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Farm Business Planning

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10. How should I prepare to document, share, and revise my plan? Document in detail all aspects of your farm business (create an 'owner's manual' ... – PowerPoint PPT presentation

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Title: Farm Business Planning


1
Farm Business Planning
Dr. Laurence M. Crane www.ag-risk.org
2
Farm Business Planning
  • Business planning is a formalized thought process
    wherein farmers assess their current situation,
    specify their goals, identify and implement
    alternatives for reaching their goals, and
    monitor their progress.
  • The emphasis is on the long-term goals farmers
    and their family set for themselves and their
    business.

3
Farm Business Planning is
  • A mechanism to adjust to changes while working
    towards defined goals.
  • Anticipates that the farm operation will be
    altered or modified as necessary to accomplish
    the farmers' goals.
  • A framework for organizing and directing shorter
    term planning efforts.

4
Farm Business Planning is
  • A process that is repeated at regular intervals
    or more often, if the need arises.
  • A process often involving considerable detail and
    data about the business and the industry.
  • A framework for organizing and directing shorter
    term planning efforts.

5
Farm Business Planning is NOT
  • A set of self-imposed instructions that cannot be
    altered in the future.
  • A replacement for other planning efforts, such as
    yearly production and marketing plans or capital
    budgeting to evaluate a specific investment
    decision.
  • An exercise to be completed once and then
    forgotten.

6
Benefits of Farm Business Planning
  • Helps you to remain focused.
  • Helps you make better, more informed decisions.
  • Thoroughly understand the business so that, at
    any time, you can determine how a current
    decision will impact the long term progress of
    the business.

7
Benefits of Farm Business Planning
  • Encourages you to carefully think about
  • alternatives for the current farm business
    activities,
  • risks inherent in available opportunities, and,
  • contingency plans to follow if an obstacle or
    opportunity arises while implementing the
    selected alternatives.
  • Sets specific standards of performance so you
    can, in a timely manner, change when the business
    is no longer on the expected or desired path.

8
Benefits of Farm Business Planning
  • Helps you understand the relationship between the
    farm and the family who depends on income from
    the operation to meet all or part of its living
    expenses.
  • Facilitates discussions among yourselves, your
    families, and others (lenders, landlords,
    business associates, etc.).

9
Farm Business Planning Process
  • Developing a farm business plan is a multi-step
    process to answer several key questions.
  • The process can be summarized as follows
  • Assess the Current Situation
  • Determine Where You Want to Be
  • Identify, Select, and Test Alternatives
  • Monitor Implementation

10
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12
Farm Business Planning Process
  • Assess the Current Situation
  • 1. What is the current status of my farm
    business?
  • 2. What are my interests and skills?
  • 3. What are my expectations about the future?

13
Farm Business Planning Process
  • Determine Where You Want to Be
  • 4. What do I want to accomplish?

14
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15
Farm Business Planning Process
  • Identify, Select, and Test Alternatives
  • 5. Will the current farm be feasible in the
    future?
  • 6. What alternatives are feasible for the future?
  • 7. What steps are needed to implement the
    feasible alternative?
  • 8. What might prevent me from implementing the
    plan?

16
Farm Business Planning Process
  • Monitor Implementation
  • 9. How do I monitor progress over time?
  • 10. How should I prepare to document, share, and
    revise my plan?

17
3. Projected Operating Environment
1. Business Inventory
2. Self-Assessment of Skills and Interests
10. Documenting,Sharing, Revising
4. Personal Business Goals
Decision Criteria Profitability Cash Flow/
Feasibility Goal Fulfillment Equity Growth
Interests and Skills
9. Monitoring Control
5. Current Farm Projections
8. Constraints
7. Transition Plans
6. Alternatives
18
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19
Assess the Current Situation1. What is the
current status of my farm business?
  • Inventory of assets
  • Productive capacity of assets
  • Resource shortages and surpluses
  • Enterprise analysis
  • Ownership and compensation issues
  • Benchmark analysis
  • Risk bearing capacity and risk profile
  • Complete and current financial statements

20
Assess the Current Situation2. What are my
interests and skills?
  • Inventory the human resources of the farm
  • What am I currently doing?
  • What do I want to do?
  • What am I qualified to do?
  • What skills should I Improve?
  • Opportunity cost of my labor
  • Willingness to assume risk
  • The ideal job description
  • Appraisal of health and reliability of HR assets

21
Assess the Current Situation3. What are my
expectations about the future?
  • General economic conditions
  • Market forces impacting farm businesses
  • Local economic conditions
  • Consumer preferences and trends
  • Governmental policies and regulations
  • Challenges and opportunities
  • Informationcredible sources and synthesis

22
Determine Where You Want to Be4. What do I want
to accomplish?
  • Characteristics of meaningful goals
  • specific
  • measurable
  • challenging (but realistic)
  • time specific
  • addresses key result areas
  • written
  • Business and personal goals
  • Reconciling and revising goals

23
Identify, Select, and Test Alternatives5. Will
the current farm be feasible in the future?
  • Enterprise analysis
  • Time frame and planning horizon
  • Whole farm analysislook at each function
  • (production, marketing, financial, capital
    budgeting, labor, risk, estate transfer, tax,
    etc.)
  • Resource supply and demand
  • Financial feasibility and pro forma budgets
  • Decision criteria and benchmarks

24
Identify, Select, and Test Alternatives6. What
alternatives are feasible for the future?
  • What is the problem that needs to be resolved by
    the alternative
  • which goal is not being metwhat is the
    short-fall
  • Modifying existing vs introducing new enterprise
  • Criteria for making decision
  • Reliability of data
  • Risk evaluation and protection
  • Impact on other activities (whole farm impact)

25
Identify, Select, and Test Alternatives7. What
steps are needed to implement the feasible
alternative?
  • Prepare a transitional plan specifying
  • what, why, and when needs to be changed
  • resources needed to accomplish the change
  • risks associated with making the change
  • test the feasibility of proposed change and its
    timing
  • profit, cash flow, resource availability and
    needs, etc.
  • prepare the 16 financial measures
  • Will the changes accomplish what we intended?

26
Identify, Select, and Test Alternatives8. What
might prevent me from implementing the plan?
  • Use contingency plans to manage constraints
  • What are the likely constraints?
  • What is the probability that the constraint will
    occur?
  • How would the most probable constraints impact
    the business?
  • What courses of action are available and prudent?

27
Monitor Implementation 9. How do I monitor
progress over time?
  • Identify important stages of each enterprise to
    monitor
  • List key inputs outputs of each stage to be
    monitored
  • Specify the time when each input or output is to
    be monitored
  • Identify a sensor for each item,
  • Specify a range in which the performance is
    satisfactory
  • Devise a plan or corrective action
  • Revise the system as needed
  • Boehlje and Eidman (1984)

28
Monitor Implementation 10. How should I prepare
to document, share, and revise my plan?
  • Document in detail all aspects of your farm
    business (create an owners manual)
  • Document in a form and fashion that is easy for
    you to access, understand, and revise
  • Selectively share summary information from your
    plan on an as-needed basis
  • Keep your documentation as current as feasible
    and update regularly
  • Review your plan annually at a minimum

29
HomeworkAssess the Current Situation1. What is
the current status of my farm business?
  • List all physical assets of the farm business
  • Accounting (book) value
  • Economic (market) value
  • Determine productive capacity
  • Describe unique characteristics

30
HomeworkAssess the Current Situation2. What are
my interests and skills?
  • List the skills of all farm participants
  • List the interests of all farm participants
  • What are the opportunity costs of being a
    participant in the farm business

31
HomeworkAssess the Current Situation3. What are
my expectations about the future?
  • General economic conditions (current future)
  • Market and price outlook
  • Output
  • Input
  • Local economic conditions
  • Identify credible information sources
  • Identify what you need to know (but dont know)

32
HomeworkDetermine Where You Want to Be4. What
do I want to accomplish?
  • Determine and write your goals
  • Business goals
  • Personal goals
  • For all involved in the business
  • Reconcile the differences
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