Compiling a Business Plan for a Commercial Aquaponics Project Part 1

Compiling a Business Plan for a Commercial Aquaponics Project

Commercial aquaponics systems remain a challenge independent of the country, fish, plant species, or system design type. Hobbyists make most aquaponics systems, with aquaponics not being the main source of income. As such, scholars and practitioners have long debated the real profitability of aquaponics systems. With the growth of the aquaponics industry and commercial businesses, sustainable economic viability is necessary. Recently, considerable literature has been published around the theme of aquaponics systems design but there is a gap in the literature regarding the business aspect of this. Moreover, only by acquiring the enterprise knowledge of planning a business case, obtaining funds, and running and maintaining a business will this industry be able to grow. Development of efficient and viable Aquaponics businesses requires careful evaluation and thorough planning for the new business. The new business owner must think carefully about what will set his business apart, both from other existing businesses and from future businesses. It is critically to identify the strengths, abilities, and skills owned and available that will help the farm owner to be successful.

The first step to starting an Aquaponics business is to carefully consider one’s goals and motivation. An individual interested in starting an Aquaponics business must fully understand why he or she wants to do this. Some individuals enjoy working outdoors with fish and dislike office work and paperwork. These individuals may do an admirable job like raising fish on the farm. However, inadequate attention to the business aspects of the aquaculture business will result in financial failure. If the owner spends all his or her time caring for the fish, who will take care of the permits, regulations, financial statements, and economic performance of the business?

There certainly are success stories of Aquaponics businesses that have become profitable businesses. However, Aquaponics businesses are intensive businesses that require management committed to working long hours under often-difficult conditions. Who will provide that level of management? There will be substantial levels of financial, price, and yield risks involved. Aquaponics entrepreneurs must be prepared to manage the degree of risk associated with their business model and plan.

It is important to develop clear and specific goals for the business from the beginning. For example, what is adequate revenue for one individual may not be sufficient to entice another to invest the necessary time and money. The effects of starting a new business on the farmer’s family must be considered carefully. Will family members be supportive and helpful, or will they resent the time that must be invested in the business? The early years of an Aquaponics business may generate minimal revenue, and the family may be required to live for a time on reduced income. Will the family members be willing to accept this and be supportive for the entire developing time?

Most Aquaponics businesses require substantial amounts of both operating (OPPEX) and investment capital (CAPPEX). One of the largest problems encountered in starting an Aquaponics business often is to acquire sufficient capital. Undercapitalized farms and processing plants rarely survive. Careful thought and planning need to go into determining the amount of capital needed to operate at an efficient level and to identifying sources for the needed capital.

Developing a Business Plan:

Most modern aquaculture businesses are capital intensive. The magnitude of capital resources necessary to construct, equip, and operate a modern aquaculture operation requires intensive management that begins with a complete business plan. A decent business plan needs a great deal of information gathered from many different sources. It can be used to develop business strategy and tactics to reach a specific set of objectives and goals. The process to compile a business plan is not necessarily difficult but it does require organization. A thorough business plan constitutes a road map for the business and indicates the strengths of the business, where and when the potential problems are likely to occur and analyses alternative strategies for overcoming the obstacles.

A written business plan, modified annually, provides a structure for continual analysis and evaluation of the business over time. It must integrate marketing, production, and financial components of the business in an in-depth fashion. The plan must be consistent across all its various component analyses. Adequate planning for the business may help avoid mistakes and can also minimize risks associated with financing, producing, and marketing products of the business. A good business plan takes months to develop. It is an organized and structured document that analyses market potential for the products produced, examines production technologies selected, and evaluates financial performance of the business.

Many prospective and existing aquaponics farmers indicate that they have experienced difficulties in obtaining financing for their aquaponics businesses. In many cases, lenders are not familiar with aquaculture practices and market potential for aquaponics products. In other instances, lenders are concerned with the uncertainty and risk associated with aquaculture ventures. These concerns frequently lead to rejection of loan applications. A successful application for a loan for an aquaculture operation requires a high level of documentation. The end result of a business plan is an in-depth understanding of whether the proposed business is likely to be successful or not. It will indicate where the major challenges lie and what strategies are the likeliest to provide a way to overcome these challenges.

A good business plan will include the following components:

  • Executive summary
  • Introduction (Background information)
  • Analysis of farm’s industry
  • Analysis of farm’s position within industry
  • History of the farm/project
  • Strategic goals and objectives
  • External opportunities and threats
  • Internal opportunities and threats
  • Short-term business goals and objectives
  • Long-term business goals and objectives
  • General descriptions and characterization of business
  • Description of production system
  • Resources available to the farmer
  • Marketing plan
  • Production plan
  • Products selected (food fish/ornamental fish, plant varieties)
  • Technology selected (system design explanation)
  • Targeted harvest size, stocking rates, stocking sizes, planting distances etc.
  • Financial plan
  • Estimated cost and returns
  • Estimate of required financing
  • Current appraisal of farm
  • Balance sheet
  • Income statement
  • Cash flow budget
  • Staffing plan
  • Personal financial statement
  • Brief resume (CV) of borrower

The two components of the business plan that require the most investigation and analysis are the marketing plan and the financial analysis.

Market Research:

Each business should have a marketing plan of action and strategy that address product, price, promotion, and place. The business management controls these factors and is guided by the marketing plan in the decisions they make. The marketing plan and strategy must identify the specific market segments to be targeted by the business. Diversifying production, for example, is likely to increase costs. Thus, careful analysis is required to identify the most profitable market segments, those with the greatest overall potential for achieving the company’s objectives. The company must then target expenditure on the development, production, inventory, and promotion of products most likely to be successful in that market segment. A segment must be of sufficient size, with potential for further growth, not over occupied by competition and have an identified need that the company can satisfy uniquely.

The selection of products and product lines must be developed concurrently with the selection of target markets in the company’s market plan. A product with a high cost of production will need to be of sufficient quality to charge a price high enough to be profitable. The target market for such a product would be one in which consumers not only value the particular attributes of that product, but also have high enough income levels to be able to pay the price level required. The market segment selected must contain enough consumers to offer the volume of sales required to provide an adequate return on the investment in the necessary product development.

The market plan begins with a summary of the current market. The market demographics are described and include geographic information, potential numbers of customers by outlet types (supermarkets, restaurants), age, gender, education levels, household income, or lifestyle segment. Consumer needs, likes, and dislikes, and buying trends by geographic area are important information. Substitute products sold locally should be identified and market inquiries made.

The marketing plan continues with a description of the product situation. The recent history of sales and revenue for current products, the size, goal, market share, product quality, and marketing strategies of competing firms already in the markets of interests are described and assessed. Important competitive attributes may include price, product form, product quality, species availability, sources of competing supply, and buyer preferences. The existing distribution situation, in terms of sales through brokers, wholesalers, and retailers, should be described in detail.

The final section of the marketing plan is to forecast sales and set annual sales goals. Consumer census data and business or economic development data can then be used to estimate the number of potential buyers in the targeted market area.

(Part 2 will be published in the January 2023 edition of AgriAbout)

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