Planning for profitability: Getting started with farm business planning
Agricultural Management Institute Planning for profitability: Getting started with farm business planning Planning for profitability: Getting started with farm business planning What?! Planning for profitability: Getting started with farm business planning Agricultural Management Institute more paperwork!?! For many farmers, the last thing they think about when it comes to running their farm business is developing a business plan. In fact, according to a 2011 study by Ipsos Forward Research for AMI, only 22 per cent of Ontario farmers reported having a farm business plan and of those, less than half update their plan regularly. This could be because they’re too busy with the day-to-day running of their operation to find the time, they fear the expense or they don’t know where to start with the process. …only 22 per cent of Ontario farmers reported having a farm business plan and of those, less than half update their plan regularly. According to a 2011 study by Ipsos Forward Research for AMI. This booklet will help address all three of these areas by taking a look at the benefits of planning, what the process might include, how to get started and where to go for more information. Taking part in a business planning process does not have to be a complicated, timeconsuming undertaking and there is no one solution that will fit every farm business. Some farm businesses will come out of a planning process with a comprehensive, detailed plan for succession or expansion. Others might start by jotting down a few ideas on how to expand production, create a better work-life balance or restructure debt, and then take their initial ideas to a trusted advisor to start creating a plan. Agricultural Management Institute Planning for profitability: Getting started with farm business planning Why you might want to consider a bit of planning Farm business planning can be done on your own, with the help of your family, business partners or farm staff or in conjunction with a professional farm business advisor. Whichever route you take, planning can bring many advantages to your farm operation. Planning allows you to prepare financial forecasts for three to five years, based on optimistic, neutral and pessimistic outlooks. This helps you consider risk mitigation strategies as well as identify and manage risks, and make production and marketing decisions. It can build awareness of the challenges and opportunities, helping you avoid major problems, address market upheavals or seize new opportunities, as well as present the opportunity to sell your business story to your lender or to higher-up account managers that might be involved in financial decisions affecting your farm. Planning can also identify strengths and weaknesses in your operation, force you to self-assess and prioritize, help set and achieve short or long term goals, and plan for succession. Your document does not have to be lengthy, but it does need to contain concrete ideas, goals and milestones to help you plan, track and achieve your objectives. Planning for profitability: Getting started with farm business planning Agricultural Management Institute More than just a plan... or branding options, or consider using risk management tools. The farm business planning process doesn’t have to be very formal or complicated, but it can help bring positive change to an operation. A business plan is more than just a static document that sits in a binder on your desk. It’s also: Applying for financing. A plan will help you obtain financing, but will also help you take a realistic approach to farm finance and debt loads. A road map. A plan will help guide your business as it changes or expands. You wouldn’t build a house without a blue print, so why run your business without a written plan? An accountability tool. It’s much too easy to avoid or forget doing something if it’s not written down somewhere. Try marking milestone dates and actions on your calendar throughout the year to help keep on track and measure accomplishments. Working with partners or communicating with staff or a management team. A plan defines agreements between partners regarding roles and responsibilities, commitments and shared goals and objectives. This could also have positive personal life implications, such as being able to work off-farm less, spending more time on-farm or having some weekend time off. Appraising or selling a business. A solid plan will make your business more attractive to potential buyers or help you implement a succession plan. A safety net. Many people have a good business plan in their head but in case of unforeseen circumstances like an accident, it also needs to be on paper in order to keep the business going in your absence. A communication channel. A common vision helps your team stay connected and on the same course. An investment. Planning takes time and money, but it can also help you streamline or expand your operation and make you more profitable. Key topics in your business plan include a financial plan, goals and objectives for your operation, succession and risk management plans, as well as plans for commodity and direct marketing, diversification and human resources management. Who needs a business plan? You need a business plan if you’re: Running a business. A plan can help guide you as you expand, diversify into different product types or markets, evaluate processing “You need to have a business plan. Whether it’s one year or longer, that’s entirely up to you but you need to be backed by somebody outside the business to get a perspective on it. It doesn’t matter if it’s your banker, your accountant or whatever, just somebody that doesn’t have the emotional tie to it to give you an opinion.” Welland-Area Farmer Agricultural Management Institute Where to find advice—working with farm business advisors Planning for profitability: Getting started with farm business planning Jim’s top tips on how to get the most out of your farm financial advisor There are a variety of places you can find advice on farm business management planning: for example, from the links at the back of this booklet, by taking a Growing Your Farm Profits workshop or by seeking the help of a farm business advisor. Provide good financial information. Keeping your financial statements and records current and up to date cuts down on the amount of time an advisor needs to get up to speed on your operation and helps give him or her an accurate picture of your financial position. Jim Tyler has been farming on his family operation near Stratford for almost 40 years. For the last two decades, he’s also been helping fellow farmers as a farm business advisor. About half his work is spent helping debt-stressed operations find solutions to their financial troubles and the other is working with farmers to plan for expansion, succession or intentional downsizing. Keep production records. This includes how many animals you have marketed per year and their average price and weight or your crop insurance records from Agricorp. Good production records will help your advisor develop a plan that reflects the realities of your operation. “As advisors, we bring outside experience to a situation and help farmers sort through options in an objective way,” explains Tyler. “We can offer a third-party, outside opinion that can help if a farmer has been looking at a situation too closely.” Many farmers are production-oriented and most don’t enjoy paperwork, he says, and so they only deal with financials when they have to. Farms, unlike large companies, don’t have people on staff to help with strategic direction. Since it’s human nature to be reactive instead of proactive, it can take an issue like debt, a new project or a son or daughter coming home to farm to kick-start the process, he adds. An advisor can help with a very specific project or plan but in an ideal situation, Tyler says, a farm advisor works closely with the farm operator on an on-going basis and is on-call every six to 12 months to review financial statements. This should be separate, though, from working with a chartered accountant to get tax advice, as a tax specialist may not necessarily have the expertise needed to analyze how farm production and finance meet. Take a Growing Your Farm Profits workshop. Through the workshop, you will be tasked to think and talk about issues you’ve maybe never addressed before. Deciding where you want your farm business to go and defining your goals helps you mine the advice you need to reach those goals. A farm visit is essential. Anyone writing a business management plan for your farm should come out to visit your operation at least once. The advisor will have a better understanding of your operation and your situation if they’ve taken the time to meet with you face to face. What’s a “Growing Your Farm Profits” workshop? A two-day interactive workshop to assess current farm management practices, identify priorities and develop action plans. Successful participants may be eligible for cost-share funding for advisory services or skills training. www.ontariosoilcrop.org/en/bdfbhome Planning for profitability: Getting started with farm business planning Agricultural Management Institute steps to a business plan Brainstorm.1 Analyze.2 Write. Answer the following four questions as best you can: “Where are we now?”, “Where do we want to be?”, “How do we get there?” and “How do we know we’ve gotten there?”. Include all the goals or objectives you may want to reach in the next three to five years. This can be done by yourself or with business partners, family, staff or a farm advisor. Write down the strengths, weaknesses, opportunities and threats for your farm business. Strengths and weaknesses are internal factors that you can control; opportunities and threats are external characteristics that are beyond your direct control but can affect your business. Start writing out your plan sections: strategic plan (inc objectives, vision and miss analysis), operating plan (d as production, marketing a succession plan (what sho farm operator is injured or Agricultural Management Institute 3 using three main clude things like goals, sion statement, situational day-to-day activities, such and financial plans) and ould happen if the main passes away). Planning for profitability: Getting started with farm business planning Consult.4 Review.5 Seek the advice of a peer or professional farm advisor for an unbiased, third party assessment of your plan. A farm business plan is an active document that should be reviewed regularly. Don’t be afraid to make changes. Mark dates in your calendar to assess milestones, arrange meetings and touch base with how you are doing with sticking to the plan. For more business planning templates and resources, visit www.TakeANewApproach.ca/farmers/building-a-business-plan.aspx Planning for profitability: Getting started with farm business planning Agricultural Management Institute Case Study: Business planning for biomass A good time to start down the road of business management planning is when a new opportunity presents itself for your farm business. The Ontario Biomass Producers Group began in 2009 when Ontario Power Generation started looking for renewable resources of energy and a group of farmers decided to investigate biomass opportunities. Biomass is purpose-grown energy crops like miscanthus and switchgrass. The planning process quickly took them from power generation to a completely new level of possible opportunities for biomass, including pelletized furnace fuel, particleboard, livestock bedding, mushroom substrate and even plastic containers and car parts. The group has now evolved into a co-op with 30 active members and is still growing. “Farmers are trying to position themselves for something that has the potential to be a very rapid growth opportunity for renewable energy production and bioproducts,” says Nancy Comber, the group’s secretary. “Through many meetings and planning, they’ve really been able to move this forward.” Co-op members can access support from the co-op to help develop a business plan for a specific biomass opportunity they are looking to pursue. This service is offered to members through project funding from AMI, which helped the group hire two business advisors to assist with market research and planning efforts. “Planning is a fundamental component of developing this industry. The adage “if you fail to plan, you plan to fail” really applies here,” says Comber. “Business planning can help show the viability of biomass and motivate farmers to explore the potential of this diversification.” The group is finalizing a biomass business planning manual, which will be available at www.ontariobiomass.com. “As we move through the process of business planning, new opportunities are coming forward. There’s something new at every meeting that people have found or researched; it’s a very exciting time for biomass in Ontario.” -Nancy Comber Case Study: Bonnieheath Lavender As the tobacco industry declined, Steve and Anita Buehner knew they wanted to do something else – and they wanted that something to be in agriculture. A friend introduced them to lavender in 2003 and although they experimented with some varieties for several years, it wasn’t until they attended a lavender conference in the U.S five years later that they got serious about this emerging niche. They also became involved with a group of local growers who were planting grapes, a new crop in their area. Today, Anita has returned to work on the farm full-time with her husband, and the Buehners produce apples, grains, grapes and lavender on their 180 acres in Norfolk County. Anita credits their careful planning with the successful re-birth of their farming business, which now includes lavender-based agri-tourism and plans to open an on-farm winery. She and Steve both took an intensive Agricultural Management Institute Planning for profitability: Getting started with farm business planning computer course at a local college, and Steve completed the Growing Your Farm Profits workshop, allowing them to access funding for further farm business management activities. “When you move on from a business you know so well and go in a new direction, computer skills are very important and they’ve turned out to be key in what we’re involved with now,” explains Anita. “We started the planning process with a farm financial assessment. It was very helpful to have an independent person tell us where we were and whether we could realistically move forward with our project.” Anita also took advantage of an opportunity offered by Farm Credit Canada to evaluate some online farm business management courses they were developing. She had never taken any online training, but has found the process to be extremely helpful in the later stages of their farm business planning. “We took our time to evaluate our personal goals and business, look at our strengths and weaknesses, and identify potential customers and future opportunities, so when it came time to work with a certified farm advisor to formalize our business plan, all the background work was already completed,” she says. “Most importantly, we realized that we had a desire to repurpose our farm, which gave us the focus we needed to undertake this immense challenge.” “Transition is a long road. Planning can be very time consuming and we wouldn’t have been able to do all of this without the resources we were able to access,” admits Anita, who is now also chair of the newly formed Ontario Lavender Association. “Some of these conversations are not easy ones to have, but developing that focus is so important when you’re making these major changes.” Anita’s transition planning tips Successful change requires focus. Use free online resources to help you get started. Hire a professional advisor to help you with planning and give you outside perspectives. Be prepared. Money can be tight when you’re in transition and being prepared before you seek out an advisor will save you money. Planning for profitability: Getting started with farm business planning Agricultural Management Institute I’d like to get started – where do I go for more information? The following websites and resources offer information and tools that can help you get started with building your own human resources management plan for your farm, help ensure you are aware of your regulatory compliance obligations as an employer and recommend sources for further advice and support. Preparing your business plan Finding an advisor to help you Preparing business plans, OMAFRA: http://goo.gl/7I7sR Choosing a business consultant, OMAFRA: http://goo.gl/ck6ie AgPlan—online business planner tool: http://goo.gl/R7hWd Farm advisor listing: http://goo.gl/QhTAv Create your own business plan: http://goo.gl/eJu43 Canadian Association of Farm Advisors: http://goo.gl/eoWtu Strategic and Business Planning: http://goo.gl/Uolgp Sample business plans Livestock producer case studies, Iowa State University: Advanced business planning 4-H conferences: http://goo.gl/GnynI Advanced business planning, OMAFRA: http://goo.gl/Tk6OI Business Strategy: http://goo.gl/SRwsG http://goo.gl/CVwn2 Farm business plan guidelines, government of South Africa: Advanced business planning http://goo.gl/mhGW4 Feasibility studies “Does this idea make economic Agribusiness Planning—Providing Direction for Agricultural Firms, Penn State University: sense?”, University of Manitoba: http://goo.gl/u9mzI http://goo.gl/4sEJP Algoma Farmers’ Market feasibility study and business plan: http://goo.gl/bGiYQ Agricultural Management Institute Planning for profitability: Getting started with farm business planning Training and workshops C Team, George Morris Centre: http://goo.gl/awTTm AgPal: http://goo.gl/9wzNY AMI Advanced farm manager: http://goo.gl/fwucs Growing your farm profits workshops: http://goo.gl/trwJS Keeping your plan up to date e-team videos, AMI: http://goo.gl/V8wdE Business plans are especially important for farmers considering diversifying their operation through value-adding. To access these and other resources, visit www.TakeANewApproach.ca/farmers OMAFRA’s new Exploring Value Added Opportunities (EVAO) training program helps rural entrepreneurs assess what it takes to turn an idea into reality by completing some basic planning for production, marketing, finance and human resources. For information on EVAO videos, workshops, and e-learning follow the Adding Value Through New Products or Services link at ontario.ca/agbusiness Disclaimer This book and any resources and links contained herein are not intended to be used as a substitute or replacement for the Acts described herein. It does not cover all situations or circumstances when you have employees on your farm. If your business is setup as a corporate entity, there may be different or additional obligations. This publication is intended to provide a farm owner with a simplified overview of regulations contained in these Acts and to provide resources should you require further information. Professional advice should always be sought from your legal representative or accountant when looking for an interpretation of the legislation. Planning for profitability: Getting started with farm business planning Agricultural Management Institute AMI can help! For more information about farm business planning resources, visit www.TakeANewApproach.ca or call the Agricultural Management Institute at 519-822-6618. AMI is part of the Best Practices Suite of programs for Growing Forward, a federal-provincial-territorial initiative.
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