Farm Business Planning Dr. Laurence M. Crane www.ag-risk.org
Farm Business Planning <ul><li>Business planning is a formalized thought  process  wherein farmers assess their current si...
Farm Business Planning  is… <ul><li>A  mechanism  to adjust to changes while working towards defined goals.  </li></ul><ul...
Farm Business Planning  is… <ul><li>A  process  that is repeated at regular intervals or more often, if the need arises.  ...
Farm Business Planning  is NOT… <ul><li>A set of self-imposed instructions that cannot be altered in the future. </li></ul...
Benefits of Farm Business Planning <ul><li>Helps you to remain focused. </li></ul><ul><li>Helps you make better, more info...
Benefits of Farm Business Planning <ul><li>Encourages you to carefully think about: </li></ul><ul><ul><li>alternatives for...
Benefits of Farm Business Planning <ul><li>Helps you understand the relationship between the farm and the family who depen...
Farm Business Planning Process <ul><li>Developing a farm business plan is a multi-step process to answer several key quest...
 
 
Farm Business Planning Process <ul><li>Assess the Current Situation </li></ul><ul><li>1. What is the current status of my ...
Farm Business Planning Process <ul><li>Determine Where You Want to Be </li></ul><ul><li>4. What do I want to accomplish? <...
 
Farm Business Planning Process <ul><li>Identify, Select, and Test Alternatives </li></ul><ul><li>5. Will the current farm ...
Farm Business Planning Process <ul><li>Monitor Implementation </li></ul><ul><li>9. How do I monitor progress over time? </...
3. Projected Operating Environment 6. Alternatives 8. Constraints 1. Business Inventory 2. Self-Assessment of Skills and I...
 
Assess the Current Situation 1. What is the current status of my farm business? <ul><li>Inventory of assets </li></ul><ul>...
Assess the Current Situation 2. What are my interests and skills? <ul><li>Inventory the human resources of the farm </li><...
Assess the Current Situation 3. What are my expectations about the future? <ul><li>General economic conditions </li></ul><...
Determine Where You Want to Be 4. What do I want to accomplish? <ul><li>Characteristics of meaningful goals:  </li></ul><u...
Identify, Select, and Test Alternatives 5. Will the current farm be feasible in the future? <ul><li>Enterprise analysis </...
Identify, Select, and Test Alternatives 6. What alternatives are feasible for the future? <ul><li>What is the problem that...
Identify, Select, and Test Alternatives 7. What steps are needed to implement the feasible alternative? <ul><li>Prepare a ...
Identify, Select, and Test Alternatives 8. What might prevent me from implementing the plan? <ul><li>Use contingency plans...
Monitor Implementation   9. How do I monitor progress over time? <ul><li>Identify important stages of each enterprise to m...
Monitor Implementation   10. How should I prepare to document, share, and revise my plan? <ul><li>Document in detail all a...
Homework Assess the Current Situation 1. What is the current status of my farm business? <ul><li>List all physical assets ...
Homework Assess the Current Situation 2. What are my interests and skills? <ul><li>List the skills of all farm participant...
Homework Assess the Current Situation 3. What are my expectations about the future? <ul><li>General economic conditions (c...
Homework Determine Where You Want to Be 4. What do I want to accomplish? <ul><li>Determine and  write  your goals </li></u...
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ARL03942.ppt

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