by Lynn Kime, Senior Extension Associate
Business planning is an on-going practice that most agricultural businesses try to avoid. It takes time away from working in production of crops or livestock, which is what most producers enjoy. That is one reason you started farming, to work with your hands in the field or with your livestock. However, with the changing times, more producers are being asked for business plans, especially when applying for loans from your lender.
Business planning is an on-going practice that most agricultural businesses try to avoid. It takes time away from working in production of crops or livestock, which is what most producers enjoy. That is one reason you started farming, to work with your hands in the field or with your livestock. However, with the changing times, more producers are being asked for business plans, especially when applying for loans from your lender.
Business planning can be an eye-opening experience for most
producers. It makes you realize that you are not an island in a large ocean.
You will look at your industry from a several perspectives global, regional,
local, and your own operation. The research you conduct to write the plan will
enrich your view of your industry and your own operation.
When you think of writing a business plan, think of the
process of preparing to take a family vacation. What steps do you take when
planning the vacation? You get family consensus on where to go, decide on the
travel method (auto, plane, bus, train), map the route or rely on your GPS
unit, take the trip, and then you evaluate the enjoyment of the trip. Was it an enjoyable vacation form the entire
family? When planning your trip, you can use a vacation planner to do the work.
Business planning is much the same as planning a vacation; you are providing a
map of your business for the future. You
will complete the same steps as taking the trip. When developing a business
plan, you can also hire someone to write the plan. However, it becomes their
interpretation of the business, not yours.
Your business should be enjoyable for the entire family as
all members are impacted by the business. All family members may not work
within the operation but will be impacted by the business with the owner(s)
being away from the family at times. During several times of the year;
planting, harvesting, calving, or when livestock are having young, the owner(s)
may not be home for very long. Are all family members on board for this?
When creating a written business plan, get input from all
family members as the owner(s) may fall into the rut of doing things a certain
way because they have always been done that way. Other members may see ways to
better the business that you do not. Also, having a business team will assist
in the alternative view of the business. This business team should consist of
your accountant, attorney, insurance salesperson, and any trusted mentors you
have.
When writing your business plan you will develop goals and
objectives to accomplish those goals and research the past, present, and
probable future of the industry. You will decide if your current business
structure is appropriate for the present and future of the business and which
structure will assist with the transition to the next generation. Your risk
management plan should also be included within the plan. This assures the
reader that you have considered what may go wrong and the steps you plan to
take if they do.
The marketing plan is a very important section of the plan, even
if you wholesale your production. It does not matter how well you produce
anything if there is no market for your production. Having a strong market for production is
critical to any business. If you are retailing or direct marketing your
production, who is your customer and do they want what you produce? Your market
research will determine your first and best customer. Also if you are in the
retail market, what are you planning to do with the percentage of production
that is not the highest grade? Having a plan for your “seconds” is something to
consider as not all production is fit for your best customer.
Another important section of the plan is to create the financial
documents to support your plan and to evaluate the success of the business. Your
financial documents should include a balance sheet, income statement, and cash
flow statement. Your lender will closely review these statements when
considering your loan application. These statements may be the most difficult
to develop as you should construct several scenarios for each. Your actual
statements may be provided by your accountant but you should try to project two
to three years out if at all possible. You should also develop best and worst
case scenarios. Again, this will show the reader you have considered several
possibilities.
After the plan is constructed, you will write the executive
summary section of the plan. This executive summary is what the lender reads
first as you will use this section to determine if the business is viable and provide
the supporting information. Most lenders will read the executive summary and
review the financial documents to make their recommendation concerning the
loan.
