A business plan is like a road map for your farm. You can plan your route, set a destination and track progress. But without a map or a plan, how does a farm business owner know what success looks like, or even what you’re capable of achieving? Or, most importantly, how do you know when to change course?
That’s the importance of building a farm business plan — it’s a document that brings together the “why, what and how” of the business. And every farm needs one.
Why bother?
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No matter the farm type or size, a business plan serves as a plan that outlines the key components of the farm business, including your goals, and it also shows how resources including finances and people will be deployed.
For many farmers, creating a plan can be as easy as recording the knowledge you already have. Now, though, you will have it on paper and you can be more structured in your management — a crucial win in today’s farming.
That means you can get more concrete about identifying the key decision makers on your farm and also about your markets, resource requirements, financial forecasting, areas of change and anticipated gaps.
Few farms face serious questions about all of these topics all at the same time. For instance, the question about key decision makers may seem unimportant unless you’re undergoing succession or other structural changes. Or, you may not have to worry about changing your marketing plan if you stick with your current crop rotation.
Still, you may be surprised how the act of putting your answers down in black and white sparks new thinking, or how getting it down on paper gives you a better look at how each part of your farm interacts with every other part.
There’s more to it that than too.
Too complicated?
“The planning process is a good opportunity to reflect on yourself, your business, and most importantly, how you are making decisions,” says Karla Rahn, farm business advisor with Ag Risk Managers in Ottawa. “Recording all this information will help farmers make decisions, especially when disruptions or changes occur. And farms face plenty of uncertainty, so why not put your best foot forward with a plan?”
According to Rahn, a farm business plan should include at least three elements: (1) the latest farm financial statements and projections for the coming year, (2) an operational plan that outlines key decision makers, roles and responsibilities, and (3) a strategy for making money, a production and marketing plan.
Including an executive summary that provides an overview of the business, including its vision, goals, key priority areas and activities, is also recommended.
Heather Watson, executive director of Farm Management Canada says the complexity of a business plan will vary for every farm. Depending on the structure of the farm business, additional details around ownership and accountability, including business shares, dividends and financial reporting, may need to be considered.
Watson recommends farmers also create a three-to-five-year strategic plan, utilizing the one-year business plan to help execute the long-term strategy.
Yes, this means that, if an average farmer manages the farm for 50 years, they could be looking at developing 10 to 15 strategic plans and 50 annual business plans over the course of their career. And let’s not forget to add a farm transition plan into the lineup.
“Every farm business plan will be unique,” says Watson. “While each plan will be comprised of the same basic components, the details and the way they come together to move the farm towards achieving its vision will be distinctly different.”
A decision-making tool
Watson says the process isn’t about sticking to the plan at any cost (human, financial, social or otherwise). Instead, it’s about learning to shift the plan when necessary and using the plan to help make decisions while keeping the long-term vision in sight.
This means there’s no excuse not to plan. “As farmers, we always need to plan for the unexpected but also be willing to be flexible to be resilient,” says Rahn.
A business plan can serve as a living document and be revisited or revised as the business or the business environment changes.
Points of change — a.k.a. “triggers” — can come up at any time whether they are expected or not. They can come from outside factors, such as a railway strike, processing plant shutdown or regulatory changes, or from internal factors, such as managing cash flow, team performance or transitioning from human labour to robots.
“A thorough business plan will also acknowledge any gaps that could affect the immediate and long-term goals,” says Rahn, who defines business gaps as anything from capital and labour needs to production changes and input pricing.
Rahn sees the underlying value of a business plan in (a) identifying and understanding any risks, (b) assessing what risks the business can afford to carry, and (c) mapping out the measures that can be implemented to mitigate or address those risks. Risks can come from change, whether internal or external, or even from gaps identified through the planning process.
Change is inevitable, especially in such a dynamic industry as agriculture. Adopting a mindset that is open to shifting with the unexpected is just as important as making a plan. Rahn reminds farmers that a business plan will support necessary changes and help farmers make decisions to navigate the challenges that ebb and flow throughout the annual farm business cycle.
Planning tips
Getting started can be the hardest part of the process, but as Watson points out, “it’s pretty difficult to make meaningful progress if you don’t know where you want to go or how to get there.”
Get everyone involved
“Anyone who has a voice or a vote in the farm should be part of the planning process,” says Rahn. This not only helps build the plan but keeps everyone accountable when it comes to follow-through. “What you decide to include in the plan is up to you as the owner, but consulting your team can help generate ideas, identify gaps and promote healthy relationships.”
Follow through with implementation
Once a business plan is created, it must be implemented. Expectations and mechanisms to monitor and track progress are also essential. “Put a schedule in place to meet, review progress and make any necessary adjustments to the plan,” suggests Watson, who also recommends reviewing the plan on a quarterly basis.
Work with an advisor
Everyone who plays a role in executing the plan should be involved in the development and implementation of the plan. But that can be easier said than done. Watson recommends bringing in external farm advisors, such as an accountant, agronomist, marketer or farm advisor to help inform key components of the plan and offer relevant outside perspectives.
“Bringing in an expert will give you and the plan the best chance for success,” says Watson, who says that investing in an outside farm advisor can make a difference too by bringing everyone together and ensuring everyone feels heard in the process.
“They can also help with implementation, monitoring progress and any necessary revisions along the way,” Watson adds.
As a farm business advisor herself, Rahn has seen first-hand the benefits of bringing in a third-party point of view. She’s helped clients in every aspect of their farm business — from understanding and organizing farm financials through to providing critical planning and decision-making tools and advice.
Leverage resources
“Farming creates a unique set of circumstances that requires a sharp set of skills — not just business skills, but interpersonal and leadership skills, agronomic skills, machinery skills, veterinary skills — the list goes on,” says Watson. “There are plenty of resources available to help farmers enhance these skills and achieve their goals.”
Resources
- Farm Management Canada offers a suite of online resources and links for farm business planning and management.
- Seeding Success: Assess, Act, Achieve! workshops hosted by Farm Management Canada, a series of free workshops are available across Canada in partnership with the Canadian Agricultural Human Resource Council to help producers with a farm business practices assessment.
- Online Farm Business Assessment Tool is a free tool that walks farmers through components of farm business management (production, marketing, finances, human resources, succession and social responsibility) to assess their current practices against best practices and to develop business goals and action plans to improve their management practices.
- AgPlan is a free resource offered by the University of Minnesota that provides a customizable template with examples that farmers can use to create their own farm business plan. Farmers can create a personal account that can be accessed at any time and shared with others for collaboration.
