Alternative Enterprises: Opportunities, Challenges, and Resources

1. Alternative Enterprises:Opportunities, Challenges, and Resources

5. Alternative ag products • Tree fruits and pecans • Small fruits, vegetables • Greenhouse and nursery stock, turf • Christmas trees • Recreational farm enterprises, hunting and fishing leases • Aquaculture, goats, other small animals • Mungbeans, sunflowers, popcorn • Native or improved grasses grown for seed production

6. Alternatives (continued) • Niche markets • Unique products with specific attributes • Value-added • Enterprises that are different to you • New ways of doing “old” things • Free range chickens • Corn mazes

7. Good judgment comes from a lot of experience and a lot of that comes from bad judgment. • Don’t Squat with Yer Spurs On! A Cowboy’s Guide to Life

8. Personal Considerations • Your investment goals • Time available • Knowledge and interest • Available funds • Ability to handle a loss • Present financial situation • Risk tolerance

9. What are your goals? • Business vs. personal • Short run vs. long run Goal Setting for Farm/Ranch Families: http://pods.dasnr.okstate.edu/docushare/dsweb/Get/Document-1674/AGEC-244web.pdf

10. Do you have the resources? • What is needed? • Land • Labor • Management • Capital, equipment, buildings • Time • Entrepreneurial skill • Where can I attain these resources? • If I purchase new capital, will it be useful in another enterprise? • What is the seasonality of labor required?

11. Resources • Use those resources to which you already have access • Lending institutions for capital needs • Use of budgets previously mentioned will be very helpful from lender’s viewpoint

12. Land • Is the soil type correct? • Is irrigation required? • Is the land located close enough to market?

13. Labor • Fruit & vegetable crops are labor intensive • Is there enough trained hired labor available when you need it? • Are they employees or contract labor?

14. Capital • Can you finance the enterprise yourself? • Is the banker aware of what you are doing? • How much of an operating loan will be required before the product is sold?

15. Management • Do you have the necessary skills to manage this operation? • You may be good at running a cattle operation, but poor at running a vineyard.

16. Time • Many alternative enterprises are time hogs. • Easy to spin your wheels when you aren’t sure what you should be doing. • Are you already fully employed when this enterprise needs your full attention?

17. Evaluation • Is it technically feasible? • Is it economically feasible? • Are your management skills sufficient? • Can you get the needed financing? • Do I have the time? • Is there a market available? • Can you stand the risks? • What are the infrastructure needs? • Does this match with your personal interests?

18. Marketing Where can you sell your product? How can you effectively advertise? How much product loss will you have? Is the product already oversold in your area? How do you set the price? Should be the first step, not the last!

19. PRIMER for evaluating enterprises: • Profitability • Resources • Information • Marketing • Enthusiasm • Risk www.uky.edu/Ag/AgEcon/extpubs, Series Number 2000-13

20. Profitability and feasibility • Will it cash flow? • What will be my total cost and returns in an average year? • At what price will this enterprise become unprofitable? • What will be my return on my assets? • How long will it take for this project to pay for itself?

21. Profitability and feasibility • Business planning • Enterprise budgeting • Cash-flow budgeting • Partial budgeting • Sensitivity analysis • Investment analysis

22. Business Planning Internet Resources • Small Business Administration • sba.gov • Center for Farm Financial Management • http://www.cffm.umn.edu/Software/BusinessPlan/index.aspx

25. Information • Who can provide information on the enterprise? • What will be the costs associated with obtaining this information? • Will the information be reliable? • Are there any trade organizations, producer groups, or publications already established in this area?

26. Information sources • University/Extension Specialists • Oklahoma Food and Ag Products Center • Oklahoma Department of Agriculture • Oklahoma Department of Commerce • Oklahoma Department of Health • Career Tech • Small Business Administration • Small Business Development Centers • SCORE • Trade/Industry Associations • Publications and World Wide Web • Private sector, other similar businesses

27. Organizing information • Identify specific objectives • Prioritize objectives • Chronological • Urgency • Good news • Tons of information and help available • Bad news • Tons of information available • Not much is specific to your needs

28. Never ask a barber if he thinks you need a haircut. • Don’t Squat with Yer Spurs On! A Cowboy’s Guide to Life

29. Marketing • Where will I sell my product? • What is the demand for it? • Are there seasonal or cyclical factors? • What kind of price will I receive and how much influence can I have on that? • Can I enter into any contractual agreements? • Are there form, quality or grade standards? • How can I differentiate my product? • Are there any barriers to entry?

30. Market Structure • Determine the number of competitors you face. • Determine the size that will keep you competitive. • Determine the geographic effect on business. • For niche markets, estimate the “thinness” of the market.

31. Product Differentiation • Determine how you can produce something different than competitors • Provide services that competitors do not

32. Enthusiasm • Why should I get into this enterprise? • What are my goals for this endeavor? • Why would I get out of this project? • Am I letting enthusiasm play a larger role than it should in my decision-making? • Will this be something that will provide a good experience for a family?

33. Over-enthusiasm • Make sure you will like what you will be doing. • More likely to manage successfully if you do. • Do not let emotion play a larger role than it should in evaluating alternative enterprises.

34. Solvin’ problems is like throwin’ cattle. Dig your heels in on the big ones and catch the little ones ‘round the neck. • Don’t Squat with Yer Spurs On! A Cowboy’s Guide to Life

35. Risk • What are my • Production • Market • Financial • Legal • Safety risks? • How can I offset some of these risks? • Am I a risk taker… or avoider?

36. Risk/Return Tradeoffs • 20-25% rate of return • High • 10-15% rate of return • Risk • 7 % rate of return • Low • Time • Lower rate of return. Lower volatility. • Higher rate of return. Greater volatility.

37. Risk Responses • Financial responses among most important • Managing leverage and liquidity • Production responses most common • Diversification very popular • Insurance • Market responses can be technical • Contracting • Pricing strategies • Advertising strategies

38. When you’re tryin’ somethin’ new, the fewer people who know about it, the better. • Don’t Squat with Yer Spurs On! A Cowboy’s Guide to Life

39. 10 Steps to Investment Failure 1.Procrastination 2. No specific goals 3. No plan 4. Lack of commitment 5. Lack of interest, knowledge 6. Do not track financial position and performance 7. Follow ill-advised tips 8. Unfamiliar about tax laws 9. Lacks diversification 10. Expect to get rich quick

40. How to become a savvy investor • Read, read, read • Start simple • Be disciplined • Make some mistakes, but limit them to amounts you can afford to lose • Get help when you need it

41. New ways of doing “old” things

42. The Solution • PRIMER method for selecting new enterprises for your farm: • Profitability • Resources • Information • Marketing • Enthusiasm • Risk

43. Alternative Enterprises? • Non-traditional • Risky • Labor intensive • Low production • High cost

44. http://pearl.agcomm.okstate.edu/agecon/ • Farm Management • Goal Setting for Farm/Ranch Families • Oklahoma Agricultural Linked Deposit Program • Using Enterprise Budgets in Farm Financial Planning • Developing a Cash Flow Plan • IFMAPS: A Partner in Planning • And more…!

45. Resources • Jayson Harper, Penn State University • http://agalternatives.aers.psu.edu/ • Alternative Farming Systems Information Center • http://www.nal.usda.gov/afsic/ • Alternative Crops and Enterprises for Small Farm Diversification • http://www.nal.usda.gov/afsic/AFSIC_pubs/altlist.htm#list • Alternative Ag Enterprises, Texas A&M University • http://aggie-horticulture.tamu.edu/alternatives/alternativelinks.html • Small Farms Alternative Enterprises, Univ. of Florida • http://smallfarms.ifas.ufl.edu/

46. The quickest way to double your money is to fold it over and put it back in your pocket. • Don’t Squat with Yer Spurs On! A Cowboy’s Guide to Life

47. IFMAPS • A free, confidential service assisting Oklahoma farmers and ranchers with financial planning since 1985 • Trained financial specialists work with families one-on-one to develop financial statements and evaluate alternative plans • 1-800-522-3755 http://pearl.agcomm.okstate.edu/agecon/farm/AGEC-239.pdf