Better Farming - Better Decisions   SUBSCRIBE      MARKETS      WEATHER      LINKS      HOME



December 2006 Issue
Story Index
Behind the Lines
Letters
Short Takes
Cover Story
Seedbed
Letter From Europe
Contact Us

Cut your risk by properly evaluating your new business plans

Here’s a checklist that can help you manage the risks in any new venture you take on

by CARL FLETCHER

There is risk in every business. Not only is risk a fact of business life but if there is no risk, then there is no profit.

Through experience and over time, business owners learn how to manage the risks in their businesses. But how can a business owner rate and manage the risks involved in a new venture such as expansion or diversification?

This article will highlight several resources that farmers can use to help understand and evaluate new business opportunities.

The OMAFRA fact sheet, “Evaluating the Feasibility of Business Opportunities,” states that if something is feasible, it means it can be done successfully. This fact sheet discusses “feasibility analysis” as one tool business owners can use to evaluate a change in business.

The business owner needs to have clear goals as to why he or she wants to take a look at the new opportunity. These goals can range from maintaining and increasing profits to making room in a family business for the next generation to looking for a new entrepreneurial challenge.

The fact sheet examines the following five aspects or stages of the new venture:

  1. Examine the idea,
  2. Examine the market potential of the new product or service,
  3. Examine the management capabilities of the entrepreneur,
  4. Examine the technical capabilities of the business.
  5. Examine the costs and financing needs.

A key to the success of this feasibility analysis is that, at the end of each stage, the entrepreneur is challenged to set criteria that must be met before proceeding to the next stage. The criteria must support the original goals.

If the entrepreneur’s criteria cannot be met at a particular stage the idea should be abandoned!

It takes time, energy, money and passion to start a new business venture. Sometimes, entrepreneurs get so personally wound up or in love with the new venture idea that they overlook the business realities staring them in the face. Setting the criteria helps keep the business owner objective and creates reality checkpoints to stop the project when needed.

The Opportunity Evaluation Worksheet (see chart) is taken from “Building Added Value through Farm Diversification,” a Canadian Farm Business Management Council publication. This work sheet is another tool that can help evaluate a new business venture.

OPPORTUNITY EVALUATION WORKSHEET
Evaluation criteria Opportunity
ranking 1-10

The idea or opportunity is unique

   .

The opportunity is something we have a strong interest in doing

   .

It can give us a competitive advantage in the marketplace

   .

We can validate and quantify the potential opportunity in the market

   .

We have the infrastructure necessary; equipment, facilities, and land

   .

We have the necessary human resources pool or access to it

   .

We have the required skills: management, human resources, marketing, finance and production

   .

We have someone that can mange this new venture

   .

We can adapt to the new technology

   .

We have the necessary time within the overall operation to do this

   .

It will have minimal impact on existing operations

   .

It creates new synergies and efficiencies for the entire operation (e.g. better use of resources)

   .

It fits within our personal and family values, goals and long-term strategies

   .

There will be value retained when we exit this business

   .

We can manage the risks associated with this new venture

   .

There are advisors or mentors available to assist

   .

It has good profit potential

   .

We can finance this venture from our current resources

   .

* A 10 ranking means the opportunity meets the criteria

Finally, bringing in outside expertise is another way to assess a new business venture. Farmers can use the APF (ED: spell out?) program, “Planning and Assessing for Value-Added Enterprises” (PAVE) to hire consultants who can provide feasibility analysis and develop business plans for ventures that add value to a product produced on the farm.

The PAVE program reimburses farmers for 50 per cent of the eligible consulting costs up to $10,000 per farmer. Details are available on the OMAFRA and Agriculture and Agrifood Web sites.

Evaluating the feasibility of new business opportunities leads to Better Decisions. Better Decisions leads to Better Farming. BF

Carl Fletcher is Strategic Business Planning Program Lead, Ontario Ministry of Agriculture, Food and Rural Affairs, Guelph.

© Copyright 2006 AgMedia Inc. Back