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Five reasons to make a farm business plan

Many farmers do not have a business plan. Here are five reasons to make one for your farm

Five reasons to make a farm business plan

Actually doing a business plan for your farm can be a real chore for many farmers since they are “hands-on” people that prefer the actual day-to-day work (which is always necessary) rather than “desk work.” However, as operations become larger, more complex and involve more people the reasons for business plans become more important. Here are some of the main reasons:

1. It requires the adult members of your farm team to present and discuss individual aspirations, family aspirations and business aspirations.
2. Based on the above, it requires the team to develop an overall plan for the farm which should be a melding of the above ambitions.

3. It requires all concerned to agree to the overall plan developed, support it and do their best to “make it happen” (ie. buy-in).
4. It provides a forum to develop priorities for the farm in the short- and long-term.
5. It requires that “due diligence” be done for your operation. Due diligence in this case means looking at your history (financial, managerial operational etc.) and evaluating it carefully to decide if you want to carry on “as is,” make changes or maybe even “wind down” the operation (as in cases of retirement with no successor, ill health or financial distress).

Most farms are still family owned and operated, even if they are incorporated. On these farms, the family supplies all, or at least some of the labour. Children are engaged in farm chores at an early age to learn responsibility and the spouse (male or female) is often involved in physical farm work, child care and/or domestic work. All are an important part of the total function and harmony of the operation. It follows that all adults (and even mature teens) should be involved in developing goals for the operation since everyone’s aspirations will have to be met to some degree to achieve a viable working unit.

Bringing the team together

An old adage used in team building is “people will support what they help to build.” While one member may be totally focused on the farm for his or her life’s work other people may not share that passion. The needs of those other people should be met to some degree so they remain interested and supportive. Other interests are usually outside the farm and require time off from farm work. If that time off is not granted, dissension and even animosity towards the farm may result. A common complaint from young people that do not want to stay on the farm is “it’s all work and no fun, I’d rather get a job in town where I work 8 to 5 and have evenings and weekends off.” On the other hand, it should be stressed that at busy times of the year, the farm work takes priority and then it’s “all hands on deck.”

Let’s assume the farm team members have come to an agreement on a plan that includes their individual aspirations and family time, and is also financially and operationally sound. A financial analysis tool should be used to assess past financial performance, the present situation and then to do future forecasting. Managerial control should be decided. In other words how do we make decisions? Does the patriarch or matriarch make them unilaterally or is input allowed or even requested from other team members?

Developing short and long-term priorities for the farm can be a challenge. For example, in the short term, Dad wants a new combine next year, Mom wants a remodelled kitchen, and the kids want ski trips and a vacation to Disneyland at the same time. Who wins? Do the needs of the farm always outrank the wants/needs of family members or is some compromise possible?

If each member has a good grasp of the farm finances, they should understand that all demands probably can’t be met in the same year. Discussion and give-and-take will be required. If Mom gets the new kitchen, can Dad fix up the old combine and make it last another year? Will the kids be at least somewhat happy if they get one ski trip and delay Disneyland for two years? To make any of this a reality income stabilization tools will have to be employed such as crop insurance, Agri-Stability and forward pricing

Longer term considerations will include the following:

  • Are we happy with the size of the farm (and thus income) or do we have to grow or diversify? Growing and/or diversifying will take time and money, do we really want to do that? The decision in this case will be heavily influenced by the family’s stage of life. For a young family this could be a realistic option. On the other hand, for a mid-life family, it will require serious family discussion. Then when the quarter across the road comes up for sale the agreed-upon future direction for the farm will determine if it should be bought or not, rather than a knee-jerk decision.
  • Many families are grappling with succession issues. Dr John Fast in his book The Family Business Doctor advises that young people should gain some post-secondary education and then work for someone else before deciding if they want to return to the family farm or not. This means they will be 25 to 30 years old before they are ready to make a firm decision whether to become successors (or not).

Naturally there are some life events that can’t be planned for such as an injury, illness or death. The best that can be done for these circumstances is that at least one other person knows key information about your business responsibilities such as computer and bank account passwords, and has signing authority for the farm business.

Art Lange, PAg, CAFA, is the president of AJL Consulting, which provides business planning and farm financial analysis. Contact him at [email protected].

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