Preparing a Business Plan - An Integral Part of Managing Your Woodlot

Most landowners are keenly aware of the value of preparing a woodlot management plan for their property.  However, not many are aware of the benefits of developing a good business plan to augment their woodlot plan.  A business plan is applicable to all landowners, no matter what forest product or service is involved (e.g., firewood, logs, recreational opportunities, Christmas trees, maple syrup, wild leeks, mushrooms).

Managing a woodlot is a long-term endeavour. To be successful as a woodlot manager and in business, advance planning is needed

Why prepare a plan?

There are many benefits to preparing a business plan.  Here are a few reasons why a plan can help you.

A business plan will complement your woodlot management plan. It is important to recognize that the two plans are directly linked.  Your woodlot plan outlines the overall goals for your property, while the business plan ensures that you have the financial and business resources necessary to achieve those goals.

In its simplest form, a business plan will keep your accountant and more importantly, keep the “tax man” happy. The plan will illustrate to the Canada Revenue Agency (CRA) that your business has been based on a “reasonable expectation of profit,” thus allowing you to deduct expenses against income.  The CRA’s Information Bulletin IT-373R2 (Consolidated) Woodlots states that “factors which the Department will consider in determining whether or not a taxpayer can reasonably expect to earn a profit from a woodlot include… whether the taxpayer has a financial plan that projects the taxpayer's costs, revenues, and profits; and whether good records for the implementation of the plans are maintained.” 

A plan will also provide you with a guide to follow.  It will save you time and money, while working towards meeting both your financial and property management goals.  There are many other benefits.

• For those seeking financing, a business plan will provide lending institutions some insight into your operation.
  
  
• The plan identifies potential markets and promotional activities, provides an assessment of the competitive conditions of the marketplace and outlines the rationale for establishing a reasonable price for your product.
  
  
• A business plan will identify and assess areas of risk that will need to be managed.
  
  
• It will assist you in controlling costs, provide you with a mechanism to monitor the performance of your business and provide a clear picture of how your planned activities will impact you financially.

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Steps in preparing a business plan

There are several important steps that you should consider when developing a business plan.  One of the first steps is to clearly identify financial goals and to establish strategies to reach these specific goals.  To assist in doing this, you may want to undertake a strength and weakness assessment of the two main components of your business – you and your woodlot.  For example, strengths may include previous business experience, the location of your woodlot (e.g., close to a major market), or that you already own the necessary equipment to operate the business.  A lack of continuous cash flow, a competitive marketplace or other demands on your time may be among the weaknesses.  Undertaking such a review is important to determine if your goals are realistic.

Other steps in developing a business plan include setting a timeframe for completing the plan, collecting the necessary background information, seeking advice from professionals and advisors to validate your facts and assumptions and finally, pulling all the information together into a user- friendly written document.

What are the components of a business plan?

There are several good publications available that landowners can use as a guide in the development of a business plan (see references noted below.) Here is a brief description of some of the main components of a business plan:

1. Business Profile

This section of your plan describes your business.  It will briefly outline the type of business activities being undertaken (service, retail, wholesale, etc.) and whether you are starting a new business or purchasing an existing one.  The profile will identify the product or service, the markets to be served, the goals of the business and your management background.  It will also specify the business structure (sole proprietorship, partnership, etc.) and will include the business name, address, telephone number and the names of the principal(s) involved in the business.

2. Financial Component

In this section, you will outline the financial resources needed to start the business and the finances needed to maintain it.  You will have to provide forecasts for cash flow, income and net worth. If financing is required, you will have to assess how much money will be needed and whether it will be on a short-term or long-term basis.  You will also have to identify the lending source (e.g., bank, family, savings).  It is recommended that your forecasts cover both one-and five-year timeframes.

Don’t forget to set financial goals.  These goals can be measured to determine how your business is doing (and if required can be adjusted).  Remember, as a business owner, you will have to pay taxes on earnings, so there is a need do some tax planning (professional assistance may be helpful at this stage).

3. Products or Services Component

In this section, you should describe in detail the products or services that your business will provide.  Give an overview of the size of your operation, who the suppliers are and how you plan to meet the delivery needs of your customers.  Other aspects that should be described in this section of the plan are the physical assets (e.g., woodlot inventory) of the business.  Discuss how the land, buildings and equipment will be used to generate products or services.

4. Marketing Component

Describe how you will distribute your products/services, detail your pricing structure (and the basis for establishing prices), identify your target customers, location and demand and outline how you will market your product to potential clients (e.g., directories, trade magazines, advertising, word of mouth, etc.).

5. Human Resources Component

This section of the plan provides you with an opportunity to outline the skills and background of the owners and to describe the personnel and their duties (full, part-time, and seasonal employees). You should also explain compensation guidelines, identify advisors (e.g., accountant, lawyer) and show an organizational chart outlining the chain of decision-making.  If your business uses paid labour, then you have added obligations dealing with worker’s compensation, occupational health and safety and employer taxes.

One last word…

It is important to remember that business plans are not static documents.  They need to be reviewed on an annual basis and updated accordingly.  Also, keep in mind that preparing a plan doesn’t have to be a gigantic undertaking.  Its content and complexity will depend on the type and size of the business.  However, regardless of the complexity of your business, or the extent of your business experience, it is always wise to seek professional assistance (i.e., lawyer and accountant) to assist in the preparation or in the review of your plan.

Finally, this article wasn’t intended to be a complete guide on why or how to prepare a business plan. Its purpose was to provide you with a brief introduction to business planning.  The references cited at the end of this article will provide you with a much more in-depth look at how to prepare a plan, the components of a plan, and will describe the proper record keeping needed to maintain a successful business.

Reference Material and Contacts

There are several excellent sources of information available to assist woodlot owners in developing a good business plan.  Below is a list of publications and agencies that may be helpful.

Small Woodlands Business Planning and Marketing Guidebook (March 2002).  This guide is available from the Small Woodlands Program of BC (Southern Interior Region) from their website at http://www.woodlot.bc.ca/swp/Downloads/files/SWBUSP7E3.pdf.

Making Your Woodland Pay – Financial Aspects of Property Management.  This guide is available from the Forest Shop (613) 233-0877 or ordered from their website http://www.forestshop.com

Woodlot Management Homestudy Course (Module 10 – Managing Woodlot Finances – Planning and Investment Guide).  This guide can be found on the Nova Scotia Natural Resources Web site at <http://www.gov.ns.ca/natr/extension/woodlot/>.

IT-373R2 (Consolidated) Woodlots.   This tax interpretation bulletin is available from the Canada Revenue Agency on-line at <http://www.cra-arc.gc.ca/E/pub/tp/it373r2-consolid/it373r2-consolid-e.html> or by calling 1-800-959-2221.

This article was featured in a past edition of the S&W Report, the newsletter of the Ontario Woodlot Association. 

© Ontario Woodlot Association, 2011

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