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Putting together a

business plan
Steeve Pomerleau
Extension Aquaculture Specialist
University of Arkansas at Pine Bluff
Aquaculture: rewarding but risky
Aquaculture has a bright future
You believe there is money to be made
Fish farming is exciting
Remember:
demanding and risky business
requires preparation & planning
to be successful
Objectives
Describe the components of a good
business plan
Outline critical questions that need to
be answered when considering an
aquaculture business venture
Business Plan
What is it?
An organized and structured document that
Explain the production technologies
analyzes the market potential
Estimate the financial performance of the business
Necessary to
Evaluate feasibility
Estimate capital investments & operating capital
Secure adequate financing
Why is a Business Plan
Important?
Many fish farmers have difficulty obtaining
financing.
Lenders may not be familiar with aquaculture
Help avoid mistakes and solve problems on
paper before its too late.
Minimize risks associated with the market,
production and financing.
Business Plan
It is the future of the business on
paper.
A way to test dreams against expected
challenges and opportunities.
Need to be completed before the first
fish are stocked
How long does it take to develop
a complete business plan?
A thorough plan cannot be developed
in an hour, a day, or even a week.
A good business plan take months to
develop.
The plan is only as good as the effort
and thought that goes into it.
Fundamental questions
addressed with a business plan
How will you produce the product?
Production System
Who will buy the product?
Marketing Plan
Is the proposed business economically
and financially feasible?
Economic and Financial Analysis
Critical Questions
Do you have a clear understanding of
the biological and economic
constraints specific to the species you
want to produce?
Tilapia
Biological and Economical Constraints
Tropical fish that dies in the winter in most
parts of the U.S.
Must be overwintered indoors, raising costs.
Good market in U.S. for fillets, but imported
fillets from tropics have lower costs.
Live fish sales difficult, but possible.
Limited market for live fish sales.
Baitfish
Biological and Economical Constraints
Low operating costs but high fix costs
Low yields
Requires extensive distribution system
Sales tied to fishing conditions
nationwide on holidays = market risk
Critical Questions
Are you aware of the risks involved?
low dissolved oxygen
diseases
bird depredation
Off flavor
Market fluctuations
FISH FARMERS BEAR ALL THE RISK
NO GOVERNMENT PROGRAMS TO HELP!!
What about
Eels?
Bullfrogs?
Turtles?
Alligators?
What about
Eels?
Bullfrogs?
Biologically possible but often questionable
economically
Highly specialized industries that may be
profitable regionally
If something is not being raised, there is likely
to be a reason.
Turtles?
Alligators?
Critical Questions
Aquaculture is management intensive.
Do you like to get a full nights sleep most
nights?
Do you have the skills, management ability,
and time to run a fish farm? If not, you will
have to hire a manager.
Components of a Business Plan
1. Description of the proposed site and
production system
2. Marketing plan
3. Financial analysis
4. Resume of borrower
Components of a Business Plan:
The Four M
1. Material
2. Market
3. Money
4. Man
1) Description of the site
The business plan should begin
with a description of the site where
the operation is to be established
soil characteristics
environmental conditions
water supply
etc
1) Description of the site
The proximity of the proposed farm to:
processing facilities
feed mills
aquaculture supply firms
equipment repair services
disease & diagnostics laboratories
Extension offices
It demonstrates to the lender:
the distance the farm will be from these services
the individual knows where to find these services.
1) Description of Production System
Thorough discussion of the proposed
production system
Possible production problems (off flavor, etc)
This demonstrates to the lender
awareness of the problem and warns the
lender of potential cash flow or debt
repayment problems.
1) Description of the site
Provide information on required
permits, procedures, and probable
time frame to obtain them
2) Marketing Plan
Critical to spend as much time studying
markets
Are markets accessible?
What have market prices been over the
last 5 years?
Are they higher during certain months
than others?
Is the most common market price high
enough to cover all your production
costs?
2) Marketing Plan
The most successful aquaculture business:
are market-oriented
have diverse markets
are committed to their customers
Decisions on species, harvest size, and
volume should be based on a market
analysis.
Profits are made by selling fish, not
producing them.
2) Marketing Plan
A good marketing plan will give
confidence to lenders
If youre in an area without a history of
aquaculture, it is useful to present
information on:
the size of the industry
current trends
overall growth potential
How to begin to Analyze the Market
Talk to local retail operations that sell fish.
Even if you intend to sell strictly to a
processing plant.
It is important to understand the product
qualities and characteristics expected by the
retail operators and end consumers.
How to begin to Analyze the Market
Talk to as many different potential buyers as
possible to determine their needs.
Retail markets
Processors
wholesalers
Distributors, brokers
Restaurants
Seafood stores
Supermarkets
Consumers buying directly
How to begin to Analyze the Market
Each buyer has its own buying patterns.
Historical prices paid
Product form
Dockage rates
Transportation charges
Payment frequency
Seasonality issues
Delivery volume
requirements
Quality standards
Procedures
Contracts
Other buyers preferences
Enough potential buyers to support your business?
2) Marketing Plan
Any documentation from the plants or a
letter stating that they will purchase
fish from you will strengthen the
business loan proposal
2) Marketing Plan
How many buyers went in and out of
business in the last 5 years?
3) Financial Analysis
1. Cash Flow Budget
2. Income Statement
3. Estimated Annual Costs & Returns
4. Estimate of Required Financing
5. Farm Appraisal
6. Balance Sheet
7. Personal Financial Statement
Cash Flow Budget
The most important financial document
Can the company meet its financial
obligations?
What is a cash flow budget?
summary of the cash inflows and outflows over a
given period of time.
tool for ensuring that money is available when
needed.
A profitable business can fail if money is not
there when needed
Cash Flow Budget
Estimate future borrowing needs
Estimates the loan repayment capacity
Schedule payments and harvests
Cash Flow Budget
Shows cash receipts and cash expenses by
month, quarter, or year
Includes only cash expenses
Indicates when cash is available for loan
repayment
Indicates when cash is needed to keep
business going
Should include family living expenses
Cash Flow Budget
Can be used to schedule purchases of
new equipment or major repairs.
Can be used to plan stocking and
harvesting schedules to meet financial
obligations.
Sensitivity Analyses
Important to study What if scenarios
What if it takes 3 months longer to get the new
facility operational?
What if it costs 20% more to build or stock?
What if our growth rates are 20% slower?
What if our mortality rates are higher?
What if our FCR are 15% poorer than expected?
What if we lose 25% of our initial fingerlings that
were to be the fish providing first cash revenues?
What if revenues are only 80% of those planned?
Risk as financial level
The less you borrow, better
you can withstand decrease
in revenue or increase in
cost.
0
5
10
15
20
25
30
35
40
45
0 10 20 30 40 50 60 70 80 90 100
Financial level (%)
M
a
x
i
m
u
m

c
h
a
n
g
e
s

t
o

m
e
e
t

c
a
s
h

f
l
o
w

(
%
)
% decline in revenues
% increase in costs
Income Statement
Itemizes farm income and expenses
Called profit and loss statement
Calculates
net farm income
return to capital
Return to labor & management
return to equity
Enterprise Budget
Estimate of average costs and revenues in a
typical year after the business is established.
Indicates generally whether the proposed
production system is profitable.
Indicates general level of expected profit.
Indicates breakeven costs.
Indicates breakeven yields
Balance Sheet
Lists what assets and liabilities would
be for the new aquaculture business.
Used to calculate net worth (owner
equity)
Used to determine solvency and
liquidity (financial strength & position
of the business)
Resume
How are you qualified to run such a
business?
What is your experience in
aquaculture?
Conclusion
Fish farming is a
great way of life but
requires a great deal
of preparation and
planning
Components of a Business Plan
1. Description of the proposed site and production system
2. Marketing plan
3. Financial analysis
Annual Costs & Returns
Required Financing
Farm Appraisal
Balance Sheet
4. Resume of borrower
Income Statement
Cash Flow Budget
Personal Financial Statement
Fact Sheets on Business
Planning for Aquaculture
NRAC 150 - Business Planning For Aquaculture Is It
Feasible?
http://www.nrac.umd.edu/files/Factsheets/fact150.pdf
FS101 - Making Plans for Commercial Aquaculture in
the North Central Region
http://www.ncrac.org/Topics/plans101.htm
SRAC 381 - Developing Business Proposals for
Aquaculture Loans
http://srac.tamu.edu/