MYFB — Ep. 29: Putting together a solid farm business plan

No two farm business plans are identical.

A young, aggressive producer focused on expanding likely needs a comprehensive business plan with detailed cash flow and business projections to satisfy investors and partners. On the other extreme, the business plan for an established farm with no children interested in taking over can be very simple — maximize profits in the remaining years of farming.

While what the document actually looks like will vary depending on the stage of business, any good business plan must address two key areas, says Dean Klippenstine of MNP, in this Mind Your Farm Business podcast.

“Number one is understanding our costs,” he says. “You need to understand the cost it takes to run your operation.”

Knowing what it takes to be profitable reduces complacency in decision-making and behaviour. For example, he says, 42 bu/ac canola can be 80 percent more profitable than 38 bu/ac canola. A producer with a good understanding of their costs will realize the value in trying to produce those extra four bushels.

A good business plan also lays out what you want to achieve.

Do you want to double your farm size or retire and travel the world? Where do you want to be in five or ten years?

“Without that, no one can help you,” he says. “All of your team around you need to know and understand that to help make decisions.”

“If we start with the end goal in mind, we can add a whole bunch of good, simple business mathematics around it and steps we should take to achieve those goals. But the key starting point for these documents is, ‘what do I want in five to ten years?’ and then everything else is actually relatively straight-forward along the path to achieving those goals.”

And as long as it defines those two things — what it takes to be profitable and where you want the farm to go — a business plan can be as simple or comprehensive as needed, says Klippenstine.

“The document is not the end of the process. The document is really just to give the business operator the information to make good sound decisions to the best of their ability to achieve their goals.”

So what happens when unforeseen circumstances come along? How do you create a plan that doesn’t get thrown out the window when one of the many uncontrollable variables in farming changes? And how often should you revisit or update a business plan?

These are some of the questions we discuss in MYFB episode 29, focusing on what goes into developing and maintaining a solid farm business plan:

Listen to more Mind Your Farm Business episodes here (or subscribe on iTunes!)

Disclaimer: Royal Bank of Canada and its subsidiaries are not responsible for the information provided in this podcast, and this information does not necessarily reflect the views of Royal Bank of Canada or any of its subsidiaries. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its subsidiaries.

 

Kelvin Heppner

Kelvin Heppner is a field editor for Real Agriculture based near Altona, Manitoba. Prior to joining Real Ag he spent more than 10 years working in radio. He farms with his father near Rosenfeld, MB and is on Twitter at @realag_kelvin

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One Comment

Art Lange PAg

Hi Kelvin
Good basic info on cost of production and goals but I would like to make some comments about what was said:
1) I disagree that maximum yield should be the overall goal. I think it should be maximum profitability. The extra inputs to gain that last 2bu/acre might result in less profitability than the lower yield. We saw the extreme example when Rob Saik was urging farmers to try for 100 bu/acre of canola. The inputs to try to achieve that would be ridiculously high and make no commercial sense at all.
2) Goals should be broken down into 3 categories (at least) – in this order
Personal goals of the farm operators – usually the farm couple running the farm. I do this separately for each person
Family goals – what does the family want to achieve as a unit – including the kids (if any)
Business goals – this is where the future of the operating farm unit comes in as mentioned in the podcast – expansion, contraction, diversification etc.
The farm should be there to serve the family operating it and not become such a behemoth that the family becomes a slave to the business
I have found that farmers have a difficult time developing their own and farm business goals and employing a business advisor to help develop goals may be money well spent. As Dean stated, goals have to come first and then the business plans can be prepared to meet those goals.

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