of figures.
It might be difficult to translate a novel thought into a business plan.

3. Solutions when drawing up and implementing an agri- business plan

Use electronic resources to draw up an agri-business plan

You can download a template for a business plan from the Internet.
These are usually easy to use and the entrepreneur just needs to fill in the blank spaces.
The templates contain the key information needed in a business plan.
This is convenient and it saves the entrepreneur time.

Use a SWOT analysis. SWOT is an acronym for strengths, weaknesses, opportunities and threats. It is also called a situational analysis. It gives a farming entrepreneur full insight into what lies ahead in a farming business venture. It involves assessing and describing the strengths and weaknesses of the farm business, as well as opportunities and threats to the farming business.
A SWOT analysis is also called a situational analysis.

Assessing and describing farm business strengths
Strengths of a business are things that can contribute to its success. These are internal factors which the entrepreneur can control. Strengths are all available resources, things and processes that the farming business has done and can do, and what you can offer that your competitors cannot offer. Examples of strengths in a farming business include reputation, skills and experience of the labour force, capital, machinery, equipment, credit, established marketing channels and modern technology.
Assessing and describing farm business weaknesses
The weaknesses of the farming business include factors within the business environment that prevent you from being successful, but which you can improve. The ability to change weaknesses into strengths has been the key in most business success stories. Weaknesses can include a lack of technology, poor location of the farming business, limited resources, lack of skills and undercapitalisation.
Assessing and describing farm business opportunities
Opportunities are the external motivating factors that are needed for a farming business to prosper. In order to assess opportunities, you must look at the potential of the farming business to perform in the market or environment. Examples of opportunities are market growth, new trends, lifestyle changes and the provision of supplies needed for various traditions. It is crucial to put a time-frame on the opportunity identified. These opportunities can then be classified as strengths.
Assessing and describing threats to the farming business
Threats are the external factors that can put your farming business at risk. These might include price increases by suppliers, competition, a shift in consumer behaviour, economic down turns and the introduction of more advanced technology that makes your agricultural products obsolete. Contingency plans will be required to address these threats.
Answer the questions below. Check your answers afterwards and do corrections.

Topic Questions

Give yourself one hour.
Marks: 100

Various options are provided as answers to the following questions. Choose the best answer and write only the number (i–iv) next to the question number (1.1–1.5).

1.1 A business plan is set up to provide all planning information needed for a specific farming operation. Which ONE of the following aspects is NOT normally part of a business plan?

a farm budget
marketing plan
soil surveyance detail
details of employees.

1.2 In an agricultural business, a _______ is an entrepreneur.

production factor
capital
labourer
farmer

1.3 The characteristic of an entrepreneur that has a bearing on strategic management is:

team builder
technically knowledgeable
visionary
independent thinker.

1.4 The _______ indicates a condition where the quantity of a product required by consumers, is exactly equal to the quantity which producers wish to sell.

market niche
market penetration
market equilibrium
market value

1.5 ONE of the following factors would influence the supply as well as the demand for a product:

The possibility of increasing the supply of products
The range of products available
The price of the products
The attitude and values of consumers (5 × 2 = 10)

Match the items in column A with those in column B. Write only the correct numbers and letters. (5 × 2 = 10)

Column A	Column B
2.1 start-up capital 2.2 entrepreneur 2.3 business plan 2.4 management team 2.5 financial details of a business plan	A novel idea B Board of Directors C current balance sheet D how the business operates E takes a long time F fundraising G market analysis data

Give ONE word/term/phrase for each of the following descriptions. Write only the word/term/phrase next to the question number. (2 × 2 = 4)
3.1 A source of capital resulting from farming profits that have been allowed to accumulate in a bank
3.2 The management function that encourages farm workers to do their best at all times
Define the following:
4.1 entrepreneur
4.2 entrepreneurship
4.3 start-up costs (3 × 2 = 6)
The following statements are incorrect. Change the underlined words to make them correct.
5.1 Threats are the external motivating factors that are needed for a farming business to prosper.
5.2 The target entrepreneurs are the end users of the products. (2 × 2 = 4)
List five personal characteristics of a successful entrepreneur. (5 × 1 =5)
The entrepreneurial process involves the starting of a new business venture.
7.1 Summarise the four phases of the entrepreneurial process using a mind map. (4 × 2 = 8)
7.2 Describe the first phase of the entrepreneurial process. (1 × 5 = 5)
A business plan is a plan that an entrepreneur develops to create an action plan for his or her business.
8.1 State THREE reasons why an entrepreneur should develop a business plan. (3 × 2 = 6)
8.2 List the FOUR main components of a good business plan, and briefly describe each one. (4 × 3 = 12)
Read and analyse the case study about Nomakhosi and answer the following questions.
9.1 Name the four different aspects of SWOT analysis and give two examples of each. (4 × 3 = 12)
9.2 List TWO weaknesses that Nomakhosi has. (2 × 1 = 2)
9.3 Select an opportunity and a challenge that Nomakhosi can exploit if she decides to pursue/take up this challenge. (1 × 2 = 2)
9.4 Determine TWO managerial strategies that she could implement to take advantage of this opportunity. (2 × 1 = 2)
9.5 Advise Nomakhosi with regard to where she can obtain financial assistance. (1 × 1 = 1)
Nomakhosi owns three hectares of arable land with access to irrigation and has previously grown vegetables. She has heard that there is a strong demand for baby vegetables and for organic beef in Europe. The South African government supports Black Economic Empowerment initiatives and provides favourable loan arrangements.
Nomakhosi does not have experience in the production of baby vegetables or the export of produce. She has access to technical expertise from her local extension officer. She also has to consider the fact that vegetable production is intensive and minimum wages are fairly high. Exchange rates are also very unstable.
9.6 There are TWO important types of budgets that she must draw up as a farm manager. Name these budgets AND state how they differ from each other. (2 × 2 = 4)
9.7 Indicate TWO types of records that must be kept by Nomakhosi as a farm manager. (2 × 1 = 2)
Qinisani Mzimela has thought about starting a farming business to produce maize.
He has spent many hours trying to write a business plan.
10.1 Suggest TWO reasons why Qinisani may not being able to write a business plan. (2 × 1= 2)
10.2 What advice can you give to Qinisani to solve his problem? (1 × 1 = 1)
10.3 Motivate the advice that you provided in (10.2). (2 × 1 = 2)

Overview