If you’re an avid Country Guide reader, you know that farm business planning continues to be a popular topic of discussion among advisors and management gurus.
Since the “Healthy Minds, Healthy Farms” study was released by Farm Management Canada last May, we have talked to farmers across the country who are regularly using a written business plan and reaping the benefits.
This winter we shared the stories of how a farm business plan drives Hannah Konschuh’s daily activities, how putting a plan on paper for the first time was a game changer for the O’Rourkes and how focusing on specific components of the plan provides the Cronins stability during uncertain times.
Statistically speaking, these farmers represent the minority. It turns out 74 per cent of Canadian farmers do not have a written plan.
But now that you know more about this management practice and how it contributes to financial success and improved mental health, maybe you’re giving more thought to starting your own plan. Or perhaps you are newly in the driver’s seat of a family operation and looking to adopt new management practices.
Regardless of your current situation, the big question remains: How do you get started?
Set strategic goals
For Kim Gerencser, senior manager with MNP’s farm management consulting team, the first step is to establish clear, tangible goals.
When guiding clients through the business planning process, he initially asks what their goals are. More often than not, his question is met with blank stares.
“Getting started with a business plan is probably the hardest step of the entire process because managers need to decide what they really want to achieve,” says Gerencser, who also serves as chair of the Canadian Association of Farm Advisors (CAFA).
Setting a goal to be as profitable as possible, for example, is not specific enough. “What do you want your farm business to look like in five, 10 and 20 years? Is the 20-year goal to successfully pass it on to the next generation?” Gerencser asks.
To break down this task, he suggests starting with short-term goals and evaluating what equipment or infrastructure needs attention within the next five years.
“It can be really challenging to define your goals but without this very clear first step, the planning process is doomed to fail before it even starts,” he says.
Assess the business
The next step is conducting an internal audit, or honest evaluation of the current state of the business. This means assessing the financial position but also where your farm is at in terms of management and production capabilities and human resource capacity.
In addition, Gerencser adds that family support and the physical and mental health of key owners and managers should be evaluated.
“What are your strengths? What are your limitations? Where is the business positioned to excel? Where is it positioned to struggle?” he asks. “We need to get a clear snapshot of where we’re at on day one so we know what we’re working with.”
Heather Watson, executive director of Farm Management Canada, encourages the use of the Online Farm Business Self-Assessment Tool. She advises that multiple members of the management team can complete the assessment and compare their results before continuing to help support the planning process.
The analysis completed at this stage can then be used to assess the previously established goals. If the goals are not realistic given the resources available, the first step of the process can be revisited. “It doesn’t mean that you have to change your goal but perhaps you can lengthen the time frame and add a new short-term goal that involves strengthening your resources,” explains Gerencser.
Plan your implementation
Once the evaluation is complete and attainable goals are confirmed, it’s time to determine what tactics need to be implemented.
Gerencser says it’s a phase in the planning process where a lot of people hit a roadblock. It can be overwhelming to identify what changes need to be made within your business, which means inertia can set in.
If this is the case for you, he stresses the importance of reaching out for help. He recommends seeking advice from your accountant, lawyer or banker first — an advisor who has seen many business plans but also knows your business.
“Asking for help is incredibly important but don’t just make one phone call and stop at that,” he suggests. “Make several calls to gather several different opinions so you can make the most informed decision possible.”
If your goal is to expand your business by 15 per cent in the next 10 years but cash flow has been identified as a challenge, for example, an advisor like Gerencser could help. Initially, he could analyze cash inflow and outflow but his findings may lead to the involvement of other advisors.
“If gross margin is insufficient, I could point that out but I’m not an agrologist so I likely can’t help you fix it,” he explains. “If the operating expenses are too high, I can help identify some strategies to help you rectify that but if overhead is too high, we may need to involve your banker.”
Write it down
As strategies and tactics are developed, it is key to record them in a written document. Many advisors, provincial ministries and organizations like Futurpreneur have their own business plan templates, but it is important to note that not all sections may be applicable to your farm.
Gerencser suggests part of the honest evaluation may be identifying what parts of a business plan are critical and which are less applicable to your situation.
Watson agrees that business plans can take many forms of complexity and the best planning resources are relative to the format and function the users are looking for. Above all, she notes that a solid plan includes both strategic and operational elements.
“Some people forget the strategic piece and maybe assume a business plan is the same thing as a budget,” she says. “The budget is part of it, but having a vision, goals and priority activities to meet those goals is key to creating the operational element.”
Gerencser knows the planning process seems daunting. It’s not the type of project you can tackle in an afternoon and it does require significant effort, especially when creating a plan for the first time.
Even so, he has no doubt that having a written plan is worth it. Says Gerencser, “The immediate and future benefits of going through this long and sometimes difficult process can be immeasurable.”
What’s in a plan?
A written business plan is a key tool that sets your farm business up for success. While the necessary components vary from business to business, here are eight sections that most farm business plan templates include:
1. Executive summary
A concise summary of the key points of the business venture and the purpose of the plan.
2. Business and ownership profile
A description and summary of the company’s past achievements and plans for growth. This section includes the ownership structure and the qualifications and experience of each owner.
3. The strategic plan
Present the vision of what you want the business to look like in the future and a mission of what the business is doing now to be viable and sustainable. This section includes an analysis of internal and external strengths, weaknesses, opportunities and threats (SWOT), outlines key performance indicators and lists short-term and long-term goals.
4. The marketing plan
Describe the industry you operate in, what products you market, who your target customers are, the quantities you plan to sell and the distribution channels you plan to use. If applicable, this section can include steps for attracting and retaining customers as well as strategies for pricing and promoting your products.
5. The production plan
Provide an outline of your operation. Describe the resources, production processes and key inputs required for production as well as a basic cost structure. This section is sometimes called the operating plan.
6. The human resources plan
Present the organizational structure including key employees and their education or experience. This section includes strategies for recruiting, hiring, training and disciplining employees. Detail salary and compensation information, a labour policy and a succession plan, if applicable. Name the external advisors who play a role in the management of your business.
7. The financial plan
This section details the business model for earning revenue. For existing businesses, include financial statements from the past five years and a monthly cash-flow forecast for the upcoming year. For new ventures, include projected financial statements for the first three years of operations and a monthly cash-flow forecast for the upcoming year. The financial statement should include an income statement, balance sheet, cash-flow summary, financing schedule and key ratio analysis.
8. Risk management and contingency plans
Present an assessment of potential risk events or incidents and describe the current processes for identifying, measuring and managing risk and detail management response strategies.
Sources: Alberta Ministry of Agriculture and Forestry; Farm Credit Canada; Ontario Ministry of Agriculture, Food and Rural Affairs.
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