Title: Farm Business Planning
1Farm Business Planning
Dr. Laurence M. Crane www.ag-risk.org
2Farm 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.
3Farm 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.
4Farm 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.
5Farm 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.
6Benefits 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. -
7Benefits 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.
8Benefits 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.).
9Farm 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
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12Farm 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?
13Farm Business Planning Process
- Determine Where You Want to Be
- 4. What do I want to accomplish?
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15Farm 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?
16Farm 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?
173. 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
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19Assess 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
20Assess 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
21Assess 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
22Determine 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
23Identify, 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
24Identify, 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)
25Identify, 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?
26Identify, 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?
27Monitor 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)
28Monitor 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
29HomeworkAssess 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
30HomeworkAssess 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
31HomeworkAssess 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)
32HomeworkDetermine 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