The Canadian agriculture industry’s best farmers earn as much as 525 per cent more income than other farmers. How did they get there? Last year, at Ag in Motion Discovery Plus, three farm business experts discussed just that. The consensus? Success depends upon business planning.
Farmers who invest in a business plan are better prepared to take advantage of opportunities and overcome challenges, say experts.
According to Farm Management Canada’s Healthy Minds, Healthy Farms report, only one in five Canadian farmers say they regularly follow a written business plan. Those that do, however, also tend to follow other business practices — record-keeping, sticking to a budget, benchmarking performance, training and communicating about the future of the farm with family and employees. Not surprisingly, those are the same key practices that give Canada’s top farmers a leg up on the competition, which translates to greater income.
Business planning “is kind of like opening up to a new world of farm business management,” said panelist Heather Watson, FMC’s executive director. “The fact that business planning can, kind of, unlock those practices is a very significant finding for us.”
Panelist Reg Dyck teaches a farm business management class through the University of Manitoba’s ag diploma program. One of the key messages he passes on to his students is small changes can produce big results. He said he often tells his students the average return on corn in Minnesota over many years is US$0.10 per bushel. If farmers can increase that return by $0.05 per bushel, they increase their profit margins by 50 per cent.
“It’s not a very big amount to increase your margin from $0.10 to $0.15, but you’ve increased your profit by a huge amount,” said Dyck.
What does it take to increase that margin? “A little bit better management style, better management preparation, bit better budgeting, (and) better analysis,” said Watson. In short, the outcomes of business planning.
Panelist Rob Hannam, founder and president of Synthesis Agri-Food Network, said business planning offers four key operational benefits, all of which can contribute to a healthier business. It sets a farm’s business path forward, it identifies goals, it provides a platform and opportunity to better communicate with your team, and it clarifies contingency plans.
“Certainly, it’s worth the effort,” said Hannam. Come what may, those who invest time in business planning are much better prepared to capture opportunities and mitigate challenges, he added.
Improved quality of life
In addition to financial incentives, business planning offers improved quality of life. A whopping 88 per cent of farmers who complete written business plans say doing so directly contributes to their peace of mind.
“They are able to sleep at night. They are able to manage under greater amounts of stress because they have an idea of where they’re going and that foundational piece to reference back to when it comes to making tough decisions or responding to factors (and) making decisions,” said Watson.
Also, FMC’s research shows farmers who use a written business plan are also more likely to choose healthy lifestyle options and better stress management strategies than their counterparts who don’t pre-plan.
On the other side of the spectrum, FMC’s Healthy Minds, Healthy Farms report says nearly half of all Canadian farmers rarely or never use a written business plan. Of those farmers, 41 per cent say they don’t write a plan because they are “succeeding without.” Watson wonders if those farmers may be cutting themselves off from even greater success.
“It kind of begs the question, ‘What does success look like?’ Are we measuring success by family harmony? By the bottom line? Are we in the black, in the red? Are we measuring it by how much yield or production we have? … It would be interesting to dig into that a little bit and say are you succeeding? In what way? And could you be, perhaps, more successful with a business plan?” said Watson.
Of those who don’t use a business plan, 33 per cent of respondents reported lacking the time they think creating a plan would require and 26 per cent reported being roadblocked because of the “constant updates” a plan could demand.
“There is certainly a perception that business planning is this thing you do ‘over here,’ and the rest of the stuff is farming,” said Watson.
Rather, farmers should be looking at business planning as an integrated part of day-to-day farming and everyday thinking. A business plan isn’t a sit-on-the-shelf document that you invest in once a year. Instead, it should act as a bridge between “now” and “later,” a critical link between the daily or seasonal operational decisions a farmer makes and a farm’s strategic (i.e. long-term and directional) planning.
“It’s a continuity plan,” said Watson. “It’s something that you’ve come together as a family, as a farm team, as people united around a vision and values to decide what you want your future to look like and what you want it to look like together.”
Some farmers choose not to invest in business planning because, as they correctly point out, there are so many uncertainties in agriculture there’s no way to predict the specific opportunities or speedbumps that could affect a farm business in the short or long term. However, that uncertainty is exactly why business planning is so critical.
“(We need to be) getting away from that idea that business planning is predicting the future — that it’s your crystal ball. It’s more about being prepared for whatever happens, and looking at (the questions), ‘What are the risks and opportunities out there? How can I position myself the best and take a proactive approach to maintain prosperity, success, and family harmony?’” said Watson.