farm business plan—why do i need one?20fo… · · 2010-01-14farm business plan—why do i need...

Farm Business Plan—Why do I need one?

AgKnowledgeAgKnowledge 20072007——““Planning for Planning for ProsperityProsperity””

February 27, 2007

What is a business plan?Many different approaches and definitions.

A business plan can be defined as:

A recognized management tool used to document objectives and propose how they will be attained.

OR

A plan that lays out what has been and what could be (the future) for a business.

OR

“a very general and flexible term, applicable to the planned activities and aims of any entity, individual group or organization where effort is being converted into results”

OR

A necessary document to get funding or a loan from a financial institution, etc.

What is a business plan? (continued)

What is a business plan? (continued)

“Business planning is about finding, describing and refining your competitive advantage and moving your business in a direction so that the goals and objectives of the business can be fulfilled.”

According to Stan Bevers, Blake Bennett, Rob Borchardt, and Brenda Duckworth with Texas A&M University.

FormatThere are many different formats or components of a business plan.

It usually includes:a production plana marketing plana financial plan and a human resources plan.

But before looking deeper, let’s ask a more fundamental question:

Why do I need one?

Why do I need one?

Internet search of the words—the benefits of business planning:

112,000,000 results.

Repeated with specific phrase—“the benefits of business planning”:

94 results.

These included the following:

Why do I need one? (continued)

“The process of business planning helps reduce risks.”According to Darrell Zahorsky, a writer with About.com, part of The New York Times Company.

“Planning is the key to the survival of your business. Studies show that businesses which have a written business plan are much more likely to survive, grow and profit. The business plan can help set priorities and make good decisions about your business. ”

According to Queensland Government (Australia), Department of State Development and Innovation.

Frederic Delmar and Scott Shane found in their research that “business planning can be an important precursor to action and itcan help [owners/managers] to make decisions, [balance resources and turn abstract goals into concrete results [and thus success].”

“The business plan [and the process] can help to organize thinking, recognize, evaluate, analyze, assess and plan for strengths, weaknesses, challenges, opportunities, possibilities,threats, obstacles and risks.”

According to http://www.mediamage.com/downloads/VA-DAY-26.pd


It should actually be more about the planning process—the thinking, the option generation, the review of the current situation and envisioning the future.

The end product of the process is the plan (a written document). It is descriptive.

The real value comes from going through the process and thinking about the business situation and where the owner(s) would like to take it.

This can also provide information for decision-making.

What is the business plan process?

Specifically, according to Texas A & M University, the planning process helps to:

1) Identify goals. (What do you want to accomplish?) 2) Identify inventory resources. (What do you have to work with?) 3) Assess the business and environment in which the operation exists. (What might you do in the future?) 4) Analyze business performance. (How have you done in the past?) 5) Decide on actions. (What will you do now?) 6) Implement strategies. (How will you do it?) 7) Evaluate the plan. (Is it working?)


It is the foundation for the business’s future.

As the saying goes:

“Failing to plan is planning to fail.”

AMI Think Tanks

The Agricultural Management Institute (AMI) recently completed a series of agricultural industry producers and stakeholder think tanks.

Purpose was to investigate the industry’s perception and attitude towards farm business planning and management.

Some interesting results.

What is AMI?

The Agricultural Management Institute (AMI) program is funded through the Renewal Chapter of the Federal-Provincial-Territorial Agricultural Policy Framework (APF).

It’s mission is:• “By stimulating ideas and funding projects, the

AMI program increases understanding and awareness of business management practices which enables Ontario farmers to meet their business goals.”

AMI Think Tank Participants75 people.

Farmers, Suppliers, Lenders, University, Researchers, OMAFRA, AAFC.

Majority were male.

Ridgetown, New Liskeard, Guelph, Peterborough, Kemptville.

Think Tank questions, discussions, and an individual survey.

AMI Think Tanks’ Results12% of participants had a written business plan.

41% had a plan in their head.

55% had no plan because they were busy doing the farm work.

Even those with a written business plan, often did not use it fully in their operation.

Why don’t farmers have a plan?Don’t see value in plans.

The plan in their head is adequate.

Don’t like doing paperwork.

Don’t know how to make a plan.

Fear that they have to follow the plan.

Process is too complicated.

The plan may not consider the lifestyle aspect of farming.

Afraid it may expose their lack of profitability and force them to address the tough issues.

However, participants noted the following perceived benefits if they had a written business plan…

Spend money more wisely.

Take advantage of opportunities.

Communication and clarify roles.

Prioritize actions and directions.

Farmers who are not making money might leave the industry.

Farmers admit they farm because of lifestyle (articulate their true goals).

Why plan?

“…the real purpose of effective planning is not to make plans but to change the mental models that the decision-makers carry in their heads.”

Arie P. de Geus, Head of Planning, Royal Dutch Shell

The Performance Gap

Adapted by Carl Fletcher, Strategic Planning Program Lead, Ontario Ministry of Agriculture, Food and Rural Affairs

Elements of a Business PlanAAFC’s Specialized Business Planning Services chapter headings/elements include:

Business overviewStrategic planIndustry and market analysisMarketingOperationsHuman resourcesFinancialEnvironmentalRisk managementAction planSupporting documents

How to develop one?Approach to Business Planning

The approach here considers action rather than a formal descriptive plan.

Focus on:Gap Assessment—Current and 5-Year Goal—of the Seven Decision Areas of the business.

SWOT Analysis of Seven Decision Areas of the business.

Based upon SWOT, select and set 5-year priorities.

Develop action plan based on 5-year priorities.

Seven Decision Areas1. Business Direction.

2. Production Focus.

3. Marketing and Purchasing.

4. Financial and Risk Management.

5. Business Structure and Succession Planning.

6. Human Resources.

7. Environmental and Social Responsibility.

Gap Assessment of Current & 5-year Goal—Seven Decision Areas

Decision Area

Current Situation 5 year Farm Goal

1. Business Direction Type of Business Enterprise

Eg. Dairy Farming, Grain crops, apple orchard, entertainment farm etc

Size of Enterprise Grow and expand Maintain size Reduce Size Exit

Diversify

On Farm business Off Farm Business

2. Production Focus Production Recipe Product Quality Cost of Production/Benchmarking Production Facilities and Equipment Production Advisors


Decision Area


3. Marketing and Purchasing

• Increase market knowledge • Improve pricing • Strengthen current marketing

system • Change Market(s) • Increase Supplier knowledge • Strengthen Current Supplier

Relationship(s) • Change Supplier (s) • Improve Transportation

4. Financial and Risk Management • Increase profitability/cut losses • Improve cashflow • Re-structure debt • Improve records & information

management and financial benchmarking.

• Manage taxation issues • Access government support

programs • Change financial /business

advisors

Gap Assessment of Current & 5-year Goal—Seven Decision Areas (continued)


Decision Area


5. Business Structure and Succession Planning

• Business legal structure

• Ownership

• Day to day operations management responsibilities

• Succession planning

6. Human Resources

• Labour availability and management

• Skill development and training

• Risk/Stress management

• Time management

• Family time • Family living income




Decision Area


7. Environmental and Social Responsibility

• Being involved in your

community • Leadership in your industry

• Environmental stewardship • Communicating your good

stewardship practices

• Understanding your neighbours’ needs and concerns


Seven Decision Areas—Example Cash Crop Farm

Decision Area



Size of Enterprise

Grow and expand Maintain size Reduce Size Exit

Diversify On Farm business Off Farm Business

Grain crops –corn soybeans wheat 300 acres owned, 500 rented

Same Basically maintain - but grow if opportunity arises No No


OK Good OK but not sure how average? OK OK

Continually fine tune Maintain Know cost of production and be in best 25% ofindustry OK Use more often


Decision Area Current Situation 5 year Farm Goal

3. Marketing and Purchasing

• Increase market knowledge • Improve pricing • Strengthen current marketing

system • Change Market(s)

• Increase Supplier knowledge • Strengthen Current Supplier

Relationship(s) • Change Supplier (s)

• Improve Transportation

OK OK OK OK OK OK OK

Maintain Improve Improve Only if better opportunities Maintain Maintain Maintain Maintain

4. Financial and Risk Management • Increase profitability/cut losses • Improve cashflow • Re-structure debt • Improve records & information

management & financial benchmarking

• Manage taxation issues • Access government support

programs • Change financial /business

advisors

OK? OK OK Records for tax, no cost of production records OK Use existing programs Tax, finance OK No cost of production info

Improve profitability by $25.00 per acre Refinance with purchase of parents shares Cost of production records, on farm benchmarks for decision making Limit Tax costs of share transfer from parents. Use new programs to advantage Add cost of production/ management information/advisor

Seven Decision Areas—Example Cash Crop Farm(continued)



Decision Area


5. Business Structure and Succession Planning

• Business legal structure • Ownership

• Day to day operations management responsibilities


Farm Corporation Farmer, Spouse, Farming Parents Own corporation, Corporation owns home 100 acres, All equipment, and crop inventory Parent’s own other 200 acres Farmer is the operations manager with advice from parents, Agree that selling the balance of the corporation to son and spouse should be done within next 5 years.

Farm Corporation Farmer and Spouse own company Parents own 200 acres Same Son and Daughter- in-law purchase parents’ shares of corporation. As part of succession plan

6. Human Resources


• Skill development and training • Risk/Stress management • Time management • Family time • Family living income

OK - father works full time with winter vacation and is the “Sr. Advisor. OK OK OK OK OK

Father will be part-time seasonal, may need to hire part time help. Cost of production Regular annual family vacation Increase by $10,000 per year



Decision Area




community • Leadership in your industry • Environmental stewardship • Communicating your good

stewardship practices • Understanding your

neighbours’ needs and concerns

Church board, minor hockey coach Attend meetings Completed EFP OK OK

Quit hockey coaching Become a county rep for corn or soy Understand Nutrient Management Requirements Same Same


SWOT Analysis of Seven Decision Areas of the business

SWOT analysis identified the Strengths and Weaknesses from within the business

and

Opportunities and Threats from forces outside of the business.

SWOT Analysis (continued)

Goal of a SWOT analysis is to look for ways to use farm’s strengths to capture opportunities while guard the farm’s weaknesses from threats.

Can be used to identify priorities leading to the development of an Action Plan.

Decision Area Strength Weakness Opportunity Threat


Size of Enterprise

Grow and expand Maintain size Reduce Size

Exit Diversify

On Farm business Off Farm Business


SWOT Analysis Worksheet



3. Marketing and Purchasing • Increase market

knowledge • Improve pricing • Strengthen current

marketing system • Change Market(s) • Increase Supplier

knowledge • Strengthen Current

Supplier Relationship(s) • Change Supplier (s) • Improve Transportation

4. Financial and Risk

Management • Increase

profitability/cut losses • Improve cashflow • Re-structure debt • Improve records &

information management & financial benchmarking

• Manage taxation issues • Access government

support programs • Change financial

/business advisors

SWOT Analysis Worksheet (continued)




5. Business Structure and Succession Planning • Business legal

structure • Ownership • Day to day

operations management responsibilities


6. Human Resources


• Skill development and training

• Risk/Stress management

• Time management • Family time • Family living income






community • Leadership in your

industry

• Environmental

stewardship • Communicating your

good stewardship practices

• Understanding your

neighbours’ needs and concerns


Select and set 5-year prioritiesBased upon SWOT Analysis and Gap Assessment, select and set a few 5-year priorities.

To select priorities, it might also help to answer two questions:

What keeps you awake at night?

What motivates you to get up in the morning?

These are often identified during the SWOT analysis but these questions might help focus thinking even further.

Pulling it together

Once you have done:the gap assessmentSWOT analysisand selected a few key 5-year priorities then develop your ACTION PLAN.

Action PlanThe Action Plan allows you to “DRIVE” the changes needed to close the gap between where you are and where you want to be.

Complete the Action Plans that apply to your 5-year priorities.

Action Plans could include parts from any of Decision Areas:Business DirectionProduction FocusMarketing and PurchasingFinancial and Risk ManagementBusiness Structure and Succession PlanningHuman ResourcesEnvironmental and Social Responsibility

Example Action Plan

Decision Area Current Situation 5yr Goal Critical Action Steps&Person Responsible

Deadline Date

Resources/ Information

Required4. FinancialImprove records & information management and financial benchmarking.

Tax records only. No cost of Production records.

1. Have on-farm cost of production records with benchmark analysis2.Use these records for

timely decision making

1. Research systems available –Other farmersCompany service providersGovernment informationSelect system2. Take training available on system and benchmark use3. Implement -start using record system4. Use records for decision makingJASON

Summer -Fall 2007Jan 1 2008

What record systems are available?Sources of BenchmarksHow do you use benchmarks effectively?


The Descriptive Plan (Seven Decision Areas vs. Elements of a Plan)

The Action Plan gives a good idea of what needs to be done.

It may also be necessary to document this into a formal business plan format.

So how do the seven decision areas match the SBPS’s elements of a business plan?

The Descriptive Plan (Seven Decision Areas vs. Elements of a Plan)

Seven decision areas SBPS’s elements of a business plan

• Business Direction. • Business overview• Strategic plan

• Production Focus.• Business Structure and Succession Planning.

• Operations

• Marketing and Purchasing. • Industry and market analysis• Marketing

• Financial and Risk Management. • Financial• Risk management

• Human Resources. • Human resources

• Environmental and Social Responsibility. • Environmental

• Action plan • Action plan

ConclusionDiscussed “Why plan?”

Discussed “How to develop a plan?” including:

Gap Assessment—Current and 5-Year Goal—of the Seven Decision Areas of the business.

SWOT Analysis of Seven Decision Areas of the business.

Based upon SWOT, select and set 5-year priorities.

Develop action plan based on 5-year priorities.

farm business plan—why do i need one?20fo… · · 2010-01-14farm business plan—why do i need...

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