Transcription

Small Meat ProcessorsBUSINESS PLANNING GUIDEBOOKNMPAN 1APRIL 2011

AUTHORSLauren GwinNiche Meat Processor Assistance Network (NMPAN)Oregon State UniversityArion ThiboumeryNiche Meat Processor Assistance Network (NMPAN)Lorentz MeatsIowa State University*Debra GarrisonAgricultural ConsultantNick McCannNational Center for Appropriate Technology (NCAT)Appropriate Technology Transfer for Rural AreasACKNOWLEDGMENTSSupport for this guide was provided by the U.S. Departmentof Agriculture, Rural Development, and eXtension, a nationalinitiative of the combined land-grant university system. NMPAN isa small meat processors community of practice within eXtensionwww.extension.orgAdditional thanks to our reviewers for their significant improvements to this guide NMPAN’s Advisory Board Niche Meat Processor Assistance NetworkThis guide may be reproduced in its entirety for informational,noncommercial purposes. Otherwise, no part of this guide maybe excerpted, reproduced, or utilized in any other form, by anymeans: electronic, mechanical, photographic or a recording, nor mayit be stored in a retrieval system (e.g., on a website), transmitted orotherwise copied for public use without prior written permission from:Niche Meat Processor Assistance Network213 Ballard Extension HallOregon State UniversityCorvallis, OR 97331This publication may be downloaded online as a free PDF fromwww.nichemeatprocessing.org*publishing university

Table ofCONTENTSINTRODUCTION.2HOW TO USE THIS GUIDE.35SECTION 1—Brief Introduction to Business Plan Components.7SECTION 2—ABC Meats Business Plan, Piece by Piece.7Executive Summary.9Business Description.Business Mission and Strategy.Markets and Competition.Marketing x 3.24Appendix 4.24Appendix 5.Appendix 6.25Appendix 1.Appendix 2.SECTION 3—Considerations for Other Plant Configurations.27SECTION 4—Business Planning Assistance/Resources.36SECTION 5—A Final Word.371

INTRODUCTIONINTRODUCTIONThis guidebook walks you through creating a business plan for a smallmeat processing facility. The example used is a real business plan,written by an existing small processor to obtain bank financing for asignificant expansion and retooling of his business. Names and otheridentifying details have been changed for confidentiality.What is a business plan?A business plan is a living document in which you clearly state the goalsof your planned business venture, provide reasons that these goals areachievable, and outline your plan to achieve your goals.When does a processor need a business plan?To put it another way, when do you not need a business plan? Answer:when you can afford to fail. Unless you’re planning a meat processingbusiness as a hobby, you need a business plan. Your banker will requireprojections of revenue and cash flow with concrete information to backup these numbers. At a minimum your business plan is for your bank.But your business plan is also for you.It can be daunting to put a business plan together. But the processof planning your business — trying to figure out how it will work andwhether you’re going to make money — is essential. Admittedly, almostno business runs exactly as a business plan projects. But it is far betterto lose money on paper than to lose money in real life.What is your plant going to cost? How many employees do you need,and how much can you afford to pay them? What prices will you charge?Where will the livestock come from, and how do you know they’recoming? These are all questions you need to answer before you takeout a 1 to 2 million loan and start paying it back every month for25 years. Putting together a business plan shows you are seriousabout starting or expanding and have thought through the process.What is not covered in this guide?This guide does not cover all the different regulations relevant tobuilding and operating a processing facility. It is critical to understandthe regulations at the federal, state, and local levels before you finalizeyour plans. Make sure you understand the pros and cons of differenttypes of inspection (federal, state, custom-exempt, retail-exempt:see www.extension.org/pages/Meat Inspection for definitions anddistinctions) so you select the right one for your business. You will alsoneed to understand and comply with local, state, and federal regulationsregarding zoning and local planning, water quality, waste management,environmental health, food safety records and documentation, humanehandling, pest control, product labeling, and others.2Small Meat Processors Business Planning Guidebook

HOW TO USE THIS GUIDETo build or not to build?Proceed with caution. Meat processing facilities – like manymanufacturing facilities – can be very expensive to build and operate.Many start-up businesses fail financially in the first few years. Evenwhen the closest inspected slaughter and/or processing facility seemstoo far away, building an entirely new plant, mobile or fixed, may not bethe most cost-effective solution. Livestock producers considering building a meat processing facility may first want to evaluate the options andcosts of pooling livestock for shared transportation to existing inspectedfacilities and use less-than-load (LTL) shipping to get the meat back.Remodeling an existing plant may also be possible; the business plansin this guide can be adapted to that type of project as well. Still, in somecases – and more so in the future as older plants complete their usefullifespan – it will make sense to build a new facility.HOW TO USE THIS GUIDEThis guide has five sections:1—Brief introduction to business plan components2—Business plan, piece by piece, from a real processor, with comments3—Considerations for other plant configurations4—Other business planning resources5—A final wordSection I lists and briefly describes the basic components of a businessplan. Section 2 walks through the business plan for a specific meatprocessing business, a custom-exempt slaughter and processingfacility proposing to build a new building three times its current size,become USDA-inspected, and expand its retail operation. In each partof this business plan, you will find questions you need to answer andsuggestions for finding information to answer those questions.The example business plan used in this guide is not presented as amasterpiece of business plan writing. It is a basic business plan thatworked – the processor was able to convince his banker to make theloan. This business plan, however, on its own, was not the only reasonthe bank chose to make the loan. The processor had a solid track recordwith his bank: he was known as a responsible borrower. The bankerwas familiar with this kind of business and may have needed less detailthan another banker with less understanding of meat processing. Othercontextual factors may have played a role. Yet you can be sure that if theprocessor had not presented his bank with a clear business plan, thebank would have said no.A busy small business owner can put together a business plan withoutspending money on high-dollar consultants or putting in endless hoursof extra work on the side. Simple and clear are just fine.3

HOW TO USE THIS GUIDEIf you are planning a completely new business, it will help you to outlineall the steps involved from receiving a live animal to sale of product tothe final customer (e.g., slaughter, fabrication, value-added processing,packaging, labeling, marketing, sales, and distribution). While yourbusiness may handle only a small portion of that supply chain, it’s agood idea to understand the full picture so you can see how you fitand the needs of your supply chain partners.In Section 3, you will see how your plan may change for two alternativeplant configurations: first as a custom-exempt facility and, second, byadding an inspected mobile slaughter unit. Section 4 lists other usefulresources for business planning. Section 5 concludes the guide with afew final thoughts on planning this kind of business.4Small Meat Processors Business Planning Guidebook

SECTION 1—BRIEF INTRODUCTION TO BUSINESS PLAN COMPONENTSSECTION 1—Brief Introduction to Business Plan ComponentsFunders – whether a bank or an investor – want your business planto answer these questions: Is the business idea solid? Is there a sufficient market for the product or service? Are the financial projections realistic, and do they fit the funder’s typicalloan expectations? Is key management experienced and capable? What competition exists? Does the plan clearly describe how funders will get their money back?Most business plans have the sections listed below. The order in which theyappear is not set in stone. However, you may find it helpful to identifyyour target market, your competition, and your strategic goals before youdescribe your marketing plan.Executive Summary: this is a concise (one page at most) overviewof your entire plan.Business Description: includes a description of the business, products,and services; company locations and facilities; and managementand labor;Business Mission and Strategy: includes your mission statement, strategicgoals and objectives, and financing needs, with exit plan if needed;Markets and Competition: includes industry trends/analysis, competitiveanalysis, and SWOT (strengths, weaknesses, opportunities, and threats)analysis;Marketing Plan: includes the overall marketing strategy, pricing strategy,target markets and market segments, promotion and distributionstrategies, and sales projections; andFinancials: includes assumptions and summary of informationSome business planning expertsadvise a SWOT analysis for thebusiness as a whole: there maybe issues beyond markets andcompetition that will determinewhether starting or expanding aprocessing plant is a good or badmove. The full-business SWOT canhelp you get at that question.Appendices: Financial reports, historic and projected (balance sheet, cash flow,income statement) Management team Other information referenced in the plan (e.g., lists of competitors, regional data that affects your market)You may spend months preparing your plan, but lenders or investorsmay spend five minutes reviewing it. They will typically look at it in this5

SECTION 1—BRIEF INTRODUCTION TO BUSINESS PLAN COMPONENTSorder: Executive Summary, Financials, Management, and theCompetitive Analysis; some investors also will want an exit planthat tells them how they’ll get their money back. Don’t be offendedby this: it is typical. And don’t think that the rest of your plan is notimportant. It is. Remember, your business plan is not only for yourbank. It also helps you get your thoughts and vision in order soyou can carry out your plan.6Small Meat Processors Business Planning Guidebook

SECTION 2—ABC MEATS BUSINESS PLAN, PIECE BY PIECESECTION 2—ABC Meats Business Plan, Piece by PieceAt the time this business plan was written, ABC Meats was acustom-exempt processing facility providing processing services tolivestock producers and game hunters. The facility also had a small retailcounter. The new proprietor of ABC Meats has worked there for manyyears and recently purchased the business with a combination of equity(he sold his cattle herd) and a bank loan. He now wishes to expand theretail operation, build a new building three times the size of the existingone, and become USDA-inspected. He estimates he needs just over 2 million to do all this. He plans to ask his local bank for a 20-year loanof 1.6 million. The remaining 400,000 will come from his own equityand, if possible, from private investors. One advantage of privateinvestment capital is that it does not require monthly debt service, aswill a bank loan; however, he must make sure that the cost of privatecapital does not compare unfavorably with the cost of bank financing.EQUITYMoney you or others put intothe business as business owners.SUBORDINATED DEBTDebt that is formally subordinatedto your bank loan. If you cannot payback your bank loan, the bank willbe first in