THE BUSINESS PLAN

Why do a business plan?

• The process helps determine the feasibility

of the business
• Evaluate the resources required to achieve
the business goals
• It is a tool to help secure investments and
loans
• A planning tool to experiment with options
 Elements of the Plan

• BOE – Back of the Envelope

• Executive Summary
• Marketing Plan
• Production Plan
• Financials
• Personnel
• Time Line
Key Parts

• Marketing Plan

• Production Plan

• Financial Statements
Important Interactions

• Market Needs Drive Production

Requirements
• Production Limitations affect Marketing
Options
• Resources Available Impact Production
and Marketing
Other Elements of the plan
• Executive Summary
• I. The Business
• A. Description of business
• B. Marketing
• C. Competition
• D. Operating procedures
• E. Personnel
• F. Business insurance
• G. Financial data
 Other Elements 2
• II. Financial Data
• A. Loan applications
• B. Capital equipment and supply list
• C. Balance sheet
• D. Breakeven analysis
• E. Pro-forma income projections (profit & loss statements)
• - Three-year summary
• - Detail by month, first year
• - Detail by quarters, second and third years
• - Assumptions upon which projections were based
• F. Pro-forma cash flow
• - Follow guidelines for letter E.
 Other Elements 3
• III. Supporting Documents
• - Tax returns of principals for last three years
• - Personal financial statement (all banks have these
• forms)
• - In the case of a franchised business, a copy of
• franchise contract and all supporting documents
• provided by the franchisor
• - Copy of proposed lease or purchase agreement for
• building space
• - Copy of licenses and other legal documents
• - Copy of resumes of all principals
• - Copies of letters of intent from suppliers, etc.
Many Resources for Generic
Business Plans
• Writing an Aquaculture Business Plan
– Aquaponics Course CD
• SBA.Gov
• Fundamentals of Aquaculture
– James W. Avault, Jr. Ph.D
• Business Plans for Dummies
 I. Marketing Plan

You Do Not Make Money Growing Fish

You Make Money Selling Fish
Marketing and Sales Plan
• 4 P’s
• Product
– Identify Product or Products to be sold
• Price
– Estimate Revenue and Costs of Sales
• Place
– Identify Channels of Distribution
• Promotion
– Identify Needs Met by the Product
– Develop a Sales Plan
– Identify Potential Customers
 Product or Service
• What is it - Tilapia Whole or Fillets
• Alive to packing plant
• Who will use it
– Packing plant
– Wholesaler
– Retailer
• Where will it be sold
– to trucks coming to farm
– to packing plant at their location
– To Retail Consumers
– To Restaurants
– Others
 Marketing
• Determine available market
– 1 or 2 Packing Plants
– Lots of individuals
• How to achieve market share desired
• Marketing Plan
– Timing of harvests
– Resources required
– Personnel
– Competition
Customers
• How Many
• What do they want
• Will they pay and When
• What alternatives are there to the existing
customers
• When will they buy
• How much will they buy
• What will they pay
 II. Production Plan

• The Combination of aquatic resources,

labor, and management to obtain a
consumable good
 Capital Requirements
• Fixed Assets
– Buildings
– Equipment
– Land
• Current Assets
– Feed
– Seed (fingerlings)
– Accounts Receivable
 Cash Flow Statements

• First year
• Five year
• Sensitivity Analysis
What is a Production Plan

• A production plan is a written estimate of

the costs of production and the expected
yield
• It describes each step of the production
process identifying inputs, outputs and
time requirements for each phase of the
operation
Why Create a Production Plan

• A production plan provides the information

used in subsequent economic analysis:
– Enterprise Budget-Snapshot of the
revenues, operating costs and depreciation of
a typical year. (More complete form of BOE)
– Cash Flow Analysis- Year by year
breakdown of actual cash income and costs.
Used to determine economic profitability of
the enterprise.
Identify Production Phases

• The first step in developing a production

plan is to identify the major phases
involved in the production of your species
and decide which of these phases your
business will engage in.
Tilapia Production Phases

• Broodstock Maintenance
• Breeding
• Egg Hatching
• Sex Reversal
• Nursery
• Growout
Research the Biological
Requirements
• What are the Biological requirements for
the species you plan to culture
• The biological requirements may vary
significantly, depending on the production
phase.
Select Production Technology

• Decide what production system you will be

using. This decision will take into account
these factors:
– Biological requirements of the culture species
– Proven commercial viability
– Resource availability
– Environmental impacts
– Permitting requirements
Identify Key Production Variables

• For each contemplated production phase,

identify the key production variables that
will affect production output.
Broodstock Maintenance
• Number required for genetic diversity
• Holding tanks
• Infrastructure
– Water
– Aeration
– Electricity
– Feed
• Labor
Breeding and Hatching Variables

• No. of production • Survival Rates

units • Feeding
• Size of production
• Aeration
unit
Requirements
• Length of production
cycle • Filtration
• Productions Cycles Requirements
per month • Labor Requirements
• Stocking Density • Others
Important Nursery Variables
• No. of production units
• Size of production unit
• Length of production
cycle
• Stocking Density
• Growth Rates
• Survival
• Harvest Size/Weight
• Feed Type
• Feed Conversion Rate
• Water exchange Rate
• Aeration Requirements
• Filtration Requirements
• Energy Requirements
• Labor Requirements
• Chemical Requirements
• Others
Important Growout Variables
• No. of production units
• Size of production unit
• Length of production
cycle
• Stocking Density
• Growth Rates
• Survival
• Harvest Size/Weight
• Feed Type
• Feed Conversion Rate
• Water exchange Rate
• Aeration Requirements
• Filtration Requirements
• Energy Requirements
• Labor Requirements
• Chemical Requirements
• Predator Control
• Others
Baseline Assumptions

• Develop a set of baseline assumptions

about the variables that affect inputs and
outputs.
• Assumptions are based on:
– Documented research
– Commercial operations
– Personal experiences
Baseline Assumptions- Tilapia Growout
Variable Assumed Value
Total farm Area 1 ha
Total Production Area .5 ha
Number of Systems 6 systems
Expected Harvest Density 540 kg/tank
Average weight of Tilapia Stocked 50 g
Average weight of Tilapia Harvested 900 g
Average Survival 95%
Number of Days to Harvest 168 days
Feed Conversion Ratio 1.7:1
Aeration Requirement 36 Hp (3hp/system)
Average Daily Water Exchange 1.5%
How Much Will Be Produced , and When?

• Production Volume- Given the scale of the enterprise,

how much product will be produced per year or per
crop?

• Harvest Frequency- How frequently will the product be

harvested for market?

• Harvest Unit – What is the desired harvest unit? How

much product will the market require for each sale?
Size of The Enterprise

• There are two main factors that will

determine the size of the enterprise:
– Resource availability
• Land
• Capital Resources
• Labor
– Market Size
• Direct market>Smaller sales volume
• Commodity market>Larger sales volume
Number of Production Units

• A consistent supply of product facilitates

marketing. Find out how often you need
to harvest to satisfy market demands.
• Build enough production units to match
the frequency of harvests with market
demand
Number of Production Units
• Minimum Number of Production Units=
Length of Production Cycle (Days)
Desired Days Between Market Events

Example:
Assume the length of the production cycle is 168 days.
How many production units would be necessary to
permit weekly harvests?
168 days = 24/4 tanks = 6 systems
7 days
Identify Capital Requirements

• Identify Capital Requirements for

implementing your production plan.
– Land
– Buildings
– Ponds/Tanks
– Vehicles
– Machinery
– Equipment
Construction Schedule

• Create a construction schedule to

determine when capital expenditures will
be made and when each production unit
comes on line.
• Based on the construction time line, and
the desired staggering of your harvests,
determine when each production unit will
be stocked and harvested.
Create a Stocking & Harvest
Schedule

• Take into account

– Permitting
– Purchase and delivery of materials
– Construction timetable
– Length of the production cycle
– Desired stagger/timing of harvests
Define Input vs. Output
Relationships
• Define mathematically how each of the
production variables and inputs affects the
production output of the operation.
– Calculate annual production
– Calculate seed (fingerling) requirements
– Calculate feed requirements
– Calculate energy requirements
– Calculate labor requirements
– Calculate requirements for other inputs
 Calculation of Production Cycles/Year

Cycles/Year = 365 days/year

Production days/cycle + fallow days/ cycle

Example:

Cycles/Year = 365 days/year

168 Prod. days/cycle + 0 fallow days/ cycle

= 2.17 x 4 tanks = 8.68 harvests/year

Annual Production
• Annual production calculated by
multiplying the expected production per
crop for a basic production unit (e.g.
ha,m2,L) by the total number of
production units and by the number of
crop cycles per year:
Total annual Production =
(Kg. harvested/tank)x(tank)x(Crops/year)
Calculation of Annual Production

• Example:
Production/system/crop = 540 kg

Production/system/Year= 540 kg/crop x 8.68 crops/year

= 4,687 kg/system/year

Total Production/Year = 4,687 kg/system/year x 6 systems

= 28,123 kg/year
= 62,000 lbs/year
Stocking Rate Calculations

• Stocking rates are often calculated by

stocking density (number/m3, number
/tank), and number of crop cycles:
• No. animals required = density x tank
volume x crop cycles
– Or
• No. fingerlings required = number/tank x
crop cycles
Example: Stocking Rate Calculation

Nile tilapia @ 77/m3

No. required = 77/m3 x 7.8 m3 x 8.68
= 5,213/system/year

Red tilapia @ 154/m3

No. required = 1200/tank x 8.68
= 10,416/system/year
Calculation of Feed Requirements

• Feed requirements are usually determined

by multiplying the total annual production
(weight gain) by the assumed feed
conversion rate (FCR)

• Annual Feed Requirement = Total Weight Gain x FCR

Calculating Weight Gain

• Weight gain for harvested systems is the

total weight harvested- total weight
stocked
Calculation of Weight Gain /Year
• Example:
Total Wt. Harvested/crop= 540 kg/crop

Total Wt. Stocked/crop = (600 stocked/crop)x(.050 kg/ea.)

= 30 kg

Total weight gain/crop = 540 kg/crop harvested - 30kg/crop stocked

= 510 kg/crop

Total weight gain/year = 510 kg/crops x 8.68 crops/yr

= 4,426 kg weight gain/year
Calculation of Feed Requirements

• Example:

Annual Feed Requirement =

4,426 kg gain x 1.3 kg feed/kg gain

= 5,754 kg feed
Calculation of Electrical
Requirements
• List each piece of electrical equipment with power
requirements (hp rating of the motor)
• Convert horsepower to kilowats (use 1 hp=1kw)
• Calculate number of hours of operation of each piece of
equipment per year Multiply kilowatts by annual hours of
operation to obtain kW-hrs/year.
• Sum kW-hrs/year for all pieces of equipment.
Electrical Cost Calculation
• Meter reading - Raw data

Meter Final Initial F-I= Use Rate Cost/week Cost/year

(volts) (kw-h) (kw-h) per week ($/kw-h) ($/week) ($/year)
(kw-h)
120 2125 1990 135 0.40 54 2808

220 7173 6693 480 0.40 192 9984

Total 615 246 $12,792

 Electrical Cost Calculation
• Estimated use – Motor data
Load Volts Amps Watts kw-h per kw-h Cost Cost per
day per year ($/kw-h) year
($/year)
Blower 1.5 230 10.4 2392 57.4 20,951 0.40 8,380
hp

Blower 1.0 230 4.3 989 23.74 8,665 0.40 3,466

hp

Grundfos 115 8.34 959 23.02 8,402 0.40 3,360

pump
0.5 hp
Total 4340 $15,206
Calculation of Fuel Requirements
• Calculate diesel and gasoline separately
• List each fuel-consuming piece of
equipment, separating vehicles and non-
vehicles
Diesel Gasoline
• Equipment • Equipment
– Generator – Pressure washer
• Vehicles – Pest control sprayer
– Tractor • Vehicles
– Truck
Calculation of Labor Requirements

• Divide staffing requirements into three

categories
– Salaried
– Hourly
– Consultants and temporary
• Within each category, list the job types. Identify:
– Task and time requirements associated with each job
type
– Number of workers required for each job type
Calculation of Labor Requirements
Example:

Salaried Staff: Hourly Staff

• General Manager • Maintenance Asst.
• Biologist • Feeding Crew
• Bookkeeper • Harvest Crew
• Secretary • Screen Maintenance
Maintenance Manager • Predator Control
Consultants
Training Specialist
Other Inputs
• Chemical inputs- Calculate requirement/system
– Base (KOH, Ca(OH)2)
– Iron
– Controls for insect pests
• Maintenance – Calculate as percentage of capital
investment per year. The percentage will
usually vary depending on type( e.g. system,
buildings, vehicles, pumps, electrical equipment)
Other Inputs
• Harvest, Processing Cost
– (Costs per kg harvested)
– A separate enterprise budget is recommended
for a processing operation
• Shipping Costs-(Costs per kg harvested)
• Marketing Costs- (Costs per kg harvested)
• Accounting Costs- (Costs per kg harvested)
• Insurance
• Taxes
Create a Table of Inputs and
Outputs
• Create a table summarizing production
outputs and required inputs on an annual
basis.
• This table takes into account year to year
variations due to:
– Variations in the number of production units
on line.
– Learning curves
– Any anticipated changes in technology
Summarizing Operating Costs

• Itemize all operating inputs

• List units of measure for each input
• Determine unit costs for each input
• List quantity used for each input
• Calculate cost for each input:

• Cost = Quantity Used x Unit Cost

Consider Alternative Scenarios
• The production plan you have just created is
only one of an infinite number of possible
scenarios for what may actually occur. The
initial plan represents what may be called the
“Expected Case Scenario”
• Change the values of key variables in your
production plan to create a “Best Case Scenario”
and a “Worst Case Scenario”. Perform a
sensitivity analysis to determine how sensitive
the profitability of the project is to the key
variables.
Alternative Scenarios

Variable Worst Case Expected Case Best

Case

Price Received ($/lb) $1.50 $2.50 $3.50

Average Harvest Weight 700 g/fish 900 g/fish 1000 g/fish

Average Survival 80% 93% 100%

Feed Conversion Ratio 2.0 1.7 1.3

Feed Cost $.80/kg $0.71 /kg $.60 /kg

III. Financial Statements for
an
Aquaculture Business Plan

Securing financing
Planning for success
 Purpose
• 1. Secure financing and investment
– Banks – unlikely
– Government grants – none
– Private equity - yes
– Personal collateral – yes
– Sweat equity - yes
• 2. Establish a plan for success
• 3. Determine The potential for success
 Determine the Potential for
Success

• BOE calculations
• Can the project generate a profit and a
positive cash flow
• Being realistic
• You do not make money growing fish, you
make money selling fish
 Cash Flow

• Cash uses and receipts

• Cash needs
• Timing of cash needs and availability
Income Statement

• Itemizes anticipated farm income

• Computes profit for a given period
Balance Sheet

• 1. Current assets
• 2. Liabilities
• 3. Financial ratios
• 4. Analysis of potential for repayment
Using the Statements

• Loans are made to people

• The overall character and honesty of the
individual
• Collateral and capital
• Ability and potential
• Know the plan and the details
Supporting Information

• Cover letter with amount of money

requested
• List of all owners and investors
• List of professional managers and resumes
• How the project will succeed
Appendices

• Organization Chart
• Resumes of key personnel
 Aquaponics Course "hook-ups"

• Mike and Carlos • Klaus and Rob