Over the last four years Ontario organic farmer and consultant David Cohlmeyer has completed over 20 business plans for smaller and medium-sized farms. But before doing a business plan, with updated budget, balance sheets, marketing plans and cash flow statements, Cohlmeyer works with the clients to do a SWOT analysis.
“It’s a tool, a good starting place, a place to start discussions, ” says Cohlmeyer.
Originally devised in the 1960s, the SWOT matrix uncovers a business’s strengths, weaknesses, opportunities and threats (hence its acronym).
Yet it does more too. It also identifies which areas to align with for success and how to avoid or minimize risks.
Farms don’t need to be big to benefit from a SWOT analysis, and it’s not as hard to do one as you might think. It can be as simple as dividing a blank page in quarters, then using the top two quadrants to list strengths and weaknesses. These are internal things you have control over, such as the future management or the debt position of the business.
In the bottom two quadrants, list your opportunities and threats, focusing on the external issues that you can hope to manage, lessen the impact of, or profit from.
Getting input from outside advisers, your attorney, banker, accountant and maybe even customers can be helpful, but equally important may be the possibility of using a SWOT exercise to promote communication with the family and with hired employees. You may even want to update your analysis annually.
Start by listing the assets and skills that may give your farm an edge over others. Look at major sources of revenues and profits, and consider your farm or your marketing organization in terms of its market influence.
Sometimes it helps to have other people point out underutilized resources. For example, many of Cohlmeyer’s clients don’t even think of their good educations or the family support behind them as assets. Others have children returning to the farm after working or school. They love the lifestyle, have passion and want to live and work on the family farm. All that can be very powerful.
Cohlmeyer’s clients tend to be involved in direct marketing, which gives them an advantage because they have direct contact with consumers. Farmers’ markets are a great place to learn about your customers for free, but it’s important to think about the people who buy your output, no matter what kind of farm you run.
“Get your customers to tell you what they value. Don’t assume they have the same values as you,” he says. “Listen and write it down, and include what kind of customers they are (dollars spent).”
Often farmers think they don’t need to invest in marketing because they can sell everything they produce. By building a brand, however, you can increase income by selling your production for more, not necessarily selling more volume.
Location can be either a weakness or a strength, and Cohlmeyer says a good location doesn’t guarantee success. For example, if you have a good location for on-farm retail, you might find operating costs can be too high. Lately, Cohlmeyer has found that honour stands at the end of the lane are working exceptionally well in rural areas, just outside of cities and towns.
Thinking seriously about what other farmers do better than you can be a way to see your weaknesses. Then pull out balance sheets and profit and losses for the last few years and see the trends. How resilient are you?
The biggest weakness Cohlmeyer sees with clients today are entry costs and lack of working capital. “Newer younger farmers are way undercapitalized,” he says.
These farmers tend to look at the income statement only and don’t consider all their expenses, especially things like depreciation. “They think they are making $30,000 a year but once I do a cost of production analysis, they see they’re really only making $10,000 a year,” he says.
Yet these young, organic farmers tend to be quite content with a low income and can get by on very little because they have a tight rural social network living a similar way. However, if someone gets sick, they have no cushion and if their children want to go to university, they won’t be able to afford it.
Plus these undercapitalized farms don’t have any working cash to grow.
The “second-career” farmers Cohlmeyer deals with have more capital and business knowledge but little farm experience. “They’re smart people with some capital, usually inherited. They can run any kind of business but they have to accept that they don’t know everything about farming.”
They also have to accept that they’re competing against those young farmers who are willing to earn only $10,000 a year.
Looking at the big picture can also help identify trends and events that you might be able to take advantage of. Think about factors like farm size, trade issues, community happenings and demographics. Are there new government policies and programs, production techniques, technology and ideas that might work for your farm?
For example, many of Cohlmeyer’s SWOTs include a rosy perspective around consumer preferences and market share. Additionally, in much of Canada, most organic food is imported so he thinks there are big opportunities to link local with organic.
“In Ontario the organic market is growing at about four per cent per year,” he points out.
Are there any new technology, diseases, weather patterns, pests or external financial situations (like currency or interest rates) which may have a negative impact on your business? Naming them will help you think about how to deal with them strategically.
For example, marketing food might be threatened by the potential of consumers getting food-borne illness. The organic certification process, says Cohlmeyer, has food safety protocols imbedded in it. As a result the process of doing a Canada GAP audit is fairly straightforward for organic producers.
Compared to small organic farmers, some large commodity farmers are exposed to much higher risks, says Cohlmeyer. Generally, smaller farmers don’t carry much debt, and they have a strong customer base, so global markets don’t have as strong an impact.