cows
June 26, 2019

Think Like An Entrepreneur When You Start Your Business

 |  By: Mike Opperman

There are thousands of young people growing up on dairy farms who go to bed at night dreaming of one day owning their own farm. For many of those, that could mean taking over the family operation. That’s a far easier endeavor if a solid succession plan is in place compared to someone who doesn’t have a family farm to run someday. In either case it takes experience, planning, and a considerable amount of patience to eventually reach the dream of running a dairy. 

Starting a dairy is like starting any other business. When you embark on the path to ownership, you become like any other entrepreneur with the dream of building a successful startup business. 

BUILD EXPERIENCE
“An entrepreneur’s background and startup conditions have a big impact on the chances of that business becoming viable,” says Francis Greene, entrepreneurship chair at the Edinburgh Business School and Christian Hopp, technology entrepreneurship chair at the RWTH Aaachen University in a Harvard Business Review article. “Better financed startups are more likely to succeed. So are more experienced entrepreneurs.”

To get that experience takes hard work that can only come from working on a dairy, which could open up additional opportunities. 

If a young person wants to start on a path to ownership but doesn’t have a family dairy to join, Greg Steele, dairy lending specialist with Compeer Financial suggests seeking out an existing dairy that would like to exit but doesn’t have a successor generation to take over. The young entrepreneur may be able to work there as a mid-level manager with the opportunity to defer wages into ownership based on performance and time worked. 

“In many cases that seller can provide some level of owner-financing, usually with a land contract on the real estate, which will require a down payment in most cases,” Steele says. The buyer will need to eventually buy out the herd and feed, and he says FSA direct and guaranteed loans in conjunction with conventional lending can help with those purchases.  

“Dairy farming is a capital-intensive game and each new round of technology in the industry only compounds the need for more capital,” Steele says. “It will be necessary to utilize several credit enhancement programs to offset the lack of equity capital a young buyer can put into the project.”

WRITE A PLAN
Any banker will want to know how you plan to succeed and a formal, written business plan can provide that information. 

“Plans are vital for external fundraising because it builds legitimacy and confidence among investors that the entrepreneur is serious,” says Greene and Hopp. “Further, it reassures staff, suppliers, customers, and other key stakeholders.”

A plan helps bankers understand where the prospective lender sits right now in terms of resources, where they want to get to and how they are going to get there, Greene and Hopp say. 

Their research shows that it pays to plan. In a study they conducted on 1,000 would-be U.S. entrepreneurs split evenly between those that plan and those that don’t, entrepreneurs who wrote formal plans were 16% more likely to achieve viability than those who don’t plan. In addition, those that were seeking outside financing were 19% more likely to put together a plan. 

“Writing a plan can make the difference when it comes to realizing startup success,” says Greene and Hopp. “Plans support the process of turning an entrepreneur’s vision into tangible actions by promoting the organization and direction of startup activities.” 

TAKE YOUR TIME
The process of going from mid-level manager on a dairy to finally fulfilling your dream of ownership can take a considerable amount of time, so be patient. Take your time to learn the ropes of managing a dairy, including learning from your mistakes along the way. Be disciplined to build equity so that you have a solid financial foundation when you want to get started.

“Be prepared to do plenty of homework and hire an outside consultant if needed,” Steele says. “Many states have grant programs that will offset some or all of the cost of hiring resources to develop a comprehensive business plan.”

COMPEER FINANCIAL GROUNDBREAKERS PROGRAM
Compeer Financial’s Groundbreakers program for young and beginning farmers is a great resource for accessing credit and financial services for those who are 35 or younger or have been farming for 10 years or less. We provide special loan programs and underwriting plus financial services both directly and through external partners to benefit risk management strategy. 

Products:

  • Operating loans: a revolving or declining line of credit, typically used for farm expenses
  • Intermediate term loans: a short-term loan (2 to 5 years) typically used for the purchase of equipment or other assets
  • Real estate loans: a long-term loan (10 to 30 years) typically used to purchase land or other real estate needed for a farming operation
  • Beginning with Compeer Grant Program: provides financial assistance for first year of tax preparation or farm accounting services, tuition reimbursement for farm management courses or conferences, and other farm-management related services. Grants are awarded in increments of $250, $500 or $1,500.
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