| | How to calculate what you need | Creating your resource wish list | Current personal resources | Physical/capital resources | Operating costs | Calculating your net worth
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Funding Your Agricultural Business is a series of three factsheets designed to help you understand the type of funding you need,
where the funding is available and the steps needed to secure the money for your new agriculture or rural-based business.
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You have an idea for a new agricultural business, or you may be thinking of expanding an existing business. Perhaps you have created a business plan and know how you will market your product.
Before you get too far down the road, however, you will need to figure out how much money your new venture will require, the type of funding that will best fit your situation and where that money will come from. Beyond your personal resources, many options are available for producers and processors seeking loans, grants and other funding to help establish or grow a business.
This three-part series of factsheets Funding Your Agricultural Business will help you secure the money you need for your new venture. Topics include the following:
- how to calculate how much money you need for your new venture
- sources of financing, grants and other investment opportunities available in Alberta
- helpful tips on how to approach a lender or investor
How to calculate what you need
Whether you need to build a retail space on the farm or require more land to take your business idea to the next level, your best funding option often depends on the overall cost of the business venture.
To calculate how much money you need, three things are important:
- having a realistic look at your current resources and possible future demands on those resources
- making sure you know all the costs involved for your business venture going forward
- calculating your net worth to demonstrate you have sufficient resources to develop a sustainable business
When assessing what you need or the value of your existing resources (land, equipment, raw materials, business services and more), it is advisable to have a balanced approach. Be liberal with your anticipated costs and be conservative with your assumption of sales or the value of your existing assets.
Creating your resource wish list
Included with this factsheet is a worksheet to help you investigate the resources that might be needed for your business idea.
The worksheet Determining Your Business’s Financial Needs identifies some of the more common expenses that may be incurred to get your new venture up and running. Since each business is unique, there is also a space for you to add any specialized equipment or needs.
The worksheet includes these three categories of resources:
- current personal resources
- physical/capital resources
- operating costs
Current personal resources
Why is it important to look at what you already have when determining what you will need? A lender or funder will likely want to scrutinize not only your business idea, but your past financial successes (or setbacks). This information speaks to your ability to pay back money you receive.
Often, entrepreneurs are expected to contribute some of their own financial resources (either in terms of cash or collateral/assets) to prove they are also willing to take on the risk of the start-up company or new business venture.
A funder will likely assess your overall personal financial strength. Be prepared to present an indication of any previous business financial history, credit and revenue statements, personal credit scores, a net worth statement and/or your equity contributions to show you are a viable borrower.
Finally, some funders may also want to see your estate plans, what kind of insurance you carry, and whether your family will be facing major financial milestones (like university tuition or housing an aging parent) that could affect your earning potential or financial obligations.
Physical/capital resources
The “physical/capital resources” part of the worksheet will walk you through the physical assets you will need for your new venture. Perhaps you have a lot of these resources already, or maybe you are starting from the ground up. Working through this part of the worksheet may require you to approach outsiders for accurate estimates about the cost of building new infrastructure or purchasing additional equipment or land.
Operating costs
Many business ideas can be executed with just a small staff, or the farm family itself, while other business ventures will require increasing your labour supply and/or hiring outside services.
This is a good time to have a realistic look at your labour requirements: whether you need contract employees, seasonal workers, office staff or full-time help. Do not forget to also include any employment-related costs that may be needed to compete for labour in your market. These costs could include paying employees’ Canada Pension Plan contributions (CPP), Workers Compensation (WCB), staff benefits or other amenities offered to employees, like room and board.
At times, others may be needed to keep the business running effectively. Factor in potential costs for service providers like lawyers, accountants, crop or marketing consultants and other advisors you may need to hire as your business grows. Include other operating costs such as transportation or distribution fees, equipment maintenance, utilities or production costs related to your business.
Calculating your net worth
A net worth statement (sometimes called a balance sheet) may be one of the documents required by funders or investors, but it is also a simple and valuable tool for the business. Comparing net worth statements from year to year can help you measure the growth of the business.
A net worth statement is used to provide a snapshot of your financial standing. The statement includes a list of business assets and business liabilities on a certain date. Net worth is then calculated by subtracting the business’s total liabilities from its total assets.
Usually for business purposes, you only list the business assets and liabilities. You can also include personal assets and debts in the net worth statement too. Just be consistent in what you include from year to year.
To create a net worth statement, go the Alberta Agriculture and Forestry website and search for: “Understand Financial Statements and Identify Sources of Farm Financial Risk.”
Once your net worth calculations are done, complete the Worksheet: Determining Your Business’s Financial Needs.
Compare the amount of resources you have to put towards your new venture with the costs of starting the venture.This comparison will help you determine if you are financially able to proceed.
Next Steps
Now that you have determined how much money you need, it is time to move onto the next step, Funding your Agriculture Business – Step 2: Where Can I Get the Money? Agdex 832-4.
Prepared by:
Alberta Agriculture and Forestry
The development of this factsheet was supported in part by Growing Forward 2, a federal-provincial-territorial initiative.
For more information, contact:
Alberta Ag-Info Centre
Call toll free: 310-FARM (3276)
Source: Agdex 832-3. August 2016
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