Farm Diversification

Businesses may wish to diversify because it can offer a strategy to reduce economic risk to the business by spreading the risk over a number of products/services.  This means that if one product/service fails due to market conditions then other products/services in different markets should not be affected. It is also a good way of expanding if your present market already seems full and it can give the business fresh objectives and may act to motivate owners and staff.

While diversification makes good sense and many successful businesses have arisen from these changes, making diversification and value-added strategies work can be incredibly challenging.  Moreover, it is not a risk-less exercise as it often involves significant financial outlay, development of new skills, access to new resources and most importantly an ability to create or respond to new market opportunities. For this reason it is essential that those considering diversifying should plan their business development well from the outset.

One problem encountered by some diversifiers is that they become so focused on the new business that they neglect their existing farming business (which is your livelihood). Diversification proposals can have major impacts on your existing business. The underlying financial strength of your existing business clearly affects the resources which can be devoted to new enterprise.  It also affects your potential to borrow and serious underlying problems may prevent what is otherwise a first-rate development. Setting up a new business can have impacts on the existing farm business and it may put pressure on some of the resources you have, such as:

Capital 
Depending on the type of enterprise you have chosen and its scale, the investment needed can be minimal or substantial. Whichever it is, it is essential that you decide on the maximum amount of cash, savings, and credit you are willing to allocate to the new enterprise.

Labour
You must consider what labour resources you currently have and what the existing and new business will need.  Remember, new enterprises need a lot of time to set up, and require labour for administration, management, marketing, sales, as well as the day to-day operational tasks. You need to remember that setting up a new enterprise will take a lot of time and effort on your part.

Location
Often the success of a new enterprise is down to its location. If you are going to set up livery stables and a riding centre you will need to be close enough to a population centre to allow your customers relatively easy access. If, on the other hand, you are going to target the passing tourist trade then it will be important that you are located on a tourist route.

Buildings
Conversion of buildings can be a very costly exercise and care must be taken when calculating development costs and the potential returns that you may expect.  You also need to check if there are statutory controls over building developments (eg. listed buildings, conversion of an agricultural building to non-agricultural use will need planning permission).

For these reasons it is essential that you prepare a business plan for your new business.  Most banks have their own format and if you are going to apply for a loan it is worthwhile speaking with one of the bank's business advisers.  You can also get free templates of business plans from various government departments (see links on the right) but again it is worthwhile making sure you use the appropriate format of business plan if you are going to apply for any grant aid.  However most business plans have common elements and you will need to ensure that yours includes headings and issues such as:

Title Page
One Page Executive Summary
Personal Profile and Contact Details
Include your name, address and contact details, plus details of your existing business, your work experience and details of your business idea.
Product/Service
What is the product/service you offer (provide a detailed description)?
Include any unique features, and how it will stand out from other people's product/service.
Include any details of suppliers.
Provide details of the business structure.
Premises
Provide details of business premises - location, size, cost.
Are they leased/rented? Include lease agreement.
Provide information on any planning permission or regulations required.
Are there any alterations or renovations necessary?
Pricing Policy
What price will you charge your customers?
How have you arrived at this price - hourly rate/rate for the job?
What does it cost to produce?
Will you offer any credit or special terms?
Market Analysis
You MUST provide general information about the size and type of market at which your product/service is aimed.
Include any statistical information.
Who are you aiming your product/service at?
Provide details and results of the market research you have carried out.
Where will you be located and why?
What geographical area will you serve?
Who are your main competitors - provide information on their pricing, services offered, quality.
How will you compete - quality of service, better product, price?
Why will anyone use you?
Marketing Strategy
How will you market your business?
What advertising/promotional methods will you use?
How often will you advertise, and where? How much will it cost?
Will you have your own website? If so, what are projected costs of design, updating and maintenance?
What selling methods will you use?
Sales Forecast
Provide a sales forecast for the first year.
What can you expect to achieve in the first year?
How have you calculated your anticipated level of sales?
What is it based on - numbers of customers, items sold, hours worked?
Are there any seasonal variations to your business?
Finance
Start-up costs
Provide a detailed list and costs of required equipment.
Provide a list of other start-up costs including:

• fixtures and fittings
• stock
• advertising
• printing
• insurance
• working capital

Provide details of running costs.
What are your total start-up costs?
Include a full cash flow forecast for at least one year (preferably 3 years) and include all the assumptions in making your calculations.
Include a profit and loss account for the same period as the cashflow.
Funding
Where will the finance come from?
Provide details of any capital introduced by you and loans/grants applied for.
Are you introducing any equipment into the business? What is the value?
Appendix
Include any architect's drawings
Examples of promotional material
Letters of intent from potential clients
Endorsements from clients in previous work
Examples of questionnaires used in market analysis
Summary of market analysis results

Many people seek professional advice when writing and preparing a business plan and SAC Consulting has specialists in the field of farm diversification and their contact details can be found on the right hand side of this page.