Farm Horizons, December 2012

Do you have a plan?

By Myron Oftedahl, Farm Business Management Instructor, South Central College

Do you have any plans for your farming business? Have you set any goals for your business? As we approach Jan. 1, this is the typical date we use to develop a balance sheet. As you may recall, a balance sheet is a snapshot in time of your financial assets and liabilities and can be done at any time, but if we are to use it as a measure of earnings, we need to be consistent with a date.

What does a balance sheet have to do with a plan? In my opinion, you need to have a balance sheet and a cash flow projection done first.

The business plan is the narrative that ties it all together. A business plan will explain how you started your farming business, how you got to where you are at (the balance sheet), and where you are going (the cash flow projection). It should also include the what-ifs that you considered when doing the projection and a longer-range plan.

A typical cash flow projection is for one year, so the what-ifs are usually focused on income and expenses for the year. An example might be what effect a different yield would have on your projection. A business plan would include your goals as to where you want your farm business to be in five years, 10 years, etc. and an explanation as to how you would reach those goals.

If one of your goals is to increase the amount of acres farmed, how are you going to do this? Are you going to buy more land? If so, how are you going to finance it? Are you going to rent more land? How will you do this? By bidding the rental rates up? By being a good tenant? Do you have a relative ready to retire?

A business plan is something that you open up and review from time to time. A business plan that is printed and then sits on a shelf is not much good, out of sight, out of mind. As time goes by, your goals may change or an opportunity comes up that you had not thought of before.

Now, you have all of the background so it is easier to add this opportunity to your plan and your cash flow projection and see if it makes sense. What effect will it have on the rest of your business? The business plan can address the areas that may get stressed. Do you have enough working capital? Enough labor? Enough machinery? Is your present machinery sized appropriately? Does the opportunity compliment or detract from your business?

Armed with a balance sheet, a cash flow projection, and a business plan you are prepared to approach your lender. And while your lender may be familiar with a business plan for a main street business, he/she may not be accustomed to having a business plan for a farming operation.

So, you are saying, if the lender isn’t used to seeing a business plan for a farm, why should I do one? Because the business plan is like a road map for your farm. The balance sheet and the cash flow are destinations for the trip, but the plan is the map linking it all together. Another way to look at it would be trying to build a building without any blueprints or plans. You might get it built, but how many problems could have been avoided by having blueprints?

If you need help writing your business plan, contact a farm business management instructor, or go to www.cffm.umn.edu and then click on the link for AgPlan.

Farm Horizons: Main Menu | 2012 Stories

Herald Journal
Stories | Columns | Obituaries | Classifieds
Guides | Sitemap | Dassel-Cokato Home | Delano Home | HJ Home