How to write a business plan for an oil palms farm?
Putting together a business plan for an oil palms farm can be daunting - especially if you're creating a business for the first time - but with this comprehensive guide, you'll have the necessary tools to do it confidently.
We will explore why writing one is so important in both starting up and growing an existing oil palms farm, as well as what should go into making an effective plan - from its structure to content - and what tools can be used to streamline the process and avoid errors.
Without further ado, let us begin!
Why write a business plan for an oil palms farm?
Having a clear understanding of why you want to write a business plan for your oil palms farm will make it simpler for you to grasp the rationale behind its structure and content. So before delving into the plan's actual details, let's take a moment to remind ourselves of the primary reasons why you'd want to create an oil palms farm business plan.
To have a clear roadmap to grow the business
It's rarely business as usual for small businesses. The economy follows cycles where years of growth are followed by recessions, and the business environment is always changing with new technologies, new regulations, new competitors, and new consumer behaviours appearing all the time...
In this context, running a business without a clear roadmap is like driving blindfolded: it's dangerous at best. That's why writing a business plan for an oil palms farm is essential to create successful and sustainable businesses.
To write an effective business plan, you will need to take stock of where you are (if you are already in business) and where you want the business to go in the next three to five years.
Once you know where you want your oil palms farm to be, you'll have to identify:
- what resources (human, equipment, and capital) are needed to get there,
- at what pace the business needs to progress to get there in time,
- and what risks you'll face along the way.
Going through this process regularly is beneficial, both for startups and existing companies, as it helps make informed decisions about how best to allocate resources to ensure the long-term success of the business.
To maintain visibility on future cash flows
Businesses can go for years without making a profit, but they go bust as soon as they run out of cash. That's why "cash is king", and maintaining visibility on your oil palms farm's future cash flows is critical.
How do I do that? That's simple: you need an up-to-date financial forecast.
The good news is that your oil palms farm business plan already contains a financial forecast (more on that later in this guide), so all you have to do is to keep it up-to-date.
To do this, you need to regularly compare the actual financial performance of your business to what was planned in your financial forecast, and adjust the forecast based on the current trajectory of your business.
Monitoring your oil palms farm's financial health will enable you to identify potential financial problems (such as an unexpected cash shortfall) early and to put in place corrective measures. It will also allow you to detect and capitalize on potential growth opportunities (higher demand from a given segment of customers for example).
To secure financing
Whether you are a startup or an existing business, writing a detailed oil palms farm business plan is essential when seeking financing from banks or investors.
This makes sense given what we've just seen: financiers want to ensure you have a clear roadmap and visibility on your future cash flows.
Banks will use the information included in the plan to assess your borrowing capacity (how much debt your business can support) and your ability to repay the loan before deciding whether they will extend credit to your business and on what terms.
Similarly, investors will review your plan carefully to assess if their investment can generate an attractive return on investment.
To do so, they will be looking for evidence that your oil palms farm has the potential for healthy growth, profitability, and cash flow generation over time.
Now that you understand why it is important to create a business plan for an oil palms farm, let's take a look at what information is needed to create one.
Information needed to create a business plan for an oil palms farm
You need the right data in order to project sales, investments and costs accurately in the financial forecast of your oil palms farm business plan.
Below, we'll cover three key pieces of information you should gather before drafting your business plan.
Carrying out market research for an oil palms farm
As you consider writing your business plan for an oil palms farm, conducting market research becomes a vital step to ensure accurate and realistic financial projections.
Market research provides valuable insights into your target customer base, competitors, pricing strategies, and other key factors that can significantly impact the commercial success of your business.
Through this research, you may uncover trends that could influence your oil palms farm.
You may discover that the demand for oil palms is increasing in the area, which could lead to increased profits for your farm. Additionally, research could reveal that consumers may be looking for more organic and sustainable oil palm products, which could open up new opportunities for your farm to tap into.
Such market trends play a significant role in forecasting revenue, as they offer valuable data about potential customers' spending habits and preferences.
By incorporating these findings into your financial projections, you can present investors with more accurate information, helping them make informed decisions about investing in your oil palms farm.
Developing the sales and marketing plan for an oil palms farm
As you embark on creating your oil palms farm business plan, it is crucial to budget sales and marketing expenses beforehand.
A well-defined sales and marketing plan should include precise projections of the actions required to acquire and retain customers. It will also outline the necessary workforce to execute these initiatives and the budget required for promotions, advertising, and other marketing efforts.
This approach ensures that the appropriate amount of resources is allocated to these activities, aligning with the sales and growth objectives outlined in your business plan.
The staffing and equipment needs of an oil palms farm
Whether you are at the beginning stages of your oil palms farm or expanding its horizons, having a clear plan for recruitment and capital expenditures (investment in equipment and real estate) is vital to ensure your business's success.
To achieve this, both the recruitment and investment plans must align coherently with the projected timing and level of growth in your forecast. It is essential to secure appropriate funding for these plans.
A oil palms farm might incur staffing costs such as wages for farm workers, salaries for farm managers, and other staff costs such as benefits and insurance. Equipment costs might include tractors, harvesters, and other machinery, as well as fuel and maintenance costs for the machinery. Additionally, the farm might incur costs for irrigation systems, fertilizer, and other supplies.
To create a financial forecast that accurately represents your business's outlook, remember to factor in other day-to-day operating expenses.
Now that you have all the necessary information, it's time to dive in and start creating your business plan and developing the financial forecast for your oil palms farm.
What goes into your oil palms farm's financial forecast?
The objective of the financial forecast of your oil palms farm's business plan is to show the growth, profitability, funding requirements, and cash generation potential of your business over the next 3 to 5 years.
The four key outputs of a financial forecast for an oil palms farm are:
- The profit and loss (P&L) statement,
- The projected balance sheet,
- The cash flow forecast,
- And the sources and uses table.
Let's look at each of these in a bit more detail.
The projected P&L statement
The projected P&L statement for an oil palms farm shows how much revenue and profits your business is expected to generate in the future.
Ideally, your oil palms farm's P&L statement should show:
- Healthy growth - above inflation level
- Improving or stable profit margins
- Positive net profit
Expectations will vary based on the stage of your business. A startup will be expected to grow faster than an established oil palms farm. And similarly, an established company should showcase a higher level of profitability than a new venture.
The forecasted balance sheet of your oil palms farm
The projected balance sheet of your oil palms farm will enable the reader of your business plan to assess the overall financial health of your business.
It shows three elements: assets, liabilities and equity:
- Assets: are productive resources owned by the business, such as equipment, cash, and accounts receivable (money owed by clients).
- Liabilities: are debts owed to creditors, lenders, and other entities, such as accounts payable (money owed to suppliers).
- Equity: includes the sums invested by the shareholders or business owners and the profits and losses accumulated by the business to date (which are called retained earnings). It is a proxy for the value of the owner's stake in the business.
Analysing your oil palms farm projected balance sheet provides an understanding of your oil palms farm's working capital structure, investment and financing policies.
In particular, the readers of your plan can compare the level of financial debt on the balance sheet to the equity value to measure the level of financial risk (equity doesn't need to be reimbursed, while financial debt must be repaid, making it riskier).
They can also use your balance sheet to assess your oil palms farm's liquidity and solvency:
- A liquidity analysis: focuses on whether or not your business has sufficient cash and short-term assets to cover its liabilities due in the next 12 months.
- A solvency analysis: takes and longer view to assess whether or not your business has the capacity to repay its debts over the medium-term.
The cash flow forecast
As we've seen earlier in this guide, monitoring future cash flows is the key to success and the only way of ensuring that your oil palms farm has enough cash to operate.
As you can expect showing future cash flows is the main role of the cash flow forecast in your oil palms farm business plan.
It is best practice to organise the cash flow statement by nature in order to show the cash impact of the following areas:
- Cash flow generated from operations: the operating cash flow shows how much cash is generated or consumed by the business's commercial activities
- Cash flow from investing activities: the investing cash flow shows how much cash is being invested in capital expenditure (equipment, real estate, etc.) either to maintain the business's equipment or to expand its capabilities
- Cash flow from financing activities: the financing cash flow shows how much cash is raised or distributed to financiers
Looking at the cash flow forecast helps you to make sure that your business has enough cash to keep running, and can help you anticipate potential cash shortfalls.
Your oil palms farm business plan will normally include both yearly and monthly cash flow forecasts so that the readers can view the impact of seasonality on your business cash position and generation.
The initial financing plan
The initial financing plan - also called a sources and uses table - is an important tool when starting an oil palms farm.
It shows where the money needed to set up the business will come from (sources) and how it will be allocated (uses).
Having this table helps understand what costs are involved in setting up the oil palms farm, how the risks are distributed between the shareholders and the lenders, and what will be the starting cash position (which needs to be sufficient to sustain operations until the business breaks even).
Now that the financial forecast of an oil palms farm business plan is understood, let's focus on what goes into the written part of the plan.
The written part of an oil palms farm business plan
The written part of the business plan is where you will explain what your business does and how it operates, what your target market is, whom you compete against, and what strategy you will put in place to seize the commercial opportunity you've identified.
Having this context is key for the reader to form a view on whether or not they believe that your plan is achievable and the numbers in your forecast realistic.
The written part of an oil palms farm business plan is composed of 7 main sections:
- The executive summary
- The presentation of the company
- The products and services
- The market analysis
- The strategy
- The operations
- The financial plan
Let's go through the content of each section in more detail!
1. The executive summary
The first section of your oil palms farm's business plan is the executive summary which provides, as its name suggests, an enticing summary of your plan which should hook the reader and make them want to know more about your business.
When writing the executive summary, it is important to provide an overview of the business, the market, the key financials, and what you are asking from the reader.
Start with a brief introduction of the business, its name, concept, location, how long it has been in operation, and what makes it unique. Mention any services or products you plan to offer and who you sell to.
Then you should follow with an overview of the addressable market for your oil palms farm, current trends, and potential growth opportunities.
You should then include a summary of your key financial figures such as projected revenues, profits, and cash flows.
Finally, you should detail any funding requirements in the ask section.
2. The presentation of the company
The second section in your oil palms farm's business plan should focus on the structure and ownership, location, and management team of the company.
The structure and ownership part provides an overview of the legal structure of the business, who the owners are and how much each has invested and owns. If you are seeking financing it is important that the reader gets a clear picture of which legal entity is receiving the funds, and who controls the business.
The location part should give an overview of the premises from which the company is operating, and why that location is of particular interest (catchment area, accessibility, amenities nearby, etc.).
When describing the location of your oil palms farm to a third party financier, focus on the potential of the surrounding area. You could mention the potential for infrastructure development, access to resources, and a growing local economy, as these could all be attractive to investors. Additionally, you could point out the potential for the farm to benefit from any local government incentives that may be available in the area, or the potential for the farm to gain access to a large customer base. You could also mention the potential for the farm to be located near other successful agricultural businesses, which could help demonstrate the potential profitability of the farm. Finally, you could emphasize the potential for the farm to be located in an area that provides a stable climate, which could help ensure the farm's success.
Finally, you should introduce the management team. Explain each member's role, background, and experience.
It is also important to emphasize any past successes that the members of the management team have achieved, and how long they've been working together, as this will help potential lenders or investors understand why they should trust in their leadership.
3. The products and services section
The products and services section of your business plan should include a detailed description of the offerings that your company provides to its customers.
For example, your oil palms farm could offer customers fresh, organic palm oil, high-quality palm oil products such as cooking oil and biodiesel, and technical assistance regarding the proper use and upkeep of the oil palms. The fresh, organic palm oil would provide customers with a healthier, tastier cooking oil option, the palm oil products would give customers a range of products to choose from, and the technical assistance would be invaluable in helping customers ensure that their oil palms are properly cared for and producing the best quality oil possible.
When drafting this section, you should be precise about the categories of products or services you sell, the types of customers you are targeting and how customers can buy them.
4. The market analysis
When presenting your market analysis in your oil palms farm business plan, you should detail the customers' demographics and segmentation, target market, competition, barriers to entry, and any regulations that may apply.
The goal of this section is to help the reader understand how big and attractive your market is, and demonstrate that you have a solid understanding of the industry.
You should start with the demographics and segmentation subsection, which gives an overview of the addressable market for your oil palms farm, the main trends in the marketplace, and introduces the different customer segments and their preferences in terms of purchasing habits and budgets.
The target market section should follow and zoom on the customer segments your oil palms farm is targeting, and explain how your products and services meet the specific needs of these customers.
For example, your target market might include small-scale vegetable farmers that are looking for a reliable source of palm oil for their business. These farmers may need to purchase the oil in small quantities and may be looking for a local supplier. Lastly, they may be looking for a reasonable price and quality product.
Then comes the competition subsection, where you should introduce your main competitors and explain what differentiates you from them.
Finally, you should finish your market analysis by giving an overview of the main regulations applicable to your oil palms farm.
5. The strategy section
When you write the strategy section of your oil palms farm business plan, remember to cover key elements such as your competitive edge, pricing strategy, sales & marketing plan, milestones, and risks and mitigants.
In the competitive edge subsection, elaborate on what makes your company stand out from competitors. This becomes especially important if you're a startup, aiming to carve a place for yourself amidst established players in the marketplace.
The pricing strategy subsection should demonstrate how you plan to maintain profitability while offering competitive prices to attract customers.
Outline your sales & marketing plan, detailing how you'll reach out to new customers and retain existing ones through loyalty programs or special offers.
For the milestones subsection, outline your company's achievements to date and your main objectives for the future, complete with specific dates to set clear expectations for progress.
Lastly, the risks and mitigants subsection should address the main risks that could affect your plan's execution. Explain the measures you've put in place to minimize these risks, assuring potential investors or lenders.
Your oil palms farm could face the risk of bad weather. Conditions such as heavy rain or drought might affect the amount of oil palm crops that are produced. Additionally, pests and diseases may occur and cause damage to the plantations. Pests could spread quickly and cause significant damage to the trees if not managed well.
6. The operations section
The operations of your oil palms farm must be presented in detail in your business plan.
Begin by addressing your staff, specifying the main roles and your recruitment plan to support the anticipated growth. Outline the qualifications and experience needed for each role and discuss your recruitment strategies, which may involve using job boards, referrals, or headhunters.
Next, clearly state your oil palms farm's operating hours, allowing the reader to gauge the adequacy of your staffing levels. Additionally, mention any considerations for varying opening times during peak seasons and your approach to handling customer queries outside regular operating hours.
The key assets and intellectual property (IP) required to run your business should also be highlighted. If you rely on licenses, trademarks, physical structures like equipment or property, or lease agreements, ensure they are well-documented in this section.
You may have key assets and IP such as the land itself and the machinery used to process the oil. The land could be a valuable asset for the oil palms farm, as it could provide the means to cultivate the oil palms and make a profit. The machines used to process the oil may also be an important asset as they could help the farm to efficiently produce oil and increase their yield.
Finally, provide a comprehensive list of suppliers you intend to collaborate with, along with a breakdown of their services and main commercial terms, such as price, payment terms, break clauses and contract duration. Investors often seek insight into the reasons behind your supplier choices, which may include a preference for higher-quality products or established relationships from past ventures.
7. The presentation of the financial plan
The financial plan section is where we will include the financial forecast we talked about earlier in this guide.
Now that you have a clear idea of the content of an oil palms farm business plan, let's look at some of the tools you can use to create yours.
What tool should I use to write my oil palms farm's business plan?
In this section, we will be reviewing the two main options for writing an oil palms farm business plan efficiently:
- Using specialized software,
- Outsourcing the drafting to the business plan writer.
Using an online business plan software for your oil palms farm's business plan
Using online business planning software is the most efficient and modern way to create an oil palms farm business plan.
There are several advantages to using specialized software:
- You can easily create your financial forecast by letting the software take care of the financial calculations for you without errors
- You are guided through the writing process by detailed instructions and examples for each part of the plan
- You can access a library of dozens of complete business plan samples and templates for inspiration
- You get a professional business plan, formatted and ready to be sent to your bank or investors
- You can easily track your actual financial performance against your financial forecast
- You can create scenarios to stress test your forecast's main assumptions
- You can easily update your forecast as time goes by to maintain visibility on future cash flows
- You have a friendly support team on standby to assist you when you are stuck
If you're interested in using this type of solution, you can try The Business Plan Shop for free by signing up here.
Hiring a business plan writer to write your oil palms farm's business plan
Outsourcing your oil palms farm business plan to a business plan writer can also be a viable option.
These writers possess valuable experience in crafting business plans and creating accurate financial forecasts. Additionally, enlisting their services can save you precious time, enabling you to concentrate on the day-to-day operations of your business.
It's important to be mindful, though, that hiring business plan writers comes with a cost. You'll be paying not just for their time but also for the software they use, and their profit margin.
Based on experience, a complete business plan usually requires a budget of at least £1.5k ($2.0k) excluding tax, and more if revisions are needed after initial meetings with lenders or investors - changes often arise following these discussions.
When seeking investment, be cautious about spending too much on consulting fees. Investors prefer their funds to contribute directly to business growth. Thus, the amount you spend on business plan writing services and other consulting services should be negligible compared to the amount you raise.
Another aspect to consider is that while you'll receive the output of the business plan, you usually won't own the actual document. It will be saved in the consultant's business plan software, which will make updating the plan challenging without retaining the consultant on a retainer.
Given these factors, it's essential to carefully weigh the pros and cons of outsourcing your oil palms farm business plan to a business plan writer and decide what best suits your business's unique needs.
Why not create your oil palms farm's business plan using Word or Excel?
Using Microsoft Excel and Word (or their Google, Apple, or open-source equivalents) to write an oil palms farm business plan is a terrible idea.
For starters, creating an accurate and error-free financial forecast on Excel (or any spreadsheet) is very technical and requires both a strong grasp of accounting principles and solid skills in financial modelling.
As a result, it is unlikely anyone will trust your numbers unless - like us at The Business Plan Shop - you hold a degree in finance and accounting and have significant financial modelling experience in your past.
The second reason is that it is inefficient. Building forecasts on spreadsheets was the only option in the 1990s and early 2000s, nowadays technology has advanced and software can do it much faster and much more accurately.
And with the rise of AI, software is also becoming smarter at helping us detect mistakes in our forecasts and helping us analyse the numbers to make better decisions.
Also, using software makes it easy to compare actuals vs. forecasts and maintain our forecasts up to date to maintain visibility on future cash flows - as we discussed earlier in this guide - whereas this is a pain to do with a spreadsheet.
That's for the forecast, but what about the written part of my oil palms farm business plan?
This part is less error-prone, but here also software brings tremendous gains in productivity:
- Word processors don't include instructions and examples for each part of your business plan
- Word processors don't update your numbers automatically when they change in your forecast
- Word processors don't handle the formatting for you
Overall, while Word or Excel may be viable options for creating an oil palms farm business plan for some entrepreneurs, it is by far not the best or most efficient solution.
- A business plan has 2 complementary parts: a financial forecast showcasing the expected growth, profits and cash flows of the business; and a written part which provides the context needed to judge if the forecast is realistic and relevant.
- Having an up-to-date business plan is the only way to keep visibility on your oil palms farm's future cash flows.
- Using business plan software is the modern way of writing and maintaining business plans.
We hope that this practical guide gave you insights on how to write the business plan for your oil palms farm. Do not hesitate to get in touch with our team if you still have questions.
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