Planning and Measuring Your Business Success
If you are like most people, you love the excitement
of taking a trip. This is especially true if you are planning
a trip to some far-way place where you’ve never been before.
You wouldn’t dream of taking such a trip without first
figuring out how to get to where you want to go. You would most
likely obtain a map, determine how much it will cost for transport
and food and consider how to remain safe while in a foreign country.
Starting a new business can be compared a bit to
taking such a trip. In the beginning, you know where you want
to go but, you don’t really know how to get there. I find
it interesting to know that many people in the alpaca industry
invest large sums of money in purchasing alpacas, building barns
and buying farming equipment before really deciding where they
are going and how they plan to get there. Possibly the most important
investment you can make in your new venture is the time and energy
you spend creating a business plan.
A good business plan provides the strategic vision
for your business. In it you will establish your ultimate goals
and objectives and describe the strategies, tactics and resources
you will use to achieve them. Your business plan should define
who your customers are and how you will meet their needs. You
must also identify resources you have and resources you will
need to reach your objectives. Finally, you will create the financial
projections and budgets that will guide your decisions for the
next few years.
- The first element of your plan
is a description of your business.
Be specific.
Are you going to: sell, board or train alpacas? Will you
sell alpaca products? The alpaca business is a long term
proposition. Therefore, it’s best to think in terms
of five years from now, and write down everything you will
be doing as part of your alpaca business. This will help
determine the size of operation and skills you will need.
- Next, define your products, your
customers, and your competition. Your research into
the alpaca industry will be useful here, since you will need
to explain where your market is and how you will differentiate
yourself from other alpaca breeders. What is it that you
do better than anyone else, and how does that help meet the
needs of your customers? Be specific and realistic. In today’s
business environment, mastery of the web is essential. How
are you going to get the word out about your alpacas, products,
and services, and how will you make sure that the information
gets into the hands of those people who are your most likely
customers?
- Next, identify necessary resources.
This doesn't mean funding, since that will be covered in the
financial section of your plan. But it does mean, for example,
labor needs. Who is going to care for the animals, keep the
books, build the fences, develop marketing materials, and so
on. It also includes equipment, facilities, and space needs.
- Predict
your financial expectations. In addition to
the alpaca lifestyle, the ultimate goal is to make a profit
from farming alpacas. If you have not been in the alpaca
business long enough to have such records, don't be afraid
to call around and ask established breeders to help you
project income and expenses for at least three years. Set
realistic expectations, based on industry standards, using
reasonable assumptions.
- Finally, state your business/long
term goals. Every business owner must have an exit
strategy because. Farming alpacas is a fun and rewarding
pursuit but, someday you may want to retire to the Virgin
Islands, lounge in a hammock and sip Mai Tais all day long.
Do you plan to operate your business for 5-10-15 years? Do
you plan to operate the business for a period of years and
then retire or will you operate the alpaca business as part
of your retirement plan. Quantify the ultimate financial
result of you efforts.
For example, to project income from selling alpacas
you need to calculate how many alpacas you will have for sale
in each upcoming year. If those alpacas are not born yet, you
will need to guess the number of future male and female crias.
This is called a retrogression analysis because the projected
number dictates how many females you will need today in order
to reach your goal. You can assume equal numbers of males and
females for a middle-of-the-road estimate, or you can take the
best case/worst case approach and assume all girls or all boys
in any given year. Other income sources might include boarding
fees, stud fees, sales of fleece and products, or fees from services
you offer.
Your expense projections should include all conceivable
costs of running your farm such as feed, vet bills, barns and
fences, purchase of animals, marketing, education, equipment,
supplies, breeding fees, expansion needs, etc.
Use the income vs. expense figures to determine
how much capital you need to start your operation. The standard
rule of thumb is to have enough money on hand at the beginning
to cover start-up costs and the first year or two of operations.
When you have a draft plan completed, ask
us to review it for you. We can give you pointers
that help test your assumptions. I encourage you to take
advantage of our free AlpacaBankerBusinessPlanner.
The planner will help you quantify the financial impact of
your assumptions so you can make the right business decisions.
Many people make the mistake of going through
this exercise of producing a business plan and then rarely refer
to it. Your business plan should be used as a guide. Make revisions
and updates as your understanding of the business evolves. Marking
off goals as you achieve them and adding new ones to the list
is essential to measuring your success and adjusting to changing
market conditions. Your plan should be a dynamic, living document.
When you have it completed, here's what you will
have achieved:
- You now have a plan that gives you goals,
timetables, and a path to follow. It provides a guide to
upcoming expenses, so you can be prepared, and projects income
so you know
Measuring Your Progress and Rewarding Success
One of the biggest challenges in business is keeping
good records. But, it is the only way to measure and analyze
your business progress.
If you don't keep records, how will you know whether
you are making any money? Or which part of your business makes
you the most money? Or which type of marketing is working? Record
keeping is an essential element of your road map.
There are three general types of records you will
need to keep as an alpaca breeder: financial records, herd management
records, and marketing records.
Financial records: Assets, Liabilities, Income, Expenses
The profit/loss statement is the ultimate scorecard
for your business. In analyzing your profit/loss position, consider
the cash impact. Cash income minus cash expenses provides the
critical piece of information you need to see how your business
is performing. For example, many alpaca sales and purchases are
financed. If you have no sales at all (which is common for the
first couple of years), or if the timing of cash receipts from
financed sales are not timed with cash expenses, then obviously
you are running in the red. On the other hand, a farm with many
sales transactions may seem very successful, but only the profit/loss
accounting can show whether a profit was actually made.
Every sale costs money. All of the farm expenses
such as feed, vet, taxes, insurance, utilities, accounting, breeding,
interest, etc. should be spread across all revenue to determine
your level of profitability. This number should guide your business
decisions. If your net profit is falling (or negative), you need
to make some changes in the way you operate or you will eventually
be unable to continue operating.
You will want to use your accounting records to
help you identify ways to reduce costs. Using these figures,
you should be able to estimate most of your typical annual costs.
That means you can plan in advance for certain expenses, and
you can also use these figures to see where you can cut expenses.
Can you find a less expensive way to feed? Learn to do some of
your own vet work? Watch your records to see how changes in farm
or business management affect the bottom line.
Herd Management Records
Just as herd management records are important
for the health of your alpacas, the same records are important
for the health of your business. For example, you can provide
much more information, and therefore service, to your potential
buyers if you have records for each alpaca. How much each animal
sheared last year and what its fiber statistics show are important
statistics essential to any buyer. You will also be able to tell
buyers about the animal's general health, how many babies it
has had, and the health of those crias.
Herd management records also provide a way for
you to assess your feeding program, tailor medical treatments
for the precise weight of each alpaca, and have critical information
available to your vet, so you can avoid unnecessary feeding and
veterinary expense.
The most important reason of all for keeping herd
management records is that it allows you to document the success
of your breeding program. All breeding programs strive for continuous
improvement of desired characteristics. Without records, you
will not know whether the stud you have been using has had the
desired effect, whether this year's cria are better than last
year's, or which animals need to be taken out of your breeding
program because they are not helping you achieve your goals.
Marketing Records
Marketing records tell you how well you are doing
at attracting buyers and making sales. Most businesses start
with the shotgun approach to marketing: throw a little money
at every possible method and hope one or more hit the target.
Not only is this inefficient, it is also expensive. Wouldn't
you like to know which form of marketing is giving you the best
results so you can focus your limited resources on what works?
This is what your records will show you.
Different methods of marketing work better in different
parts of the country, so at first you will have to do a little "trial
and error" testing. Perhaps you decide to invest your marketing
funds for this year in a print ad in a livestock magazine, two
mailings of your alpaca sales list to prospects, and hosting
an open farm day. The only way to know which of these was the
best at attracting qualified buyers to your farm is to record
the results from each. That means you need to keep track of the
number of phone calls you get from people who saw your ad in
the magazine vs. the number you get from people who received
your sales list. How do you know what prompted a caller to phone?
You ask! And then you record that information.
You will also need to keep track of how many visited
your ranch, and how "qualified" they were (meaning
can they afford to buy an alpaca and are they ready to do so).
Your open farm day may have resulted in 70 people visiting, while
only two people came after receiving your sales list. But if
the two people were ready and eager to become alpaca owners and
the 70 only came because they needed something fun to do on a
Sunday afternoon, guess where you want to focus your efforts
next year?
How you keep your records is not as important as
finding a way that works for you. Whether you use a shoebox,
file folders, ledger books or computer database programs does
not matter, as long as you can find the information you want
when you want it. The data you keep contains the answer to the
question: "Where is my business headed?"
"There’s no sense in making good time
and getting great gas mileage if you don’t know where you
are going”.
Imagine the possibilities for the coming months.
Imagine, too, the success the next fifty-two weeks will bring
to your alpaca business. What if I told you there is something
you could do right now that would make that success a certainty?
Would you listen? Would you do it?
Well, there is something you can do, and that is
to sit down and plan for the coming year. Sounds simple, doesn't
it? Yet an amazingly large number of business people fail every
year, in part because they did not plan for their success. Avoiding
that trap is as easy as taking the time, right now, to work out
where you want to be at the end of the coming year. Then plan
backwards from there to the present, so you will know exactly
what steps to take each day, week, and month along the way. Here
are some ideas to incorporate in your plan:
Developing an Effective Tickler System
Developing an effective tickler system is simply
the act of putting events on your calendar. At the end of each
year I like to begin my planning with simple logistics. I find
out when all the events I want to participate in will be happening
in the coming year and get them on the calendar. This includes
shows, auctions, conferences and workshops, plus my own farm
events. I also enter the delivery dates for all our pregnant
females, deadlines for ads and articles, routine committee meetings
and the like.
While this is just a simple recording function,
it provides a framework for most of the other planning I need
to do. Right away I can see whether there are timing conflicts,
when I will have space to fit in new activities and events, the
times of year when I will need extra help and where the slow
(ha!) periods of the year will be.
Setting and Evaluating Marketing Plans
Marketing is all about energy, persistence and
measurement. In order to evaluate the effectiveness of your marketing
efforts, it is essential that you track your marketing results.
Examples would be: the number of phone calls, emails and farm
visits during each month compared to the sales achieved. Look
at the periods when you had the most contacts, and figure out
what sort of marketing you were doing at the time. Since these
methods worked, you will no doubt want to continue them. Look
at the months (or weeks) when you had the lowest number of contacts
and do the same thing. Think about what else you can do during
the slow periods to improve the results, and whether you are
happy enough with the busy periods or want to improve on them
as well. Add into this mix any special events marketing that
you need to do (for auctions, open houses, conferences, etc.).
Monitoring success will help you make decisions based upon what
works.
Forecasting Farm Income
It is always helpful to start the each year with
an estimate of expected income, broken out by month based on
your income goals for the coming year. How many sales will you
need to make to achieve those annual goals? How many sales is
that each month? Based on the prior year's records, decide whether
you can use the same amount and type of marketing or whether
you need to try something new and different. If your goal is
to improve sales over the prior year, you may need to try something
new and different. Now is the time to create those new plans.
If you did not did not achieve your sales goal in the prior year,
it may be time to re-evaluate your marketing plan.
Budgeting Farm Expense
Cash flow is the life blood of any business so
understanding and predicting the amount and timing of expenses
is critical. To the best of your ability, you’ll need to
plan the expenses so they do not correspond to times when income
is low. Ways to achieve this are varied but include things like
pre-purchase of materials and supplies, pre-payment of travel
or advertising costs, delayed payment of costs through use of
credit, or making do without some other big ticket item for a
bit longer.
Make Breeding Plans
Many grain farmers spend winter days planning
which crops to plant, and how to market their coming crop. If
your breeding cycle, now is the time to decide whom to pair with
whom in order to get those ribbon winning crias. Contact stud
owners to ask for their progeny records and samples of breeding
contracts. Always ask for discounts for multiple breedings. Carefully
weigh the advantages and costs, and make your decisions. Add
breeding expenses to your budget. If you are using your own studs,
schedule breeding dates on your calendar and add costs of pregnancy
confirmation to your expense list.
Turning Your Plan Into Reality (S.W.O.T.)
Now that you have completed your plan, it’s
time to employ some strategic planning techniques. I use the
acronym S.W.O.T. which stands for:
Strengths–Take an inventory
of everything you do well. This should align with what you’ve
chosen as your niche. Check your marketing and make sure it aligns
as well.
Weaknesses–Take an inventory
of your weak spots. Everyone has them. Determine if what you
see as a weakness really puts you at a disadvantage and develop
a plan to overcome or compensate for it.
Opportunities–Based on your
strengths, make a list of the opportunities you see and build
them into your marketing plan. The most successful businesses
are those where opportunities are both recognized and realized.
Threats–Threats can be internal
or external. For most businesses, the most dangerous threats
are internal. Look to your list of weaknesses and determine which
one(s), if not addressed, have the potential to keep you from
reaching your goals. These are the weaknesses you will need to
fix first.
Finally, remember that the whole planning process
will be a waste of time if you don’t follow your plan.
Once you have your goals and timelines in place, the rest is
up to you. You can modify and change your plans when necessary,
but if you have given careful thought to the details, significant
changes will not be necessary unless some unexpected opportunity
or external change occurs.
