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WILL YOUR NEW AQUACULTURE BUSINESS BE PROFITABLE? Putting together a business plan PowerPoint PPT Presentation


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WILL YOUR NEW AQUACULTURE BUSINESS BE PROFITABLE? Putting together a business plan Steeve Pomerleau Research Associate Objectives Help potential producers by: Outlining critical questions Describing components of a business plan Estimating the level of capital investment

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Will your new aquaculture business be profitable putting together a business plan l.jpg

WILL YOUR NEW AQUACULTURE BUSINESSBE PROFITABLE?Putting together a business plan

Steeve Pomerleau

Research Associate


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Objectives

  • Help potential producers by:

    • Outlining critical questions

    • Describing components of a business plan

    • Estimating the level of capital investment


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Critical Questions

  • Which species to produce?

    • Do you have a clear understanding of the species constraints and benefits (biological and economic)?


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Tilapia

Biological and Economical Constraints

  • Tropical fish that dies in the winter in most parts of the U.S.

  • Must be overwintered indoors, raising costs.

  • Good market in U.S. for fillets, but imported fillets from tropics have lower costs.

  • Live fish sales difficult, but possible.

  • Limited market for live fish sales.


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Baitfish

Biological and Economical Constraints

  • Low production costs

  • Low yields

  • Live product that requires extensive distribution system

  • Sales tied to fishing conditions nationwide on holidays = market risk

  • Market flat


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Baitfish

Biological and Economical Constraints

  • Difficult to break into market.

  • Wholesaling difficult.

  • Could sell baitfish on retail basis, but sales volumes will be very low.

  • Even in prime fishing areas, profits from bait sales are low.

  • Potential would exist in selling to larger baitfish wholesaler who has established distribution network.


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Freshwater Prawns

Biological and Economical Constraints

  • Tropical animals.

  • All production will need to be marketed at the same time in the fall before prawns die as temperatures go down.

  • Thus, the market will be highly seasonal and prawns will be sold when their price is lowest.

  • Insecticide will kill prawns!


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Freshwater Prawns

Biological and Economical Constraints

  • Market not developed. Individual grower will need to develop the market.

  • Production risks high. Severe losses possible.

  • Seed supply unreliable and scarce.

  • Production costs not well known.

  • Harvesting requires draining.


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What about…

  • Eels?

  • Bullfrogs?

  • Turtles?

  • Alligators?


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What about…

  • Eels?

  • Bullfrogs?

  • Turtles?

  • Alligators?

Biologically possible but often questionable economicallyHighly specialized industries that may be profitable regionallyIf something is not being raised, there is likely to be a reason.


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Critical Questions

  • Are you aware of the risks involved?

    • low dissolved oxygen

    • diseases

    • bird depredation

    • Off flavor

    • Market fluctuations

      FISH FARMERS BEAR ALL THE RISK

      NO GOVERNMENT PROGRAMS TO HELP!!


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Critical Questions

  • What will it cost you to produce this species in the production system selected?

  • Can this species be raised and sold for a profit?


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Production costs

$/

lb

Tropical ponds

0.74

Tropical raceways

0.75

Subtropical greenhouse

1.12

Ponds, south. U.S.

1.03

Temperate indoor tanks

1.62

Tilapia Production Costs


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Catfish Production Costs

  • Assume feed costs @ $275/ton, and an average yield of 5,000 lb/acre. For top 10-15% of farms. Average yield is less.

  • Budgets $0.63 - $0.69/lb


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Critical Questions

  • Aquaculture is management intensive.

  • You must ask yourself if you have the skills, management ability, and time to run a fish farm. If not, you will have to hire a manager.

  • Do you like to get a full night’s sleep most nights?


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Critical Questions

  • It is critical to spend as much time studying markets

    • Are markets accessible?

    • What have market prices been over the last 5 years?

    • Are they higher during certain months than others?

    • Is the most common market price high enough to cover all your production costs?


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Business Plan

  • Organized and structured document that…

    • analyzes the market potential

    • Explain the production technologies

    • Estimate the financial performance of the business

  • Necessary to…

    • Evaluate feasibility

    • Estimate capital investments & operating capital

    • Secure adequate financing


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Business Plan

  • It is the future of the business on paper.

  • A way to test dreams against expected challenges and opportunities.


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Why is a Business Plan Important?

  • Many prospective and existing fish farmers have difficulty obtaining financing.

  • Lenders may not be familiar with aquaculture

  • Adequate planning for the business may help avoid mistakes.

  • Proper planning for the business can also minimize risks associated with the market, production and financing.


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How long does it take to develop a complete business plan?

  • A good business plan take months to develop.

  • A thorough plan cannot be developed in an hour, a day, or even a week.

  • The plan is only as good as the effort and thought that goes into it.


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Fundamental questions addressed with a business plan

  • How will you produce the product?

    Production System

  • Who will buy the product?

    Marketing Plan

  • Is the proposed business economically and financially feasible?

    Economic and Financial Analysis


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Components of a Business Plan

  • Description of the proposed site and production system

  • Marketing plan

  • Financial analysis

  • Brief resume of borrower


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Description of the site

  • Suitability of the site in terms of soil characteristics, environmental conditions, and water supply.

  • The proximity to processing facilities, feed mills, aquaculture supply firms, equipment repair services, disease and diagnostics laboratories, and the Extension office.

  • This demonstrates to the lender both the distance the farm will be from these services and that the individual knows where to find these services.

  • Information on specific permits that will be required.


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Description of Production System

  • Thorough discussion of the proposed production system

  • Possible production problems (off flavor, etc)

  • This demonstrates to the lender awareness of the problem and warns the lender of potential cash flow or debt repayment problems.


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Marketing Plan

  • The most successful aquaculture business:

    • are market-oriented

    • have diverse markets

    • are committed to their customers

  • Decisions on species, harvest size, and volume should be based on a market analysis.

  • Profits are made by selling fish, not producing them.


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Marketing Plan

  • If you’re in an area without a history of aquaculture, it is useful to present information on:

    • the size of the industry

    • current trends

    • overall growth potential


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How to begin to Analyze the Market

  • Talk to local retail operations that sell fish.

  • Even if you intend to sell strictly to a processing plant.

  • It is important to understand the product qualities and characteristics expected by the retail operators and end consumers.


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How to begin to Analyze the Market

Talk to as many different potential buyers as possible to determine their needs.

  • Retail markets

  • Processors

  • wholesalers

  • Distributors, brokers

  • Restaurants

  • Seafood stores

  • Supermarkets

  • Consumers buying directly


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How to begin to Analyze the Market

Each buyer has its own buying patterns.

  • Historical prices paid

  • Product form

  • Dockage rates

  • Transportation charges

  • Payment frequency

  • Seasonality issues

  • Delivery volume requirements

  • Quality standards

  • Procedures

  • Contracts

  • Other buyers preferences

Enough potential buyers to support your business?


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Marketing Plan

  • Any documentation from the plants or a letter stating that they will purchase fish from you will strengthen the business loan proposal


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Financial Analysis

  • Estimated Annual Costs & Returns

  • Estimate of Required Financing

  • Farm Appraisal

  • Balance Sheet

  • Income Statement

  • Cash Flow Budget

  • Personal Financial Statement


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Enterprise Budget

  • Estimate of average costs and revenues in a typical year after the business is established.

  • Indicates generally whether the proposed production system is profitable.

  • Indicates general level of expected profit.

  • Indicates breakeven costs.

  • Indicates breakeven yields


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Estimate of required financing

  • Aquaculture is capital intensive.

  • Some lenders still require as much as 50-65% owner equity.


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Investment Cost

Catfish farm: $4,900 - $5,500/acre

  • Land -- 23 - 26%

  • Pond construction -- 33 - 35%

  • Water supply -- 11 - 14%

  • Equipment, feed bins -- 28 - 30%

  • If you already own the land: investment is $3,600 - $4,200/acre


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Balance Sheet

  • Lists what assets and liabilities would be for the new aquaculture business.

  • Used to calculate net worth (owner equity)

  • Used to determine solvency and liquidity (financial strength & position of the business)

  • Lenders prefer owner equity of 60-65% for aquaculture loans.


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Income Statement

  • Itemizes farm income and expenses

  • Called profit and loss statement

  • Calculates

    • net farm income

    • return to capital

    • Return to labor & management

    • return to equity


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Cash Flow Budget

  • What is it?

    • It is a summary of the cash inflows and outflows over a given period of time.

    • It is an important forward planning tool.

  • Purpose :

    • Estimate future borrowing needs

    • Estimates the loan repayment capacity

    • Schedule payments and harvests


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Cash Flow Budget

  • Shows cash receipts and cash expenses by month, quarter, or year

  • Includes only cash expenses

  • Indicates when cash is available for loan repayment

  • Indicates when cash is needed to keep business going

  • Should include family living expenses


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Cash Flow Budget

  • Indicates when additional cash is needed in the business.

  • Can be used to plan operating lines of credit.

  • Can be used to schedule purchases of new equipment or major repairs.

  • Can be used to plan stocking and harvesting schedules to meet financial obligations.


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Conclusion

  • Fish farming is a great way of life but requires a great deal of preparation and planning


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Components of a Business Plan

  • Description of the proposed site and production system

  • Marketing plan

  • Financial analysis

    • Annual Costs & Returns

    • Required Financing

    • Farm Appraisal

    • Balance Sheet

  • Brief resume of borrower

  • Income Statement

  • Cash Flow Budget

  • Personal Financial Statement

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