The Role of Farm Business Planning
Marion Simon, Ph.D., State Specialist for Small Farm and Part-Time Farmers, Kentucky State University Cooperative Extension Program.
Farms need a written mission statement to show why the farm business exists, its values, what the business will be, and what it will accomplish. Its mission statement describes the purpose of the farm business and its targeted products, services, and quality. The mission statement provides the basis for developing the farm business’s long-term plans, goals, and objectives. From it, the farm business develops and identifies its actual and targeted legal arrangements (sole proprietorship, partnership, corporation, cooperative, etc.). Keeping the farm’s mission statement as the target, the farm manager will develop business plans, enterprise budgets, market plans, and financial statements to see if the operation shows a profit; has a positive cash flow; is a good use of time, labor, and money; and has any opportunities or weaknesses that need to be addressed.
Business planning is about finding, describing, and refining the farm’s competitive advantages and moving the farm business in the direction to reach its goals and objectives. The operation needs both “tactical plans” for short-term planning (i.e., do I sell weaned kids this month or next month?) and “strategic plans” for long-term planning (i.e., do I buy more land, or do I invest in more breeding does?). These plans should connect the production, marketing, and financial aspects of the farm business. The plans should provide a road map for management of the operation that helps all parts of the farm to flow smoothly. Everyone who is involved in the farm business should be included in the planning process. By doing this, each person’s goals are evaluated to see if and how they fit into the overall goals of the farm operation and whether they can be realized.
The planning process helps to:
1. Identify the goals of the farm business (what you want to accomplish);
2. Identify the farm’s inventory and resources (what you have to work with);
3. Assess the farm business and the environment in which it operates (where you are and where you may want to go);
4. Identify the farm’s organizational structure (and chart) if it is a larger operation with several employees, employee compensation, allocation of profits, etc.;
5. Analyze the performance of the farm business (how you have done in the past based on the historical financial statements);
6. Decide upon a course of action (what you will do);
7. Implement the strategies (how you will do it); and
8. Evaluate the farm plan (whether it is working).
To be more specific, farm planning does the following:
1. Identifies goals that are attainable and moves the farming operation along the targeted path. Each goal should be SMART. A SMART goal is:
- Specific: a goal that has a specific thing to do and can be defined.
- Measurable: the goal can be measured and can be proven.
- Attainable: the goal is realistic; the farm business can reach the goal.
- Rewarding: the goal will move the farm operation toward what you want it to be.
- Timely: there is a time limit to reach the goal.
2. Identifies all resources that are available to the operation and those that are needed but are not available to the operation. These include physical and natural resources including forages, forbs, water sources, soil types, land resources, and rainfall.
- Human and personnel resources.
- Animals and crop resources (forages).
- Equipment, facilities, barns, computers, fencing.
- Financial resources.
3. Assesses the farm business and the environment in which it operates. The SWOT analysis can identify the farm operation’s Strengths, Weaknesses, Opportunities, and Threats. (SWOT Analysis Sheet)
4. Evaluates the farm business to determine its production and financial strengths and weaknesses with an emphasis on the financial.
5. Helps the farm manager to decide upon a course of action or strategy for the farming operating such as improving the breeding stock, paying debts, or buying handling facilities.
6. Helps the farm manager implement the strategies that have been identified. The manager must be sure to include all members of the operation in the decisions and explain their responsibilities.
7. Allows the farm plan to be evaluated annually to see if the goals for the year were met and whether they need to be revised or continued into the following year.
“Risk-Assessed Business Planning for Small Producers” curriculum that was developed by a joint project of 1890 Land-Grant Institutions, USDA-CSREES, and the SRRMEC (funded project collaborators: Marion Simon, Daniel Lyons, and Nelson Daniels), authors of the manual: Stan Bevers, Brenda Duckworth, Blake Bennett, Rob Borchardt, Nelson Daniels, and Allen Malone (Texas A&M University and Prairie View A&M University).
Marion Simon, Farm Business Planning chapter, Meat Goat Production Handbook, ISBN 1-880667-04-5, Langston University, OK, pp. 313-326.
Marion Simon, Farm Business Planning section, Web-Based Training and Certification Program for Meat Goat Producers, Langston University, OK.