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Introducing next steps into your farm operation

Next Steps: Consider a situational analysis in order to set goals for your farm

Stories in Country Guide often explore the latest, the most innovative and sometimes the boldest in on-farm business management strategies across Canada. These stories are inspirational, aspirational, thought-provoking — but not always accessible for every farmer.

In this new series ‘Next Steps,’ we focus on continuous improvement; the proven practices, the processes and sometimes just the tweaks that grow a farm’s profitability, sustainability and net worth. Here, we will explore incremental business ideas for farms, with a particular eye to startups, young farmers, and small to mid-size operations and ways they can move forward on their schedule and budget.

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Taking steps towards business growth doesn’t have to mean lumberjack strides. It can also mean one foot in front of the other, moving in the direction of your goals, eager for the next step. — April Stewart


Speaking of goals… Do your own situational analysis

All the time you spend in the tractor cab can lead to some pretty awesome solo planning sessions. But what do you with all those thought threads? How can you weave them into a trampoline tarp from which you can launch the strategies that will improve your farm business processes and, consequently, revenue?

The first step is to situate yourself. Planning for a season on the farm, whether cropping or lambing, requires that you take stock of where you are and what you’ll need in order to get it done. How many acres did you prep last fall to plant this spring? Do you have any seed or fertilizer left? What about field maps and soil samples: are they up to date?

Knowing exactly where you’re starting from, and with what resources, leads to more efficient decision-making.

Planning for a new process, project or product on the farm is no different. You need to nail down what resources will be required and what inventory you have on hand so you can devise a plan to fill the gaps.

A situational analysis is one way to do that. Used to analyze an organization’s internal and external environments, it provides a clear picture of the business’s capabilities and capacities. A situational analysis can streamline your decision-making process by helping you discover what will add value to your business, what’s doable with your current resources (time, cash, assets, skills, human resources, etc.), and what missing pieces you will need to get from A to Z.

“A situational analysis is a great start for anyone interested in farming — starting a farm, taking over a farm or adding a new business venture,” says Heather Watson, executive director of Farm Management Canada. “You will gain an understanding of the assets and opportunities at your disposal, allowing you to put measures in place to mitigate risk and seize opportunity.”

Zach Keith, a chartered professional accountant and manager at Avail CPA in Lethbridge, Alta., agrees: “A situational analysis will help to achieve your farm or business goals because it provides insight into your needs and pressure points. Understanding those will help you set realistic milestones.”

Use the following models to put the operational puzzle pieces together into a strategic whole.

SWOT Analysis

SWOT stands for Strengths, Weaknesses, Opportunities and Threats. Strengths are the features of your business (or project) that give it a leg up over others. Weaknesses are things that would place your business at a disadvantage. Opportunities are aspects in the business environment at large that you could capitalize on, and threats are those elements that could spell trouble for your business.

The goal of a SWOT analysis is to build on your strengths and limit your weaknesses. Bonus: a SWOT can help you manage risk (which we’ll talk about in a future column) by preparing you for a variety of potential situations.

“The beauty of a SWOT analysis is gaining a clear picture of those factors that are in your control, and, likewise, outside of your control,” says Watson. “By doing so, you can focus your energy on the factors that are in your control to create the best possible conditions for business success.”

Here are some things to consider during your SWOT analysis:

Strengths (the internal, positive attributes of your business which are within your control):

  • Inventory your physical assets, e.g. equipment, tech, cash, customer base.
  • Inventory your human assets, e.g. skill sets, network, knowledge, education.
  • Assess which current business processes (operational, managerial, etc.) are successful and why.
  • If starting up a business or a new project you’ll also want to determine if you have any advantages over competitors.

Weaknesses (internal negative factors that sap power from your strengths):

  • What physical assets are you lacking that you would need in order to obtain your objective(s)?
  • What business processes need to be improved?
  • What gaps exist in your human assets?
  • What elements are currently missing that would help your business or project be competitive?

Opportunities (external business environment factors that work in your business’s favour):

  • Analyze market and consumer trends to figure out if your product will sell.
  • Scan the regulatory environment for new or incoming laws, regulations or trade deals that could have a positive impact on your business.

Threats (external factors over which you have no control):

  • How will the future of tech affect your business or project?
  • How will consumer behaviour have a negative impact on your business?
  • What nascent market trends could become a threat?

Scan the regulatory environment for new or incoming laws, regulations or trade deals that could have a negative impact on your business.

A Better SWOT

You can increase the validity and value of your analysis by asking some of your key advisors or stakeholders (e.g. vendors, suppliers) to provide feedback from their objective viewpoints. After all, your success means continued business for them.

“I would say it is crucial to involve others in completing the SWOT analysis,” says Watson. “This includes farm advisors and consultants, but also family members, and members of the farm team who can help you see the whole picture from every angle.”

The great thing about a SWOT analysis is that it not only appraises your current situation, but the future as well — which is strategic gold since that’s where you’re headed.

It’s important to remember, however, that a SWOT analysis is just the beginning: a snapshot, a compilation of possibilities and starting points for discussions on how to leverage and solidify those opportunities. Keep in mind that while you can take advantage of opportunities and implement measures to protect against threats, you can’t change them (e.g. trends, competitors).

“And just because a SWOT is done in the off-season doesn’t mean it shouldn’t be revisited regularly,” says Keith. “There needs to be a commitment by the farm managers — whether Mom and Dad or the board — to regularly review your strategies, SWOTs and farm plans. This is key to continue meeting your objectives and to anticipate challenges.”

Forces model

The Six Forces model is an extension of Michael Porter’s Five Forces model, introduced in a 1979 Harvard Business Review article titled “How Competitive Forces Shape Strategy.” It is used to holistically assess and identify a business’s key drivers of profitability and competition.

The six forces to consider when defining your new project or new business strategy are:

  1. Competition
  2. New entrants
  3. End-users/buyers
  4. Suppliers
  5. Substitutes
  6. Complementary products

In an industry like agriculture, where short-term factors such as the weather and business cycles can quickly and drastically have an impact on profitability, assessing potential projects from a 360-degree perspective can help you anticipate and plan for competitiveness and profitability in the medium and long term.

This model provides insights into potential threats and how they affect business functions, and it provides a strategy framework to move a project forward profitably and competitively.

For example, new entrants into the vegetable processing industry could be particularly worrisome for existing operations. If a new entrant already operates a market garden business, transferring their expertise and cash flow from one market to another increases their chances of success. In the dairy industry, however, capital investment barriers like quota purchases make it difficult to enter the market. Restrictive government policies can also hinder new entrants in a number of agricultural sectors.

Keith says that with the increasing prices of land, fuel, feed, and inputs, understanding the threats that can have an impact on your business, and having a strategy to deal with those risks, is crucial. “More banks are starting to ask for risk management plans rather than just assessing a project’s risk and financing requirements based on the farm’s financial statements.”

The STAR system

STAR stands for Strategic Analysis, Targets and Goals, Activities, and Reality Check.

Once you’ve got a good handle on your business environment (using the SWOT and/or Six Forces), setting targets is the next logical step.

In other words, after you’ve assessed what potential threats and challenges lay ahead, and clarified where your windows of opportunity are and what gaps exist and how to fill them, you can establish your overall goals.

“Having a good understanding of what type of focus your farm has will help with setting goals,” says Keith. “Is it a family-first focus or business-first focus? Most farms are somewhere in between. The goals of the farm also shouldn’t be confused with the goals of the individuals, especially when dealing with family operations. In those situations, goals can get blurry, so having formalized goals written down is always a good idea.”

Next, you need to list the concrete actions required to achieve those goals. Keith says that concrete actions should come with a timeline as well as a person(s) responsible for completing the action. He says, “there also needs to be someone who holds accountable the person(s) responsible for an action(s). In smaller organizations, this can be hard, especially when dealing with family. Having a trusted advisor hold everyone accountable is a good way to ease tension and still achieve action.”

Finally, and perhaps most critically, complete the reality check: take a step back, remove your rose-coloured glasses and look at your project objectively. This is where advisors (accountants, bankers, investors, business strategy consultants) come in.

Ultimately, systems create success. Over the years you’ve already implemented several systems in your day-to-day tasks to ensure things run smoothly and efficiently (except on Christmas Day when, of course, all things that can break, do) and the business manager in you is constantly contemplating more; as you switch into autopilot mode while driving around the field or moving from cow to cow during milking, your brain forages for connections between business processes that will generate revenue or reduce costs.

Watson says that while the thought of conducting a situation analysis may seem daunting, most farmers will find they’re doing much better than they thought. “It’s like going to the doctor,” she says. “Some folks avoid it because they would rather not know, but they also spend time worrying about the unknown. Your situation analysis is like taking the farm to the doctor to see how healthy it is and what needs to happen or change to live a long and happy life.”

The best thing about all of the above? You don’t need some fancy software or an expensive coaching session. Just grab a pen and notebook or the Notes function on your phone and start planning!

What next steps can you take today?

Ask yourself: Where am I now and where do I want to be in six months, one year, five years? Write down your goals and keep them posted where you can see them every day. Over time this will have a subliminal effect on every decision you make. “It’s vitally important to put this stuff in writing,” says Watson. “It’s all too easy to keep your ideas in your head, but writing it down ensures you’ve captured everything and gives you something you can share with others who can add value and get excited about your new venture.”

If soliciting advice from business advisors is out of your budget, work your networks: crowd-source opinions through Twitter; ask other farmers in your community for tips; chat up acquaintances (is your accountant also the coach of your kid’s soccer team? Look for openings in the conversation to chat about your idea.); or conduct research on Google while you’re unloading corn at the bin. “Most advisors will provide a free consultation to try and get you as a client,” says Keith, “but a half-hour or hour of free advice (however slanted it may be), can provide some good insight into questions you should be thinking about.”

Find your five: Financial advisors suggest that clients allot no more than five per cent of their portfolio in one investment security to encourage diversification. This creates reasonable returns while minimizing risk. Use the same philosophy when project planning: Spend five per cent of your week planning. In an average seven-day, 90-hour week that’s just 4-1/2 hours — less than an hour a day. As your current business provides immediate returns, five hours of planning will help you diversify and minimize risk.

Resources

National Farm Business Management Resource Centre

Provides Canada’s farmers with access to tools and learning opportunities to support farm business skills development from starting a farm to growing the farm and transitioning the farm.

New Farm Launch Plan (FMC)

Planning to start a new farm or business venture? Or is your family planning to transfer the farm business to the next generation? These five modules (1. Building Your Farm Idea, 2. Financial Planning, 3. Family Business Transfer, 4. Managing and Mentoring, 5. Reports and Resources) will help you develop a plan to launch your new farm business or successfully navigate a farm business transfer.

Growing Your Farm Profits Business Practices Assessment (Govt. of Canada)

The Business Practices Assessment is a self-assessment tool for farmers to take stock of their current business practices and create an action plan to address identified gaps and opportunities for improvement. Includes: 1. Production Management, 2. Marketing, 3. Financial Management, 4. Human Resources, 5. Social Responsibility, 6. Succession Planning, 7. Business Goals.

Farm Management Proficiency Test (Wittman Consulting)

A downloadable checklist to assess farm business management practices in place under the categories of management, personnel, finance and marketing.

AgriShield

A comprehensive risk assessment and planning platform for Canada’s farmers. It is the first platform to offer a 360-degree view to help assess and put a plan in place to manage risks on the farm. The platform covers six risk families including People, Finance, Market, Business Management, Business Environment and Production.

Agricultural Excellence Conference (FMC)

The Agricultural Excellence Conference is a one-of-a-kind event bringing diverse industry experts and stakeholders together from across disciplines, regions and commodity sectors to share insights and explore beneficial farm management practices, with leading farm business thinkers. The 2019 Conference was held in December in Fredericton. The 2020 Conference will be held November 24-26 in Calgary.

April M. Stewart is the owner of Alba PR, a brain-to-brain communication design firm, and the creator of “The Farmer’s Survival Guide: How to Connect With 21st Century Consumers,” a blog and workshops which look at communication impact boosters. She is also a sixth-generation Quebec dairy farmer, president of Canadian Young Speakers for Agriculture and a member of the Canadian Agri-Business Education Foundation board. You can find her on Twitter under @FarmersSurvival.

About the author

Contributor

April M. Stewart is the owner of Alba PR, a brain-to-brain communication design firm, and the creator of “The Farmer’s Survival Guide: How to Connect With 21st Century Consumers,” a blog and workshops which look at communication impact boosters. She is also a sixth-generation Quebec dairy farmer, president of Canadian Young Speakers for Agriculture, and a member of the Canadian Agri-Business Education Foundation board. You can find her on Twitter under @FarmersSurvival.

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