This is section is often reviewed by the bank and the grant review committee before they even look at any other sections of the business plan. If this section makes sense and the numbers work, they will look at the rest of the business plan.

This section will also allow you to put hard numbers and costs associated with starting your business. It will allow you to see if you can afford this venture and if it will turn a profit. The three main components that should be included in the financial plan:

A. Managing Books and Records

If you already noted in the Pre-Business Planning section that keeping books is not your strong point, this is where you talk about the person who is good with books and records that will be managing this aspect of the business.(Records being those things that you have to keep to have a dairy license.)

In this section, list:

  • Who will be responsible for managing the books and records (can be you)
  • What computer system will be used
  • Who the accountant is that will do the taxes, auditing, etc

List the records you have to keep with every regulatory agency:

  • Market Administrator reports
  • State marketing Boards
  • Plant Reports
  • Pasteurization Logs
  • HACCP plan
  • etc.

B. Budgets and Assumptions

Remember that “to do” list you did in section three of the business plan?  This is where you put numbers to it. This is a very important step when applying for grants and to show loan officers how you plan to use the money. Attach bids, price sheets, and other documents as needed for equipment costs. If you are asking for a grant, make note of what you expect the grant to cover and what will be “in-kind” expenses (what you will pay for out of pocket).

Always budget 30% more for installation costs. Depending on what is being installed, the costs may be double your original estimate.

In this section you will want to explain where numbers come from in the projections and other spreadsheets or attachments.

For example:
Packaging, 8oz. retail:  $0.49/ea. is then broken down into:
Lid $.12
8oz deli cup $.10
Top Label $.15
Side Label $.12

Review the sample business plan template to see a couple of ways that you can do this in your business plan. If you received funding for any part of this, make note of it clearly at the top of the heading for grant reviewers and for banks. This allows you to show that you have support from other sources and that someone else believes in your project.

C. Income Statements

In a business plan you will generally see:

  • A Balance Sheet:  This is where people are trying to see what you are worth. The more you have in the assets side of the balance sheet the better you look. If your business is a Sole Proprietorship, this section will include personal assets like the farm, buildings, house, etc. For the other forms of business, these will be business assets. Ask a financial adviser to help you if you are not sure how to write a balance sheet. If you are applying for a loan, a bank may have their own form that they want you to fill out.
  • Income Statement:  This is a tool that measures profitability of a particular enterprise.You list all revenue and expenses to get your net farm income. This is something that you should do every year to evaluate enterprises. It is also a great idea to break out enterprises such as crops, dairy farm, and processing venture so that you can assess the profitability of each enterprise.You then have each of the enterprises “pay” the other at the cost of business plus return on investment (or however you choose to do it).
  • Batch Projections:  This is a term to discuss the projected income and expenses from a batch of product made in the processing facility. If you did the Pre-business Planning section, you will have these figures handy. What this tells you is the profitability of each batch size of a particular product. This is IMPORTANT to know before buying that vat pasteurizer or cheese vat. If you find that you do not make money until 40 gal batches (keeping labor in mind), then the deal on the 35 gal vat is not such a great deal, right?
  • Cash Flow Projection:  You will do this monthly (especially for start-up) and also yearly (generally projections for the first 5-years). What a bank wants to know is the likelihood that you will service your debts. If you are in a negative balance for two months every spring, where are you going to come up with income to pay that loan?

For some people, the batch projections and cash flow projections ARE the business plan. The rest is moot. It is always a good idea to get it all down in writing just to get it out in an organized way, but if these numbers do not make sense, then there is no point in continuing on with the enterprise beyond the writing of the business plan.

Do not “work the numbers” until they look right. Always look at the enterprise conservatively. If you hire a consultant, be particularly questioning if they have you making a lot of income by year 2-3. Generally, dairy processing businesses take 3-5 years, depending on debt, to make a profit. Service debt and payroll, but not real income until years 3-5.

Always consider paying yourself a “living wage” when doing your projections. Free labor may be a goal, but it is not sustainable in the long-term.