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Five key steps before diversifying your farm business

Are you ready to diversify?

Farm diversification provides a significant opportunity for farm businesses. Many see it as a chance to add an additional income stream, provide employment for the next generation or make use of existing assets.

However, diversifying any farm business is not a decision that should be taken lightly. There are several factors to be considered and actions to undertake before launching ‘head-first’ into a new venture.

If you’re thinking of diversifying, here is your ‘checklist’ before giving your new project the green light.

  1. Examine the core farm business

Before committing to a new project, consider if there is a way of developing the farm business meaning diversification isn’t totally necessary at the current time.

Have you taken the time to look in-depth at the performance of the farm on an enterprise-by-enterprise basis? Have you looked at how you compare to other similar businesses in your area or with those who are running a similar system to you?

AHDB have some great benchmarking tools available that allow you to do just this giving you the knowledge to set goals of where you could and would like to be compared to your farming peers.

Equally, work with the experts. Your vet, agronomist or farm consultant, for example, will be able to suggest ways in which you may be able to improve your different enterprises. You would be surprised how several small changes across the whole business can contribute to a significant difference in performance.

In line with this, scrutinise your variable and overhead costs identifying where savings could be made through on-farm efficiencies.

Going through this process should allow you to highlight if there is scope to develop the farm business, and whether a new project could be incorporated and benefit the whole business.

  1. Carry out research

If you’ve decided diversifying is the right decision, spend time doing your research. The weeks, months and even years spent understanding the market, demand and interest in your business idea is time well spent even if it sets your intentional start date back.

Start by doing some desktop research, Google is a fantastic tool for this. Attend relevant events and shows and speak to others who are already doing something similar.

At times you may receive feedback that you don’t necessarily want to hear, but it’s better to know this at the start of your project than when you have invested large amounts of time and money into something that’s not right.

The Business Barn has a number of resources to help get you started:

  1. Undertake a feasibility budget

Is it possible to make money out of your business idea?

Budgeting is an essential process for any new business before any significant investments are made, and it’s vital that you are honest and realistic about your numbers at this stage. At the end of the day, you are only fooling yourself.

If after research and using realistic figures you have:

  • A positive gross margin
  • The capital start-up costs are not prohibitively expensive
  • The return from capital is sound
  • You have an acceptable profit from turnover

Then at this point, you can move forward with confidence and start with the practical business considerations.

Read more on feasibility budgeting here.

  1. Prepare a business plan

Writing a business plan has huge benefits at the start of your business journey – in simple terms, it’s a way of recording your ideas on paper rather than having them floating around in your head.

It may be that you are doing it for yourself to determine targets and goals to reach and by when. But equally, if you are seeking the support of finance to fund the project you will need to prepare a business plan so other parties can see its feasibility.

A business plan is also a valuable document to keep returning to and evaluating. It’s a working document that should never stop evolving as the business grows.

Take a look at our guide to writing a business plan here.

  1. Understand the tangible and intangible commitments

When starting a new business don’t underestimate what’s involved.

From a monetary point of view, it is likely that a level of financial investment will be needed to get the business off the ground, and depending on the type of business, it’s likely that long-term re-investment will be needed.

Time is another commitment that has to be thought through. You will want to make a success of the business and this often means living, breathing and sleeping it, but it’s important that this does not come at the expense of the farm business or other ventures.

There is a level of risk associated with diversifying any farm business, but by taking the time to work through each of these physical and thought processes you will be in a much better position to either go for it or remain as you are.

For more like this, click here.

Farm diversification, diversification ideas, rural business, rural business ideas
 

About The Author

Rosie Hopkins

The Business Barn 

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