will your new aquaculture business be profitable? putting together a business plan steeve pomerleau...
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WILL YOUR NEW AQUACULTURE BUSINESS
BE PROFITABLE?Putting together a business plan
WILL YOUR NEW AQUACULTURE BUSINESS
BE PROFITABLE?Putting together a business plan
Steeve PomerleauResearch Associate
Steeve PomerleauResearch Associate
ObjectivesObjectives
• Help potential producers by:
– Outlining critical questions
– Describing components of a business plan
– Estimating the level of capital investment
• Help potential producers by:
– Outlining critical questions
– Describing components of a business plan
– Estimating the level of capital investment
Critical QuestionsCritical Questions
• Which species to produce?
– Do you have a clear understanding of the
species constraints and benefits
(biological and economic)?
• Which species to produce?
– Do you have a clear understanding of the
species constraints and benefits
(biological and economic)?
TilapiaTilapia
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.
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.
BaitfishBaitfish
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
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
BaitfishBaitfish
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.
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.
Freshwater PrawnsFreshwater 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!
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!
Freshwater PrawnsFreshwater 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.
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.
What about…What about…
• Eels?
• Bullfrogs?
• Eels?
• Bullfrogs?
• Turtles?
• Alligators?
• Turtles?
• Alligators?
What about…What about…
• Eels?
• Bullfrogs?
• Eels?
• Bullfrogs?
Biologically possible but often questionable economically
Highly specialized industries that may be profitable regionally
If something is not being raised, there is likely to be a reason.
Biologically possible but often questionable economically
Highly specialized industries that may be profitable regionally
If something is not being raised, there is likely to be a reason.
• Turtles?
• Alligators?
• Turtles?
• Alligators?
Critical QuestionsCritical 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!!
• 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!!
Critical QuestionsCritical 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?
• What will it cost you to produce this
species in the production system
selected?
• Can this species be raised and sold for
a profit?
Tilapia Production CostsTilapia Production Costs
Production costs $/lbTropical ponds 0.74Tropical raceways 0.75Subtropical greenhouse 1.12Ponds, south. U.S. 1.03Temperate indoor tanks 1.62
Catfish Production CostsCatfish 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
• 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
Critical QuestionsCritical 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?
• 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?
Critical QuestionsCritical 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?
• 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?
Business PlanBusiness 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
• 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
Business PlanBusiness Plan
• It is the future of the business
on paper.
• A way to test dreams against
expected challenges and
opportunities.
• It is the future of the business
on paper.
• A way to test dreams against
expected challenges and
opportunities.
Why is a Business Plan Important?
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.
• 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.
How long does it take to develop a complete business plan?
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.
• 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.
Fundamental questions addressed with a business plan
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
• 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
Components of a Business PlanComponents of a Business Plan
1. Description of the proposed site and
production system
2. Marketing plan
3. Financial analysis
4. Brief resume of borrower
1. Description of the proposed site and
production system
2. Marketing plan
3. Financial analysis
4. Brief resume of borrower
Description of the siteDescription 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.
• 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.
Description of Production SystemDescription 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.
• 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.
Marketing PlanMarketing 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.
• 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.
Marketing PlanMarketing 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
• 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
How to begin to Analyze the MarketHow 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.
• 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.
How to begin to Analyze the MarketHow 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
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
How to begin to Analyze the MarketHow 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
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
– Delivery volume requirements
– Quality standards
– Procedures
– Contracts
– Other buyers preferences
Enough potential buyers to support your business?Enough potential buyers to support your business?
Marketing PlanMarketing Plan
• Any documentation from the plants or a
letter stating that they will purchase
fish from you will strengthen the
business loan proposal
• Any documentation from the plants or a
letter stating that they will purchase
fish from you will strengthen the
business loan proposal
Financial Analysis Financial Analysis
1. Estimated Annual Costs & Returns
2. Estimate of Required Financing
3. Farm Appraisal
4. Balance Sheet
5. Income Statement
6. Cash Flow Budget
7. Personal Financial Statement
1. Estimated Annual Costs & Returns
2. Estimate of Required Financing
3. Farm Appraisal
4. Balance Sheet
5. Income Statement
6. Cash Flow Budget
7. Personal Financial Statement
Enterprise BudgetEnterprise 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
• 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
Estimate of required financing Estimate of required financing
• Aquaculture is capital intensive.
• Some lenders still require as much as
50-65% owner equity.
• Aquaculture is capital intensive.
• Some lenders still require as much as
50-65% owner equity.
Investment CostInvestment 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
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
Balance SheetBalance 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.
• 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.
Income StatementIncome 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
• Itemizes farm income and expenses
• Called profit and loss statement
• Calculates
– net farm income
– return to capital
– Return to labor & management
– return to equity
Cash Flow BudgetCash 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
• 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
Cash Flow BudgetCash 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
• 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
Cash Flow BudgetCash 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.
• 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.
ConclusionConclusion
• Fish farming is a
great way of life but
requires a great deal
of preparation and
planning
• Fish farming is a
great way of life but
requires a great deal
of preparation and
planning
Components of a Business PlanComponents of a Business Plan
1. Description of the proposed site and production system
2. Marketing plan
3. Financial analysis
• Annual Costs & Returns
• Required Financing
• Farm Appraisal
• Balance Sheet
4. Brief resume of borrower
1. Description of the proposed site and production system
2. Marketing plan
3. Financial analysis
• Annual Costs & Returns
• Required Financing
• Farm Appraisal
• Balance Sheet
4. Brief resume of borrower
• Income Statement
• Cash Flow Budget
• Personal Financial Statement
• Income Statement
• Cash Flow Budget
• Personal Financial Statement
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