Example Business Plan

A. & B. Nursery

February 2022

John A. Smith
724 Nursery Rd.
Anytown, PA 10000
555-555-5555

Executive Summary

A. & B. Nursery will be a small part-time ornamental nursery producing four species of quality ornamental trees. The nursery’s target market will be landscape contractors and garden centers. By producing trees for the wholesale market, the owner will be able to operate the business on a part-time basis, enabling him to remain at his current full-time employment and continue operations into retirement.

Currently, landscapers require quality ornamental trees to use for their businesses. The nursery will furnish these trees. The nursery is located in an area of high population growth in the Commonwealth of Pennsylvania. The nursery plans to offer services to area businesses that nurseries outside the area of Adams, Cumberland, and York Counties cannot offer. Since the nursery will be geographically located in the northern portion of Adams County near the border with Cumberland County, the nursery has the advantage of being able to deliver trees to any portion of the two counties within two business days of an order.

A. & B. Nursery plans to produce only four species of trees to enable the owner to concentrate on producing quality trees. The owner has not previously produced ornamental trees; however, the owner was previously engaged in the commercial fruit business. The land used for the nursery was previously part of his fruit-growing operation. Because of off-farm employment, depressed apple prices, and labor availability, the owner desires to operate the nursery as a part-time operation.

Since the nursery will be small, the owner does not anticipate the need to hire any additional labor. This will eliminate any employee taxes and benefits, as well as any workmen’s compensation insurance. This will reduce or eliminate expenses and overhead costs associated with employees.

In reviewing the business plan concerning the financial statements, the success of a business like A. & B. Nursery depends on offering trees of consistent quality and providing exceptional service. The success will also depend on developing close relationships with customers to determine future needs regarding size, species, and production method. Based on a survey, there are several small nurseries within a fifty-mile radius of the A.& B.'s location; however, these nurseries do not supply the needs of all customers in the area. The owner believes there is a market for the trees he will produce.

By catering to smaller businesses, the owner believes that he can market all of the trees he will produce. A. & B. Nursery will face several challenges. These include:

1. The owner has no experience producing ornamental trees
2. Wholesale sales will not net as much profit as retail sales
3. The owner will need to purchase some equipment
4. Weather conditions, such as drought, can affect the production of trees
5. According to a survey conducted by the owner, businesses surveyed preferred to receive trees balled-and-burlapped.

The owner is currently a Penn State Extension employee who will have the resources of the University readily available. The owner also has a close friend who was previously involved in the nursery and landscape business who will serve in an advisory capacity during start-up and operation

To overcome the other challenges, A. & B. Nursery will need to borrow start-up capital for an irrigation system and needed equipment. Over time, the nursery may try to establish an on-farm retail market for a portion of the trees produced. This would expand the initial size of the operation, thus spreading the investment in the irrigation system and equipment over a larger number of trees which will reduce the overhead cost per tree sold. To overcome the challenge of customers preferring balled-and-burlapped trees, the owner will either need to purchase a tree spade or contract with a company to harvest the trees or educate the customers about the value of the pot-in-pot system.

The owner has doubts about borrowing money to begin the business at this time due to rising interest rates. However, this business plan shows that if the owner installs an irrigation system, the return on the investment will take approximately two years. If the business does not install an irrigation system, the business plan shows the return on investment will be in the fourth year if the nursery can begin marketing trees in three years after business start-up. The break-even analysis performed on a five-year basis supports this theory. The owner uses a 6% interest rate for the cash-flow analysis of the business. The business should still be viable with moderate interest rates.

After completing this business plan, the owner determines that the business will be viable even without irrigation. However, it will return the initial investment sooner if an irrigation system is installed. The owner will undertake this business opportunity in some form.

Mission, Goals, and Objectives

General Description of the Business

A.&B. Nursery is a small nursery that will specialize in producing deciduous ornamental trees. The business will be a sole proprietorship formed to provide additional income to the owner. The nursery will specialize in four species of trees, including Redbud, Elm, Oak, and Locust trees, based on current research conducted. These species may change over the course of time as conversations with customers dictate.

This specialization will allow the owner to concentrate on producing quality trees for local landscape contractors and garden centers.

The business plans to produce trees in both the pot-in-pot and balled-and-burlapped methods. Initially, by offering both types of products, the business will offer customers the option of purchasing trees as they are accustomed and educate buyers about the benefits of the newer method of pot-in-pot. Potential customers are now purchasing more trees produced by the pot-in-pot method. The pot-in-pot method is a newer, more efficient method of producing trees. The owner plans to offer a small percentage of the inventory of trees balled-and-burlapped the first marketing year, then only offer trees produced by the pot-in-pot method in subsequent years. Trees produced using the pot-in-pot method do not suffer from replanting shock if sold at the optimal size. Also, the balled-and-burlapped method takes a portion of the operation’s topsoil with the tree when sold. That topsoil then needs to be replaced, which adds to the production expense of the tree.

The nursery initially plans to sell all trees on the wholesale market to help alleviate the need for sales personnel and the requirement of having to be at the business during the weekends and evenings. The nursery plans to market trees within a three-county area in south central Pennsylvania. The business will offer wholesale customers the option of purchasing trees at the farm by appointment, or the business will offer delivery for a fee within the local area.

Mission Statement

The mission of A. & B. Nursery is to produce and market quality select varieties of deciduous ornamental trees at a competitive price for distribution within the local area.

Goals and Objectives

As a business in the development stages, A. & B. Nursery has several goals relating to quality, growth of the business, and survival of the business. These goals and objectives are as follows:

Goal 1: To produce quality trees for market within three years.

• To plant at least three hundred trees each year over the life of the business.
• To produce trees that meet the customer’s specifications over time.
• To have a survival rate above ninety percent for the years the trees are in the nursery.

Goal 2: To produce trees using the Integrated Pest Management (IPM) system.

• By using the IPM system, the business will use fewer pesticides to reduce pollution.
• The IPM system will help reduce the cost of production for the nursery.
• The IPM system will produce healthier trees to help ensure long-term survival of trees.

Goal 3: To ensure repeat customers throughout the life of the business.

• By constantly surveying customer needs and industry trends, the business will adapt to these needs and trends.
• By offering a one-season warranty, customers will develop trust in the business.
• By developing the customer's trust, the business will help ensure repeat business.

Goal 4: To expand the business after five years.

• To establish customer loyalty and develop new customers after breaking into the market.
• To alter or expand the number of species produced to stay current with changing markets.
• To expand the use of available land and use this land to its best economic use.
• Research the potential for on-farm retail sales.

Goal 5: To produce trees at a profit for the business.

• To produce quality trees at the lowest possible cost by monitoring expenses and following best practices.
• To produce species of trees that will command the highest possible price.
• To produce species of trees that customers desire.

Goal 6: To supplement the retirement of the owner.

• To continue to expand the customer base to ensure the longevity of the business.
• To continue to expand the business over the next fifteen years.
• To continue to plant trees for sale for the next twenty years.

Background Information

Background Industry Information

According to the IR-4 Project, Robert Prince, of Flushing, New York, opened the first nursery in the United States in 1737. The nursery was operated by four generations of the Price family until it closed sometime around 1865. The first Arbor Day was celebrated in 1872 with over one million trees (primarily fruit trees) planted that day. Fruit trees were overtaken in number by ornamental trees.

With the emphasis on planting and maintaining green spaces and using vegetation to sequester carbon to reduce pollution, the interest in the ornamental industry is growing. Trees also benefit communities by reducing erosion and providing space for nesting birds and other wildlife habitat. In towns and boroughs, they provide shade and help reduce energy costs during the summer months.

According to the United States Census Bureau (July 2020), from 2010 to 2020, the population of Adams County rose 2% with 65 housing units authorized by building permits in 2021. This was a 75% increase from 2020. In Cumberland County, the population change was 10% from 2010 to 2020. New housing units rose by 13% to 989 permits issued in 2021. York County's population rose 5% at the same time, and new housing units rose 17% with 91 new homes being constructed.

These figures indicate that the housing industry in the three-county marketing area considered by the researcher is growing. With the growth in the housing industry comes growth in the landscaping industry. New houses, unless they are built in wooded areas, will need some type of landscaping to enhance the exterior aesthetics of the new housing. As stated previously, landscaping also increases the resale value of most homes. If this rate of growth continues throughout the next ten years, existing landscaping companies will need to expand their businesses. With this expansion comes an increased demand for the products they sell or use in their business.

When homeowners purchase existing homes, they may wish to upgrade the curb appeal by replacing existing landscaping with products that they prefer. Increasing the curb appeal prior to putting a property on the market may increase the equity realized in the property. The business may not produce enough volume to service more than residential properties.

Organizational Matters

Business Structure

A.& B. Nursery will be a sole proprietorship at this stage of the planning. It requires only the expenses of doing business, such as office equipment, phone lines, internet connections, and marketing materials. These items would be available to A&B through the current fruit production business in which the owner is engaged. The owner will pursue the expenses associated with becoming a Limited Liability Company (LLC) to determine if this structure is an option for the business.

Management, Personnel, and Outside Services

The owner of the business represents the "management team."

"I have an Associate Degree in Agricultural Business from Penn State University, and a bachelor's degree in Organizational Management from Eastern University. I was previously self-employed as a fruit grower for sixteen years and am currently employed by Penn State University. As a businessperson, I possess a strong work ethic, excellent organizational skills, and good written and oral communication skills, which will aid in the development of the business. The success of the business will depend on these factors."

Since the business is small and part-time, the business will not require additional labor beyond the first marketing year. Additional labor may be required to harvest the percentage of trees planted in the balled-and burlapped method, but the owner plans to do as much of the work as possible.

Outside services will be needed to operate the business. A consultant or company representative will be needed to make pesticide recommendations. These services are readily available to the business. Extension personnel will also be required to make recommendations on several methods regarding production. Both of these outside services are currently used in the owner's existing business.

Risk Management Strategies

The business will use the diversification of species as its main risk management tool. If irrigation is installed, this will be used as a risk management strategy. Irrigation will help lessen the effects of drought, which has plagued the area in three of the last five years. The owner has examined the possibility of crop insurance for the trees. Nursery crops are covered by crop insurance, but slow or reduced growth of trees is not covered. Failure if the irrigation system is a covered loss as well as drought. The United States Department of Agriculture (USDA), Risk Management Agency (RMA) provides a software package to track species and plant inventories. This software would provide useful information for the business and allow the owner to use the information when purchasing the nursery crop insurance policy.

Another option available to the owner is the Whole Farm Revenue Protection policy. This insurance covers the income and not production. The owner should speak to a local crop insurance provider to determine if he would be eligible for coverage in the first year. To qualify for the insurance, the producer must have filed an Internal Revenue Service (IRS) Schedule F, which is income from farming. The owner has rented some of his land to a local farmer for the past years and has filed that income under Schedule F. If available the first year, the owner should seriously consider that option in his risk management strategy. This business will not use all tillable land, so a portion will still be rented to a neighboring farm.

Marketing Plan

This marketing plan will determine the marketing strategies of the small part-time deciduous ornamental nursery. The production plan for the nursery is to produce approximately three hundred trees per year. The nursery plans to distribute quality products to local landscapers and garden centers. The nursery plans to locate in the Adams County area of Pennsylvania and sell the products in the Adams, Cumberland, and York County areas.

Mission Statement

The mission of A. & B. Nursery is to produce and sell quality deciduous ornamental trees at a competitive price for distribution in the local area.

Since this business is owned and operated by a single person, the party involved understands the mission statement. The business was started to supplement the income of the owner, and to provide funds for retirement and the education of the owner's children. The owner anticipates the business will take four years to produce trees for sale. This is due to the time anticipated to grow the trees to a marketable size. The owner plans to focus on producing four species of trees, determined by the clientele to be their most sold species or what they determine will be required in the future.

Objectives

• To provide quality trees at competitive prices.
• To produce no more than four species of trees for sale.
• To limit production to 300 trees per year.
• To provide consistent quality throughout the life of the business.
• To focus on producing marketable trees within four years.
• To retain customers’ respect.
• To provide trees for customers that will meet their standards.
• To provide trees to the customer that will meet their customer’s expectations.
• To provide additional income for the owner.
• To supplement the retirement of the owner.

Situation Analysis

Internal Strengths

• The owner has available land at this time.
• The owner has most of the equipment needed to proceed with the business.
• The owner has experience growing fruit trees.
• The owner has a current pesticide license.
• The business requires low input costs.
• The owner has business experience.
• The owner can do the required labor to produce the trees.
• With selling wholesale, advertising costs will be low.
• The owner has a truck that will be used for delivery.
• The owner is currently employed by Penn State University and has the educational resources at his disposal.
• Continued growth of the new housing industry in the target area.

Internal Weaknesses

• The owner has no experience producing ornamental trees but does have connections to experienced production and marketing contacts.
• Wholesale sales will not net as much income as retail sales.
• The owner does not have a nursery license, but they are easily obtained.
• The owner will need to purchase some equipment.
• With customers preferring balled-and-burlapped trees, the owner will need to purchase topsoil to replace ground removed with the tree.
• The business will require time away from family.

External Opportunities

• The owner has many connections to the nursery industry through his employment.
• The owner has a colleague who has indicated interest in purchasing the trees.
• The owner can join the Pennsylvania Landscape and Nursery Association for additional information.
• The owner has a colleague and friend who was formerly a landscaper and nurseryman.
• The business can sell to the retail market if it produces trees in the pot-in-pot growing system.
• Newly built houses and commercial properties usually require products for landscaping.

External Threats

• Of the last four growing seasons, there have been two years of drought.
• The business may require irrigation to produce the trees, which will be an additional expense.
• There are other suppliers in the area.
• According to the survey, most landscapers and nurseries are satisfied with their current suppliers.
• The market may become saturated with trees.
• The changing consumer demand may cause the business to have unmarketable trees.

Marketing Strategies

The business plans to remain small because of existing employment commitments. The owner does not want to make the business the sole income source of the family. Because of this, the business plans to specialize in a limited number of species and not sell to the retail market. The retail market will demand that the owner be accessible at all times. The owner will diversify into retail when production experience has increased, and additional time is available.

The target market for the business is landscapers and garden centers in the Adams, Cumberland, and York County area. Before deciding on species to plant, the owner plans to visit several businesses in the target area to determine the species they are selling. This research will help eliminate the possibility of producing species that will be unmarketable when the trees are of the required size. The owner plans to visit these same businesses to market the trees. This practice will eliminate having to advertise in the traditional sense.

The population in Adams County has been continually growing. Adams County is in the top ten fastest growing counties in Pennsylvania, while Cumberland County is the fastest growing county. The population for the two counties is over 100,000 people and growing. Adams County has grown by over 2% over the last year, and Cumberland County has grown by over 10% in the same period. York County's population is over 450,000 and grew 5 % in the past year. This sustained growth requires the construction of new houses.

New houses are traditionally built on land that was previously devoted to agriculture. This land traditionally does not have shade trees on the properties. Due to this, most newly constructed houses will need some form of landscaping. The deciduous trees the business plans to produce will complement this need.

The target markets are seeking locally produced trees to lower shipping costs, which will lower their input costs. The market is also seeking locally produced trees to ensure survivability of the trees. Trees produced in the area have a higher survivability rate than imported trees. The business will produce trees in the local area to assist in this demand.

The business is located within fifty miles of the target market. This will enable the target market to have better accessibility to trees when they are needed. They will be able to have trees delivered to the job site, or place of business or pick up at the business, within two days. The owner can pull the trees when time permits to have them available when the customer requires the product. This will enable the market to complete jobs quickly and satisfy the customer. With landscapers having to order trees from outside the area, they may have to wait several days or weeks to complete the job for their customer. Having local trees available will benefit the contractors when they bid on jobs.

The business desires to work with other small businesses and help sustain their businesses. This will also help sustain the local economy. With the majority of all proceeds remaining in the local economy, this should help the other local businesses. The business plans to consistently market to small local businesses by word of mouth and reputation. This will help ensure repeat business from customers.

The business is not currently producing trees. The reputation of the business is not yet established. The reputation of the owner as a fair person has been established in the community. In talking with a potential customer, the customer stated that he would purchase as many trees from the owner as possible. This contact owns a garden center and landscape business and may be a primary customer for this business. This is contingent upon the business producing species of trees that this business is currently selling. This business has available land to produce its own trees, but does not currently have the required time or labor to do so.

Because of the time required to produce the trees, the business cannot change products easily. This will make changing products difficult. This will also require the business to thoroughly research the species to be produced. The business must have the foresight to predict what species will be desired in four years. Christmas trees will not be an option as they take at least eight years before reaching marketable size. This will make it difficult for the business to expand or contract dramatically or quickly.

The government's impacts on the business are the requirement of a pesticide license to control pests on the trees and a license to operate a nursery. The Pennsylvania Department of Agriculture (PDA) places these restrictions on the business. The owner has contacts at PDA who will help him through the process of obtaining a nursery license.

Marketing Mix

The owner realizes that business-to-business marketing relies on a few core customers to sustain the business. These core customers should be a mix of larger and smaller businesses to ensure a good marketing mix. The business plans to establish a long-term customer base and develop a close relationship with these customers. This will help ensure the business keeps in tune with industry trends. If the customers see trends towards other species of trees, they can alert the business to these trends. Pricing trends will be determined by continuous research by the business and monitoring of input costs. The business plans to market trees at competitive prices as long as a profit can be established at these prices. If input costs rise, prices will need to rise accordingly. Record keeping will be key in this decision-making process.

Product

The business plans to market Redbud, Elm, Oak, and Locust trees. These species have cultivars that are commonly used in homeowner landscapes. According to the survey conducted, these were the top four species sold by the respondents of the survey that will survive within this climate zone. The business plans to market two-inch diameter trees since these are the largest sellers among the respondents. The business will offer smaller trees at a lower price if requested by a customer. The business plans to harvest trees when they are needed to ensure quality and freshness.

Public Relations

Most nurseries guarantee the trees for one growing season; the business plans to follow this practice. This practice will need to be monitored to determine if an additional warranty is needed. In addition, the plantings need to be monitored by the landscape contractor to determine if proper care for the tree was provided. Continuous monitoring of the customers will determine if quality is of acceptable standards and their customers are happy with the value of the trees. Customer service and care will be an important business policy.

Distribution:
The business will offer delivery of the trees to the customer or to the jobsite if desired by landscapers. Garden centers will have the same options for delivery or pickup. The business will charge a modest delivery fee if delivery is needed. The business assumes that most customers will pick up the trees at the place of business.

Promotion

Promotion of the business will be by direct contact via personal conversations with potential customers. This contact will begin before trees are started in the nursery, so the business knows the market desires before entering the business. This promotional tool will be the most effective and cost-effective for the business.

Price

According to the respondents of the questionnaire, the majority of the trees garden centers and landscapers are purchasing trees that range from $65.00 and up. Production costs are predicted to be approximately $50.00 per tree over a five-year period. This figure does not include an irrigation system. If irrigation is installed, the production costs reduce to $47.00 per tree because of starting to market trees at year three over the same five-year period. This is explained in more detail in the cash flow portion of the plan.

Implementation, Evaluation, and Control

When the business is established, if the customers require more trees each year, the business may expand slightly. When the business is more comfortable with the production methods, expansion will be easier. If the business expands beyond the initial customer base, more traditional advertising and promotion will be needed. The owner has not previously been engaged in this business and plans to start small until he becomes proficient in the business. The business plans to begin in the spring of 2023. The owner does not have the required time now to begin the business.

Evaluation of the business will be customer-based. If the customers are not satisfied with the quality or service, the business will need to make adjustments to ensure continued customer loyalty. The business knows that it is easier to retain customers than to establish new customers. When a customer is not satisfied, the business needs to notice. A survey of customer satisfaction will accompany each sale.

Financial Plan

Record Keeping Functions

Because A. & B. Nursery is solely owned and operated by the author, the record-keeping functions will be the responsibility of the owner. The owner will keep records of accounts payable, accounts receivable, cash flow, and other related financial records needed. Federal regulations require all pesticide applications to be recorded. Additional production practices will also be tracked to aid in the decision-making concerning any potential changes. For the first three years, if irrigation is not used, there will be no receipts, just expenses. Beginning in the fourth year, income will be recorded and financial analysis will be kept.

Other Operations Controls

An accountant will be used to produce income tax reports as needed. The accountant will also perform analysis as a check for the owner to ensure accuracy of records. This procedure will develop a system of "checks and balances" needed by the operation. A qualified crop consultant will periodically scout the nursery for pests. This consultant will then make any recommendations for pest treatment. The business will also consult with Penn State Extension regarding changes needed to improve the business. Cash Flow Assumptions

Cash Flow Assumptions

• The owner will invest $5,000 of personal funds in the first year for start-up capital for trees and production supplies.
• No labor will be billed to the business except outside contracted labor. Owner labor will be tracked to determine if the business will be profitable with more hired labor.
• Tree expense is calculated on an average for the species planted and includes shipping saplings to farm.
• Three hundred trees planted with a 5% mortality rate calculated when determining the number of trees sold.
• There is a $100 per-acre land fee assessed to offset taxes and insurance costs.
• The nursery will only require one acre of land at start-up.
• Insurance is not calculated since the current policy covering the existing dwelling is adequate for the nursery.
• The use of crop insurance may depend on cost and consultation with a salesperson. No costs are included in the cash flow.
• Separate budgets are developed for non-irrigated and irrigated methods of production.
• The business will need to purchase a small backpack sprayer for $115.00 for applying pesticide.
• The owner now owns a truck and trailer for delivering trees. This equipment will be useful throughout the five-year time period discussed.
• The business will borrow $10,500.00 of start-up capital the first year to cover tree costs, maintenance, and shipping. A loan amount of $6,500 for 3 years to purchase an irrigation system. The owner will invest at least $5,000 from personal funds for equipment and startup.
• Interest is calculated a 6% and a 10-year repayment schedule.
• Ten percent per year is added to tree sales and tree costs to account for market trends. Production costs, other than shipping, should be stable as these costs were rounded up in the initial calculations.
• Cost and Price assumptions
   - Sales Price    $65.00 +   Depending on age and size
   - Production cost    $50.00    5-year no irrigation
   - Production cost    $47.00    3-year with irrigation

Analysis for One Acre of Production with Four Species

Income

Variable Expenses

Fixed expenses

Total Expenses

Total expenses per tree: $52

Variable expenses

Fixed expenses

Total Expenses

Total expenses per tree: $56