Yearly business plan - realistic or not? What else should I account for?

[MeliMan]

Hello, Westernbeek!

One idea that you might consider is buying the operation over time, say 3 to 5 years. You agree with the owner to pay a certain amount in 3 or 5 yearly installments. You make the offer based on the expected price for the operation and the amount you conservatively think you will make from honey sales.

In other words, use the owner as a bank: You get started with the business, he defers payment for most of it based on his expectation that you will succeed and make good on your promise to pay $x each year.

You may think that this is asking a lot of the owner, and it is, but you may not have much competition for buying the operation. So, in effect, you may be his only buyer, or, if other potential buyers are located at a distance, you may be the one that the owner finds easiest to sell to. And, if the price you agree on is fair to him, it might be the best price he can get--better than from nearby commercial beekeepers.

This idea turns your hard work over the 3 to 5 years into full business ownership without getting a loan (i.e., without taking on debt).

Finally, I'm impressed with the insights provided above on this thread. They all add up to planning to set aside time and money to meet the unexpected.

Best to you! You've got the gumption and confidence that are needed. And the wisdom to ask for help and insight as you did here!

Peter

[grozzie2]

The items posted so far, look to be an annual budget, which is somewhat different from a business plan, altho the budget will become integral to the plan. To be successful, in the longer term, you need at least a semi formal business plan wrapped around that budget, and, it will need to be a formal plan if you intend to borrow money against the business plan.

To develop a full plan around that budget, is not difficult. Altho my experience is not in commercial beekeeping, I've done a few business plans in my lifetime, and executed on them. I have operated my own business for the last 15 years, which has done well enough that we live comfortably from it. As well, I sit on the board of directors for another company. It's a larger company, with a management board, and I provide the top level management advice for my own particular area of expertise. For my own business, which operates debt free, we have an informal business plan, which I can modify on the fly as it suits. For the other company, which is operating in conjunction with bankers, the plan is formal, and all parties 'sign off' on the plan quarterly. The important detail to remember, the plan is made 'in advance' when you are thinking clearly, and, needs to be thought out well enough, that when ca-ca happens, you dont find yourself in a situation where rash decisions need to be made, but rather, refer back to the plan, and execute on the 'if this happens' action plan that was pre-determined. All areas of major risk, should have an 'if this goes bad' stanza in the business plan, and, a road to recovery for that event.

To write a plan for your beekeeping endeavor, you need to start by stepping back, and asking a bunch of high level questions, which will apply to whatever business you decide to head out on, be it beekeeping or basket weaving, you still need to answer a few personal questions that will become the fundamental driver of your plan.

1) Where am I today?
- Do you have a family to support ?
- Are you married ? Intending to become so in the forseeable future ?
- Where do you live? How much does this cost monthly / annully ?
- Why do you want to embark on this business ? Is this a field you have a passion for ? <<-- VERY IMPORTANT QUESTION

2) Where do I want to be in 1, 3 and 5 years ?
- Will you have a family to support in 5 years ?
- Will you have a spouse that is 'good' with the time / energy requirements of running this business ?
- If so, will she be able to cope with the financial stresses in a bad year ?
- How large will the business be at each of the points, 1, 3 and 5 years ?

Answer all of these questions, and, those answers become the framework for how you can build up a plan, with timelines, to get from your starting point, to your desired end result. Note, none of these questions involve actual dollar amounts, but, the answers will become the basis for the philosophy of how, and why, you operate the business the way you do. Contrary to popular belief, a business plan is NOT a boilerplate thing that comes from an academic source. A well thought out business plan is a very personal document, which becomes a roadmap for how you get from point A to point B. An informal plan will give you personal guidance when you have to make important decisions, whereas a formal plan used to gain financing, will become the basis of the 'report card' your funders use to judge progress, and release of future funding (both input and payment schedule) decisions. A formal plan involving external funding, often leaves folks with little choice at some decision points, you cannot just change direction without approval of the lenders.

When you have all the answers to the questions above, the next step is to make up a timeline for execution. For each of the first 5 years, specify a growth and revenue target, then develop a budget, for each year, as you have laid out in the budget built up so far. For this endeavor, if it was me writing the plan, I would not base decision points on calendar timelines, but, rather on the growth metrics. The current operation is 150 hives, with a goal to grow to some number, which would be large enough to support a migratory operation. As others have pointed out, you need a semi-load of bees to start down that route, and, two is better. So, in your timeline, you place 'start searching for migratory customers' at the point which says 'have 2 semi loads of bees'. That may be in year 2, or it may not happen till year 4, depends on the growth mechanism you choose.

Once you have the 5 years rough plan written up, on a year by year basis, with a budget for each year, it's time to go back and re-visit each year individually. You have a number in there for 'honey retail', which is the single largest source of revenue. That cannot be a single number, it's got to be a range, from worst to best case, with a normal case somewhere in between. Using our local area as an example, average harvest for commercial beekeepers last year was 10 pounds per hive, ie, honey crop was almost non-existant. How will a bad year like that affect your plan ? Do you have a way of surviving that possibility ? Since honey production is your primary revenue source, you really need to have a plan of action in place for a crop failure in each of the 5 years moving forward. For the honey production, the primary risk is weather, so note that down clearly now, and make it an integral part of your long term plan, how to survive the crop failure.

On some of the other items, you need to assign a risk factor to each revenue source. The original plan showed some revenue from selling queens, so, you need to ask some hard / honest questions about selling queens and nucs. From my reading here on beesource, queen sales are drivin by price, and reputation of the producer. Do you have a reputation that will allow for a premium pricing model? Will you be able to sell enough to achieve the revenue goal ? Or, will have have to produce twice as many and price them lower? If you do that, can you find buyers for that many ? Producing nucs, can you afford to sell them, or, will they be required for your growth model ? Can you afford to NOT sell them ? Do you have a market lined up for the propolis sales ? If so, leave them in the 'Expected Revenue' column. If not, move them to the 'Planned new revenue sources' column. Keep in mind when you do those numbers, planned new sources dont always pan out, assign it a higher risk category, and, write a stanza about how to overcome the problem if that revenue source doesn't pan out.

Something I would suggest you do, and again, this will help you make a very personal decision on how to move forward. The goal is growth, and there are two methods of achieving that growth. Behind door number one, you can grow organically, splitting hives and expanding. This route may be possible without borrowing a lot of money, altho the 2013 financial projection you have, doesn't include woodenware for expanding the hive count. The other route, borrow a bunch of money, buy everything, and start out with a much higher hive count. On your timeline, that will trigger the 'go migratory' decision point much earlier in the plan, but it'll shift the financial model considerably, because it adds significant debt servicing obligations. So, to figure this out in a way that suits YOU, personally, write your overall plan twice, once via the organic growth model, and once via the 'borrow and buy' growth model. Compare the risk, and reward value for both models, compare the timelines, and ask yourself a very personal question. Am I comfortable with the risk/reward model in each case. When you do that, the answer to a question that's been bantered back and forth here about borrowing, will become obvious to you. Not everybody will see it the same, and input from others is great, but, only YOU can make the final decision on what is right for your own move forward.

Again, I will draw on my own experience. My business is sound, and has allowed us to reach a point of living in a house, where the mortgage got burned last summer. We have two vehicles, nothing owing on either. We have a comfortable lifestyle that we enjoy. Conversly, the other business where I sit on the board, is running on the borrow and buy business model. The financials look good today, and I believe we can make that business a success, but, the risks are much higher.

And on that note, one final bit about your financial projection, there are a couple glaring items missing. Pay yourself. There is no allowance in that statement for putting food on your table. Where is the money going to come from when you stop at the grocery store, and buy a loaf of bread ? Can you go the whole year without eating ? I doubt it, so, factor into that plan, you need to take some of that revenue, and use it to cover the necessities of life, food and lodging. If you dont have that covered in the plan, no banker will take the plan seriously. You may well start the first few years with 'outside job' as the revenue source, and that's fine, but, if that's the plan, put it in your plan. Another item that is glaring in it's absence, administration. At a bare minimum, you will have to file tax returns, even if no tax is owing, and that's going to cost some money to have an accountant do things up properly. Unless you thoroughly understand bookeeping already, you are well advised to hire an expert in that area. A good accountant will save you far more than they charge. The exception to that, is only when you are unprofitable, but, nobody starts out intending to be unprofitable, so, hire a good accountant to help you keep that money come tax time.

[westernbeekeeper]

1) Where am I today?
- Do you have a family to support ?
- Are you married ? Intending to become so in the forseeable future ?
- Where do you live? How much does this cost monthly / annully ?
- Why do you want to embark on this business ? Is this a field you have a passion for ? <<-- VERY IMPORTANT QUESTION

2) Where do I want to be in 1, 3 and 5 years ?
- Will you have a family to support in 5 years ?
- Will you have a spouse that is 'good' with the time / energy requirements of running this business ?
- If so, will she be able to cope with the financial stresses in a bad year ?
- How large will the business be at each of the points, 1, 3 and 5 years ?

1)
- Not yet
- Intend to become so in the forseeable future
- In rural Cheyenne WY
- This is a field I have a great passion for, and we need a second generation of commercial beekeepers

2)
- Planning to
- Yes
- Yes
- Still figuring

[Specialkayme]

Ben,

There is some good information in this thread. I'd re-read it a few times if I were you (actually, I might re-read it a few times myself, lol).

I think, and I could be wrong, that you are trying to create a budget (aka a Pro-forma) rather than a business plan. A business plan is a little more than a projection of income and expenses. A pro-forma will give you a better understanding of the viability of the business, and help you make the decision as to whether or not you want to go down that route.

That being said, I looked over your Project Statement. Keep in mind that I'm a business bankruptcy attorney. I do business turn-around for a living. That means that my view point is skewed, and I don't see things the way most people do. I look at a business and I try to find out why they are screwed, how they are screwed, and how we can fix it. When I see your statement, I know there are a ton of expenses that aren't covered in there, and alot of the expenses you have are good guesses at best (which at this stage in the game, is expected). You put down $600 for hive replacement/repair. How accurate is this? It accounts for less than 10% replacement each year. Some of your items will have a lifespan of less than 10 years, and should be planned for accordingly. You also put down $1,000 for equipment repairs. I'm not sure what you mean by that.

But as far as some of the expenses that you don't include there, think of it like this: add up every expense you would have to make in order to do this business, even if you normally would have used the item in your personal life. Cell phone, wear and tear on your vehicle, ect. If you are using it for your business, you need to count it in there. Also, you need to put "debt service" in there. If you are paying back on your loan, account for it. Also, another big one, taxes and insurance. Make sure you account for and plan for them. Also don't forget to pay yourself. You will want to re-invest that back into the business, but make sure you pay yourself something. It isn't a business if you are working for free, it's a charity. Also, you don't really account for how you plan to make up winter losses. I'm assuming you'll be splitting your hives to do that, and selling the extras as "nucs", right?

I think your income projections are on the low side, which is good for planning purposes. I think your expenses (at least some of them) are on the low side as well, which isn't too good.

As someone mentioned earlier, half your income and double your expenses. If you can still make it work, it's a sign that you've got a very viable business. Right now you could double your expenses OR half your income and still make it work, but not both. Not that you can't make it work, but I would be very cautious in your first few years.

Oh yeah, and I would think long and hard about incorporating. Individuals working as farmers are eligible for special governmental assistance/programs that some companies (LLC's, S corp, & C corps) aren't. One in particular is Chapter 12 reorganization. There are still ways to keep it under your name (d/b/a) and still protect yourself from liability.

[btmurph]

Individuals working as farmers are eligible for special governmental assistance/programs that some companies (LLC's, S corp, & C corps) aren't. One in particular is Chapter 12 reorganization.

Sorry if this is jacking the thread, but what are some of the other things individuals qualify for that corps. don't? (I was thinking of forming an LLC myself for my bee business)

[kilocharlie]

Congrats, Western, you've started a 5-star thread!

Do check out www.sba.gov 's business plan outline. Its a free download and is highly regarded by investors. I use Palo Alto Software's Busness Plan Pro, for initial write-up, first few revisions. I use all the math formulas from the S.B.A.'s biz plan outline, though, as it is very convincing. I will eventually write the finished document in SBA's format.

A bank loan officer told me he does not base his decision on projected return on investment (ROI), but he does look at it! It should be at least 125%, or 25 percent over his money going back to him. It would probably impress him if it showed a profit for you, too.

Remember, the biz plan is only if you decide a loan is an appropriate route to take. It is a good thinking process regardless if you do or don't. As mentioned by the others in these excellent posts, debt is good to avoid.

Bill, Jim, Keith, Peter, SpecialKayme, and Grozzie2 - Nice posts!

[kilocharlie]

Brian - Technically, an individual is a sole proprietor, although your attorney can get around that. Two people that do not incorporate can be a partnership. Both of these formats offer no asset protection should you get sued. The plaintiff can go after your personal assets - your house, your car, your bank accounts, to name a few. Generally speaking, partnerships have the lowest life expectancy.

Asset protection (known as "corporate veil") is strongest with a "C" corporation, but there is double-taxing, plus $800 a year in California. An "S" corporation drops the $800 fee and the double tax, and the asset protection is almost as good as in a "C" corporation. LLP stands for Limited Liability Partnership, has slightly lower asset protection, may be a very good tax situation, and has the advantage that principal owners make the daily decisions and the financial owners do not. A Limited Liability Corporation, or LLC is another option. You should ask your attorney and your S.C.O.R.E. counselor which is right for you.

Nolo Press has several books that explain this in detail.

[Specialkayme]

I'm less convinced the corporate protection helps small beekeeping operations as much as it does other businesses. The three main reasons an individual would look at incorporating are: 1) asset protection [and to some degree tax preferences], 2) increased transferability, and 3) ease of closing when things get hairy. Most people aren't too concerned with two and three. A corporation (C, S, LLC, or even an LLP or LLLP) does protect an individual from lawsuits, to a degree. If you are incorporated and someone sues you, they can only collect on the assets of the company and can't collect on you individually (i.e. come get a lien against your home). But there is a way around that, called "piercing the corporate veil" that can be done with small businesses that don't follow many of the formalities that large businesses do (i.e. what most people on here would be doing). Essentially, if they pierce the veil, they can collect against the company AND THEN collect against you. There is also a degree of liability that the owners/managers have, so someone may be able to sue you individually anyway. But for many on here, I think it's a moot cause. If you are incorporating your $15,000 business, and all you own is the $15,000 worth of items you put into the business, it doesn't really matter if they collect against the "you" that is the company or the "you" that is holding the assets. It's all the same thing, at least until you acquire non-company collectable assets (which one should look into their state's exempt assets to see what really is collectable. Just because you own it doesn't mean anyone can take it from you).

For most small businesses that are starting out, the only real issue they will have is with loans. If you incorporate and the business takes a loan out, if the company fails or the loan comes due and they can't pay it, the business shuts down but the individual continues on. Not so when the individual is borrowing the money. If the business can't pay it, the individual becomes responsible for paying the debt regardless of whether or not the business side is functioning. However, most banks require personal guarantees for business loans (especially those starting up). So the individual would STILL be on the hook.

And if you are really that concerned about lawsuits, get insurance.

As far as the question about other protections afforded to individuals that is not afforded to companies, in addition to Chapter 12, individuals get exempt assets while companies do not. All told, that could equal hundreds of thousands of dollars worth of protected assets. USDA and government subsidies are often more interested in assisting individuals as opposed to companies, or at least I've been told. You also can't have a trustee or a receiver appointed to run you as an individual. That's not counting the tax savings you receive, or saving on the yearly incorporation costs.

[delber]

Just a quick note in reply to the post from special. . . I have some hives at a local farm and he needed to have them insured / liability insurance in case someone sues him. The insurance for I believe 1 million was $320 annually.

[westernbeekeeper]

Hello folks,
Wow, I am immensely impressed at the amount of advice and insight y'all have given so far on this thread. I really appreciate it! I will have a meeting with the boss in early-mid October, and I will discuss quite a few things with him then. I really like the idea of paying in installments. I really would rather not have to borrow; and I may not need to. I also could work for equity, but I really like the installments idea. Someone mentioned learning to be a "McIver"; I pretty much am one. I will not throw any equipment away until it is TOTALLY unfixable. I patch knotholes with tin can lids, and I build all my own equipment except for frames. If I find old equipment for cheaper than I can build, I buy and fix up. Anyway, I will be rereading this thread many times! Thanks, KiloCharlie, for the congrats; is there any benefits to that (starting a five-star thread)? Thanks all, for everything so far!

[kilocharlie]

Benjamin - the benefits are that you stand a much better chance of long-term success in business, and have probably done a lot of good for those who read and take heed of the info presented here. Way to go!

Specialkayme - another nice post!

I am going to print and laminate this thread!

[westernbeekeeper]

I am going to print and laminate this thread!

That's a great idea. Seriously!

[kilocharlie]

.... The goal is growth, and there are two methods of achieving that growth. Behind door number one, you can grow organically, splitting hives and expanding. This route may be possible without borrowing a lot of money, altho the 2013 financial projection you have, doesn't include woodenware for expanding the hive count. The other route, borrow a bunch of money, buy everything, and start out with a much higher hive count. On your timeline, that will trigger the 'go migratory' decision point much earlier in the plan, but it'll shift the financial model considerably, because it adds significant debt servicing obligations. ...

In reference to Grozzie2's post #62, you may note that the almond crop in California had almost enough bees this year, much to everybody's BIG surprise. Randy Oliver posted an article about 2012 almond pollination in his website, www.scientificbeekeeping.com He states that he foresees the $140 to $160 per hive ballpark price for almond pollination as stablizing for the next few years.

It is simple math to figure out how many hives at the low end of that price range makes a net profit of $100,000 for you (and that is only almonds !) after you figure your costs of palletizing the operation, the big rig, the forklift, fuel/ maintenance/ other trip costs, annual fixed and variable cost-per-hive, etc. It's not so simple to actually grow 25% more than that many bee colonies and get 75% of them increasing in February, though. I'd guess 1,050 hives could be reached in about 6 years (growing by 200 hives per year and losing 50 per year - adjust both numbers to your average total colony losses). Almond pollination alone could bring in a gross of $140,000 per year (there is time to get in about 6 crops per year, but the prices are considerably lower), leaving about $100 grand after a scientific, wild-assed guess at expenses. This is somewhat optimistic that that many good years will happen consecutively. It's just a linear representation - yeilds, colony counts, prices will change.

If I were the financier reading your plan, and I saw reasonable "organic" growth to that number in a few years, with a plan to "go migratory", I would still have questions, but I would have a bit more confidence that you are sharp enough to know when to make such a transformation and when not to do so. This fundamental change in the way things are done represents a major event in your company's history, its risk, its profitability. It is almost as if you should write "before" and "after" going migratory plans.

[Roland]

Western wrote:

If I find old equipment for cheaper than I can build, I buy and fix up.

For non woodenware, YES. For wooden ware, not worth the CCD risk, and I would know how???(Worse mistake we made, only cost us 2 seasons of crop)

Crazy Roland(the McIver)

[westernbeekeeper]

I torch/fire (NOT charr) all exposed wood. I trash all comb/foundation, and dip the frames in boiling water for 30 seconds each. Never had an issue.

[odfrank]

not worth the CCD risk, and I would know how???

What is your definition of CCD?

What happened your bees?

[btmurph]

As far as the question about other protections afforded to individuals that is not afforded to companies, in addition to Chapter 12, individuals get exempt assets while companies do not. All told, that could equal hundreds of thousands of dollars worth of protected assets. USDA and government subsidies are often more interested in assisting individuals as opposed to companies, or at least I've been told. You also can't have a trustee or a receiver appointed to run you as an individual. That's not counting the tax savings you receive, or saving on the yearly incorporation costs.

THAT was what I was wondering! Thanks!

[westernbeekeeper]

Thanks everyone for all the help!

[jean-marc]

If the owner is the financier this is a very good idea. He may want interest to carry you seeing as how he is carrying the risk., Payment in honey is best. Try to get a slight premium for your honey. You should be able to seeing as how it is local honey. The old boy just might like the idea of keeping on selling the honey, without the worry/hassle of hive ownership. If he is selling your honey it affords you more time to work the bees if that is what you like.

To Jim

Why sell a nuc at $125 if several months later you could get $200 worth of honey?

Well if you have limited funds it allows you to cash flow. You do not need to own 3 or 4 honey supers. You do not need to store the said honey supers in the building you do not own/rent. You don't have to super up or pull and extract the honey. I'd say $125 nuc in the spring is about $200 worth of honey later on.I agree that if you want to get your numbers up best to hang on to them but they are very costly in terms of all the other added costs to carry them till you actually get the $200 for the honey. Bankers are good for this. Once you sell it you no longer own it making it harder to increase. If you can use someone else's money to grow under reasonable terms go for it. If the opportunity is there grab it.

Jean-Marc

[westernbeekeeper]

Thanks, Jean-Marc. Your thoughts are mine about the nucs.