Business Planning for Farmers
Frank Wiebe, Partner
BDO Dunwoody LLP
Each year the business of agriculture seems to be very interesting and dynamic. If it’s not the weather or threat of disease, it is the fluctuation in price of commodities or the crunch of rising costs. Perhaps that’s why only 16 per cent of Canada’s agricultural producers have a written business plan. After all, how can one plan that far ahead when more than ever the future appears so unpredictable?
But it’s that unpredictability that makes a business plan for producers more important than ever before. At its most basic, a business plan is a road map. It not only shows where an operation can go, but also shows where it has been. Like any map, a business plan can show you how far you’ve traveled, what kind of terrain you’ve covered, and give you an idea of how best to tackle the road ahead.
For producers, a business plan is a chance to sit down and take stock, something most don’t do now. A Farm Credit Canada (FCC) survey done in 2001 found that six out of every 10 producers don’t have a plan. Most have probably been in agriculture all their lives. Perhaps they run family operations that were passed down through the generations. For them, their business is instinctive. It isn’t something they plan – they just do.
That may have worked 20 years ago when Canada’s farm products were in high demand around the world and markets were relatively stable. But in the era of globalization, increased competition and federal programs under stress, producers today can’t afford not to take a measure of their own business.
But when you sit down and start to piece together a plan, you start to think about where you want to take the operation. With a clearer view of the land ahead, you can better marshal your resources to take advantages of any opportunities that arise. The plan can provide benchmarks to monitor progress, see what’s working, and make changes if circumstances require.
Further down the road, everyone eventually wants to retire. A business plan can lay the groundwork for the day when you want to sell your operation or pass it on to family members with the minimum fuss.
On another level, a business plan is a vital tool to help secure necessary financing. A professionally produced plan instills lending institutions and government agencies with confidence for your proposals. If you want to expand your operations, branch into new markets, or increase sales, you need the necessary capital. A business plan proves you have done your homework, have thought through the options, and have charted a course that offers the best chance for success.
Business plans vary from operation to operation. They’re plotted out according to needs and circumstances. For instance, a supply-managed agribusiness doesn’t need a marketing plan, since its market is stable and pre-set. Planning horizons also vary from one year to three or five years – depending on the time frame needed to accomplish the objectives.
Before the first line of a plan is even written, the producer should have a general idea of where he or she wants to go. Do you want to grow, expand your operation, cultivate new customers or break into new products and services?
Next, key information must be pulled together. This includes the operations records, especially financial statements. Heading outside your business, talk to customers, suppliers and competitors to gain a sharper understanding of the market terrain. Additional research should be culled from industry associations, trade publications, government agencies, and specialists in the field. This homework helps determine if the goals and objectives you’ve set can be realistically achieved. Finally, draw up a profile of your operation and list its critical strengths.
You should also consider the following:
- Have you developed alternate financing options?
- What will happen if you don’t receive the financing you require?
- How will you react to a cash flow problem?
While producers can do much of the initial work, the first draft of a business plan requires professional help. Since most of the work involves numbers – revenue targets, cash-flow projections, financing requirements – Chartered Accountants are highly qualified to give a hand. This is because a complete business plan includes such items as financial statements for at least three years, balance sheets, income statements, cash-flow statements, and a statement of personal net worth.
The structure of business plans vary, but most follow the same basic outline:
- Executive summary – usually one or two pages that encapsulates the overall plan and lists its key points
- Operation’s history – again, a short summary of the operation’s achievements and growth, including its financial performance, usually over the last five years
- Management – details on the ownership structure, staff positions and reporting structure, and background on each member of the management team
- Products and Services – a brief summary of what the operation produces and services it provides
- Industry analysis – summary of the business environment
- Market profile – size, segment, trends and customer profiles
- Competition – identify primary and secondary competitors
- Marketing – sales efforts, marketing plan
- Financial Position and Outlook – identify financial requirements and projections, including costs of goods sold, operating expenses, salaries and interest rates, to name a few, as well as financing schedule and expenditure plan
When formulating your business plan, determine who will be reading it. The purpose of your plan is to explain your business and answer the questions and concerns of your intended reader. Plain, direct language gets your point across quickly and clearly.
