Is this finally going to be the year you put your business goals and strategies down on paper? This is an important question to ponder in light of volatile commodity prices and input costs, along with ever-increasing land values and cash rents. Others may have reservations about business planning due to current business, family, and personal issues.
In my travels and lecturing, I have found some producers question the importance of having a business plan. In some cases this is a well-founded point, since they have operated the business for a number of years or over several generations without a written business plan. Some question the time, effort and cost involved, and have concerns about whether it is really worth all the fuss given volatility and uncertainty in agriculture.
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Academic and industry studies provide credence to the importance of business planning. Research conducted by one of my graduate students at Virginia Tech found businesses that developed and used business plans were twice as profitable. Another benefit of having a business plan is gaining credit from a lender. However, I have found from practical application in our dairy creamery business that using a written business plan has increased communication amongst the management team, owners, employees, and vendors. The study results found those that had a business transition component to the plan also generated nearly 2.5 percent higher return on assets.
Developing a business plan requires following the HUT principle: Hear, Understand, and Take Action. That is, you must hear, i.e. analyze the external environment. You must understand how it impacts your business, family and personal situation. Then, finally, you must take action by assigning concrete metrics and timelines to each item.
Many producers come to conferences and hear. Few understand the implications. Even fewer take action.
THE BARRIERS
What are the barriers to getting a business plan started and written down on paper? Actually starting on the business plan is the biggest obstacle.
The future that we dream about and subsequently plan for begins today. Start out by outlining goals, strategies and actions for the various areas of the business, including operations, marketing, risk management and finance.
A SWOT (strengths, weaknesses, opportunities and threats) analysis, which includes internal strengths and weaknesses, and external opportunities and threats, is a great way to conduct an analysis of your business and the business environment.
Any plan that is not supported is not implemented. Get involvement from family members and key employees, not just the management team. An outside facilitator can support this activity and keep you on task.
Your next obstacle will be the “blunder stage” after the initial adrenaline has run out. Often, the planning process will get stuck as people tend to get mired down in issues rather than focusing on common ground. Sometimes contentious issues must be tabled for later. If these issues are resolved, those involved should pledge not to hash over them again.
Break your process into bite-sized pieces that are more digestible with periodic deadlines.
In understanding and taking action, do not lose sight of the main objective. Many of you will be building a roadmap for a profitable business with balance in personal and family life. In some cases, the plan may outline transfer of a profitable business to the next owner, while in a few situations the plan may be for an exit strategy.
Following the HUT principle of hearing, understanding, and taking action can result in a bumpy path causing many to revert back to the comfort zone.
Remember, the comfort zone is the land of dreams and wishes. Success is the land of results, where taking disciplined action can lead to dreams coming true.
* David Kohl is professor emeritus at Virginia Tech and international speaker and consultant on farm business.
