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ARL03942.ppt
ARL03942.ppt
ARL03942.ppt
ARL03942.ppt
ARL03942.ppt
ARL03942.ppt
ARL03942.ppt
ARL03942.ppt
ARL03942.ppt
ARL03942.ppt
ARL03942.ppt
ARL03942.ppt
ARL03942.ppt
ARL03942.ppt
ARL03942.ppt
ARL03942.ppt
ARL03942.ppt
ARL03942.ppt
ARL03942.ppt
ARL03942.ppt
ARL03942.ppt
ARL03942.ppt
ARL03942.ppt
ARL03942.ppt
ARL03942.ppt
ARL03942.ppt
ARL03942.ppt
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ARL03942.ppt
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ARL03942.ppt

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  • 1. Farm Business Planning Dr. Laurence M. Crane www.ag-risk.org
  • 2. Farm Business Planning
    • Business planning is a formalized thought process wherein farmers assess their current situation, specify their goals, identify and implement alternatives for reaching their goals, and monitor their progress.
    • The emphasis is on the long-term goals farmers and their family set for themselves and their business.
  • 3. Farm Business Planning is…
    • A mechanism to adjust to changes while working towards defined goals.
    • Anticipates that the farm operation will be altered or modified as necessary to accomplish the farmers' goals.
    • A framework for organizing and directing shorter term planning efforts.
  • 4. Farm Business Planning is…
    • A process that is repeated at regular intervals or more often, if the need arises.
    • A process often involving considerable detail and data about the business and the industry.
    • A framework for organizing and directing shorter term planning efforts.
  • 5. Farm Business Planning is NOT…
    • A set of self-imposed instructions that cannot be altered in the future.
    • A replacement for other planning efforts, such as yearly production and marketing plans or capital budgeting to evaluate a specific investment decision.
    • An exercise to be completed once and then forgotten.
  • 6. Benefits of Farm Business Planning
    • Helps you to remain focused.
    • Helps you make better, more informed decisions.
    • Thoroughly understand the business so that, at any time, you can determine how a current decision will impact the long term progress of the business.
  • 7. Benefits of Farm Business Planning
    • Encourages you to carefully think about:
      • alternatives for the current farm business activities,
      • risks inherent in available opportunities, and,
      • contingency plans to follow if an obstacle or opportunity arises while implementing the selected alternatives .
    • Sets specific standards of performance so you can, in a timely manner, change when the business is no longer on the expected or desired path.
  • 8. Benefits of Farm Business Planning
    • Helps you understand the relationship between the farm and the family who depends on income from the operation to meet all or part of its living expenses.
    • Facilitates discussions among yourselves, your families, and others (lenders, landlords, business associates, etc.).
  • 9. Farm Business Planning Process
    • Developing a farm business plan is a multi-step process to answer several key questions.
    • The process can be summarized as follows:
      • Assess the Current Situation
      • Determine Where You Want to Be
      • Identify, Select, and Test Alternatives
      • Monitor Implementation
  • 10.  
  • 11.  
  • 12. Farm Business Planning Process
    • Assess the Current Situation
    • 1. What is the current status of my farm business?
    • 2. What are my interests and skills?
    • 3. What are my expectations about the future?
  • 13. Farm Business Planning Process
    • Determine Where You Want to Be
    • 4. What do I want to accomplish?
  • 14.  
  • 15. Farm Business Planning Process
    • Identify, Select, and Test Alternatives
    • 5. Will the current farm be feasible in the future?
    • 6. What alternatives are feasible for the future?
    • 7. What steps are needed to implement the feasible alternative?
    • 8. What might prevent me from implementing the plan?
  • 16. Farm Business Planning Process
    • Monitor Implementation
    • 9. How do I monitor progress over time?
    • 10. How should I prepare to document, share, and revise my plan?
  • 17. 3. Projected Operating Environment 6. Alternatives 8. Constraints 1. Business Inventory 2. Self-Assessment of Skills and Interests 4. Personal & Business Goals 5. Current Farm Projections 9. Monitoring & Control 10. Documenting, Sharing, Revising 7. Transition Plans Decision Criteria: • Profitability • Cash Flow/ Feasibility • Goal Fulfillment • Equity Growth • Interests and Skills
  • 18.  
  • 19. Assess the Current Situation 1. What is the current status of my farm business?
    • Inventory of assets
    • Productive capacity of assets
    • Resource shortages and surpluses
    • Enterprise analysis
    • Ownership and compensation issues
    • Benchmark analysis
    • Risk bearing capacity and risk profile
    • Complete and current financial statements
  • 20. Assess the Current Situation 2. What are my interests and skills?
    • Inventory the human resources of the farm
      • What am I currently doing?
      • What do I want to do?
      • What am I qualified to do?
      • What skills should I Improve?
      • Opportunity cost of my labor
      • Willingness to assume risk
      • The ideal job description
    • Appraisal of health and reliability of HR assets
  • 21. Assess the Current Situation 3. What are my expectations about the future?
    • General economic conditions
    • Market forces impacting farm businesses
    • Local economic conditions
    • Consumer preferences and trends
    • Governmental policies and regulations
    • Challenges and opportunities
    • Information—credible sources and synthesis
  • 22. Determine Where You Want to Be 4. What do I want to accomplish?
    • Characteristics of meaningful goals:
      • specific
      • measurable
      • challenging (but realistic)
      • time specific
      • addresses key result areas
      • written
    • Business and personal goals
    • Reconciling and revising goals
  • 23. Identify, Select, and Test Alternatives 5. Will the current farm be feasible in the future?
    • Enterprise analysis
    • Time frame and planning horizon
    • Whole farm analysis—look at each function
      • (production, marketing, financial, capital budgeting, labor, risk, estate transfer, tax, etc.)
    • Resource supply and demand
    • Financial feasibility and pro forma budgets
    • Decision criteria and benchmarks
  • 24. Identify, Select, and Test Alternatives 6. What alternatives are feasible for the future?
    • What is the problem that needs to be resolved by the alternative
      • which goal is not being met—what is the short-fall
    • Modifying existing vs introducing new enterprise
    • Criteria for making decision
    • Reliability of data
    • Risk evaluation and protection
    • Impact on other activities (whole farm impact)
  • 25. Identify, Select, and Test Alternatives 7. What steps are needed to implement the feasible alternative?
    • Prepare a transitional plan specifying:
      • what, why, and when needs to be changed
      • resources needed to accomplish the change
      • risks associated with making the change
      • test the feasibility of proposed change and its timing
      • profit, cash flow, resource availability and needs, etc.
      • prepare the 16 financial measures
    • Will the changes accomplish what we intended?
  • 26. Identify, Select, and Test Alternatives 8. What might prevent me from implementing the plan?
    • Use contingency plans to manage constraints
    • What are the likely constraints?
    • What is the probability that the constraint will occur?
    • How would the most probable constraints impact the business?
    • What courses of action are available and prudent?
  • 27. Monitor Implementation 9. How do I monitor progress over time?
    • Identify important stages of each enterprise to monitor
    • List key inputs & outputs of each stage to be monitored
    • Specify the time when each input or output is to be monitored
    • Identify a sensor for each item,
    • Specify a range in which the performance is satisfactory
    • Devise a plan or corrective action
    • Revise the system as needed
    • Boehlje and Eidman (1984)
  • 28. Monitor Implementation 10. How should I prepare to document, share, and revise my plan?
    • Document in detail all aspects of your farm business (create an “owner’s manual”)
    • Document in a form and fashion that is easy for you to access, understand, and revise
    • Selectively share summary information from your plan on an as-needed basis
    • Keep your documentation as current as feasible and update regularly
    • Review your plan annually at a minimum
  • 29. Homework Assess the Current Situation 1. What is the current status of my farm business?
    • List all physical assets of the farm business
      • Accounting (book) value
      • Economic (market) value
      • Determine productive capacity
      • Describe unique characteristics
  • 30. Homework Assess the Current Situation 2. What are my interests and skills?
    • List the skills of all farm participants
    • List the interests of all farm participants
    • What are the opportunity costs of being a participant in the farm business
  • 31. Homework Assess the Current Situation 3. What are my expectations about the future?
    • General economic conditions (current & future)
    • Market and price outlook
      • Output
      • Input
    • Local economic conditions
    • Identify credible information sources
    • Identify what you need to know (but don’t know)
  • 32. Homework Determine Where You Want to Be 4. What do I want to accomplish?
    • Determine and write your goals
      • Business goals
      • Personal goals
    • For all involved in the business
    • Reconcile the differences

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