Planning For Profit: Why You Need A Farm Business Plan

The best way to set yourself up for success in business and with your lender or partners is to have a detailed plan. It doesn’t been to be pretty, but a well-thought-out plan is essential for driving key decisions that can ultimately lead to a highly successful farming operation.

“A business plan is a roadmap,” says Amy Rowe, Senior Ag Relationship Manager at Horizon Farm Credit. “It helps you plan how to reach your destination, especially when you encounter a detour or roadblock.”

A business plan will not only include your short- and long-term goals, but it will also provide a snapshot of the operational and financial state of your farm at a particular moment in time. Farmers use business plans to evaluate production alternatives, identify new market opportunities, assess equipment or other major purchases, and chart a course to reach new markets. And because any farming business is constantly changing, your business plan will change over time as well.

“Business plans are living documents, which means that they don’t need to be perfect to begin with,” Rowe says. “A plan can start very simply and then become more robust over time as more information becomes available. The important thing is to get started.”

A good first step to developing your own plan is to sit down with everyone involved in the day-to-day operation of your farm – family, employees, partners and managers – to talk through why you want to create one and what should ultimately be included, says Horizon’s Government Affairs Coordinator and former Ag Relationship Manager, Tyler Majchrzak. Write down some core ideas and then schedule time to complete sections of the initial plan, including soliciting any outside guidance. Once you’ve finished your draft, share it with your family and others who provided suggestions.

Typical business plans include the following seven sections, and for a beginning farmer, each section can usually be covered in a single page or less.

Executive summary

This is the most important section of the business plan, and although it’s the first page someone will read, it’s the last you should write. The executive summary should provide a succinct overview of the entire plan, including a summary of each section highlighting the most relevant and impactful information. 

Company description

Explain what and how much you produce and farm, how you market and who you sell to. Describe farming methods and philosophy, any conservation plans in place or other distinguishing features of your product, your farm, your family or your operation. Include addresses and descriptions of all assets, including farms, structures and equipment. 

Products and services

Describe the products and services you’re currently selling, including any value-added processing or packaging. Explain your sales and distribution channels, and detail future plans for expansion or diversification. Touch on any risk management solutions you have in place, including diversification of income streams. 

Marketing plan

Identify your customers and target market, including the overall potential market. Describe your approach to pricing and distribution and explain how you’ll promote your products and services to your audience, such as point of sale, social media, signage, special events or promotions, and any paid advertising.

Organization and management

Describe how your business is organized, and list the names, roles and backgrounds of all the key players. Include the number and type of employees, including seasonal labor, or define the point at which you’ll start hiring them. 

Financial information

Start with a short write up of your current assets and liabilities, long-term assets and liabilities, and what you owe in next year. Include a balance sheet and income statement, along with projections for the coming year. Explain anything unusual or significant, including other sources of income. Include key financial ratios and any relevant trend information.

Appendices 

Include supplemental information that supports your plan, such as articles of incorporation, detailed asset list, permits and certifications.

“It’s a good idea to be as specific and as realistic as possible when creating your business plan so it becomes the effective tool it’s meant to be – both for you and for any lender or potential partner you may approach in the future,” Majchrzak says. “Then, of course, the key is to remember to refer to the plan when making decisions and to review it regularly.”

Already operating but don’t have a plan? That’s OK! It’s never too late to put some extra thought into how your operation will continue to fulfill your livelihood.

If you’re a beginning farmer looking for assistance in developing a business plan, there are plenty of resources to tap into, including your local Farm Credit branch, extension agent or the U.S. Department of Agriculture’s New Farmers website.

Sources:
Amy Rowe, Senior Ag Relationship Manager, Horizon Farm Credit
Tyler Majchrzak, Government Affairs Coordinator, Horizon Farm Credit