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Entrepreneur Workshop I 5 February 2013. Let the planning commence…. “Business planning is a critical component to any operation. Even though a ‘seat-of-the-pants’ approach to farming might work, it takes too long to figure out if a decision is a poor one; you
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Entrepreneur Workshop I 5 February 2013
Let the planning commence… “Business planning is a critical component to any operation. Even though a ‘seat-of-the-pants’ approach to farming might work, it takes too long to figure out if a decision is a poor one; you can waste years doing the wrong thing when you could have been doing the right thing.” —Greg Reynolds, Riverbend Farm owner/operator.
Agenda • Introductions • Economics 101 • Overview of Legal Business Structures • Your Strengths • Pairing your Strengths with an Agribusiness model • Homework
Supply Equilibrium Equilibrium price $2.00 Demand Equilibrium quantity But first, we have to review some economics. Price of Cone 0 1 2 3 4 5 6 7 8 9 10 11 12 13
Markets and competition • A market is a group of buyers and sellers of a particular good or service. • The terms supply and demand refer to the behavior of people . . . as they interact with one another in markets.
Markets and competition • Buyers determine demand. • Sellers determine supply. • A competitivemarket is a market in which there are many buyers and sellers so that each has a negligible impact on the market price.
Key principles of economics • How people make decisions. • People face tradeoffs. • The cost of something is what you give up to get it. • Rational people think at the margin. • People respond to incentives. Wait, why, again this detail on economics?
Key principles of economics • How people interact with each other. • Trade can make everyone better off. • Markets are usually a good way to organize economic activity. • Governments can sometimes improve economic outcomes.
Key principles of economics#1: • Efficiency v. Equity • Efficiency means society gets the most that it can from its scarce resources. • Equity means the benefits of those resources are distributed fairly among the members of society.
Key principles of economics • Decisions require comparing costs and benefits of alternatives. • Whether to go to college or to work? • Whether to study or go out on a date? • Whether to go to class or sleep in? • The opportunity cost of an item is what you give up to obtain that item.
Key principles of economics. • Marginal changes in costs or benefits motivate people to respond. • The decision to choose one alternative over another occurs when that alternative’s marginal benefits exceed its marginal costs! That is, people respond to incentives!
Key principles of economics. Principle #7: Governments Can Sometimes Improve Market Outcomes. • Market failure occurs when the market fails to allocate resources efficiently. • When the market fails (breaks down) government can intervene to promote efficiency and equity. • Market failure may be caused by • an externality, which is the impact of one person or firm’s actions on the well-being of a bystander. • market power, which is the ability of a single person or firm to unduly influence market prices. 3BL
Economics 101 Summary • When individuals make decisions, they face tradeoffs among alternative goals. • The cost of any action is measured in terms of foregone opportunities. • Rational people make decisions by comparing marginal costs and marginal benefits. • People change their behavior in response to the incentives they face.
Economics 101 Summary, cont. • Trade can be mutually beneficial. • Government can potentially improve market outcomes if there is some market failure or if the market outcome is inequitable.
Types of Legal Business Structures • Sole Proprietorship • Partnership • S-Corporation • Limited Liability Company Need more information? Go to www.wvsos.com See: Legal Forms of Organization, SBDC Resource
How do you choose? Consider the following: • Protection of personal assets • Do you have any? What are they? • Formality of existence (record keeping) • Number of owners • Liability of owners • Taxation of entity profits • Compensation of owners • Transferability of ownership interest
Sole Proprietorship Easiest legal structure to adopt and the most common form For agriculture related businesses: Cost of Business License = $0 Cost of Registration Fees = $0 Unlimited risk of losses for owner and no protection for owner’s financial resources.
Limited Liability Company Recommended legal structure to adopt for agriculture related businesses For agriculture related businesses: Cost of Business License = $0 Cost of Registration Fees = $130 Limited liability for owners.
So, how do I get a business license. • Keep that thought for the May Entrepreneur workshop.
Business Development Resources Charleston Area Alliance GROW http://bit.ly/VNsvyy sromano@charlestonareaalliance.org WV Small Business Development Center http://wvsbdc.wvcommerce.org justin.m.gaull@wv.gov eXtension? SCORE score256@wvscore.org lostgoose1@suddenlink.net Sustainable Agriculture Research & Education (SARE) http://www.sare.org/Learning-Center/Topics/Economic-Marketing
And then, know yourself. • Know yourself, take this abbreviated Myers-Briggs Test. • What does it mean? • Let’s hear it. Divide and Conquer.
Translation to Agribusiness? With this newfound knowledge, complete Worksheet 1 “Self-assessment”
What do you value in your agri-business? To me, being “successful” in farming means: • Paying down our expenses. • Putting money away for the future. • Farming full time. • Taking pride in the products we produce. • Creating a place for the next generation to farm. • Taking time to rest, vacation. • Being able to save for down times. • Having a surplus to share with others in need. • Working together as a family. • Helping neighbors who are farming. • Creating a beautiful landscape and environment. • Working outdoors with livestock. • Generating ____ % of my income from the farm. • Or, in the context of 3BL: • What type of life do I • want to lead? (personal) • • What do I consider • financially important? • (economic) • • What role does the • environment play in my • life? (environmental) • • How do I define • community and why is • it important? • (community) Complete Worksheet 1.1 “My Values”
Agribusiness Models More and more, we are moving toward a “new agriculture” where farmers sell differentiated products and are in direct contact with their customers.
Review of agri-business models DIRECT MARKETS Farmers’ Markets Community Supported Agriculture Agritourism INTERMEDIATE MARKETS Restaurants and grocery stores Institutional Food Service Brokers & Distributors Hospitals Schools
Or, don’t forget about the power of innovation… Collaborative Models Co-op SAGE Broker? ?
So, why are you developing a b. plan? With this newfound knowledge, complete Worksheet 1 “Self-assessment”
Homework • Decide on legal structure • Read through agriculture models • Take note of sustainable, local food purchasing options – create a log. (craft google doc)
Next Entrepreneur Workshop • Tuesday, March 5, 5:30-7pm Topics to be covered: • Understanding your Market • Meet and network with your end-markets