Writing a farm business plan is no easy feat. Whether you take the do-it-yourself route or hire an advisor to guide you through the process, the analysis, the tough conversations and the forward thinking add up to a significant investment in time and resources.
Then, when your newly written business plan is nearing completion, the final stage may leave you thinking: Now what?
You’ve heard the promises, but how can this document actually reduce stress and improve performance? And how can it stay relevant in an environment of fluctuating markets and other unforeseen challenges?
Heather Watson, executive director of Farm Management Canada, warns that the process of creating a new plan isn’t over until details of daily operations for the coming year are addressed. Depending on the style of template used, this information may already be included within the business plan. If not, an operating plan should be developed and written down.
“While your business plan sets out the ‘what’ and ‘why,’ your operational plan details the ‘how,’” says Watson. “If one of your goals is to increase your marketing performance, the operational plan outlines how you will achieve this in practical terms, including who will be responsible, what their tasks will look like and when the tasks will be performed.”
Ready? Set? Go!
Once your business strategies have been linked to operational tasks, Watson recommends setting up a meeting with your farm management team to launch the plan and put it into action. The agenda can include reviewing the plan and, also, discussing priority items, timelines, performance goals, and responsibilities and accountabilities. Now, it’s time to act.
But even with the best of intentions, it is easy to get caught up in the daily activities of working in the farm business and miss the mark in terms of working on the business. Establishing mechanisms to track performance and progress against the plan on a regular basis is key.
For farmers who are new to business planning, a yearly meeting to measure goals against annual performance is often a first step. Ideally, Watson recommends adding a structure of weekly management meetings to review the operational plan and quarterly meetings to review operational progress against the business plan.
Monitoring key metrics
Andrea De Groot, who farms hogs and crops with her husband Mike near Stratford, Ont., has learned that defining deliberate areas of focus is critical when developing business performance measures.
“You can’t set a goal around every single metric within your business or your full-time job would become just trying to manage those numbers,” says De Groot. “That is not realistic. It’s important to take a step back, determine which metrics you want to focus on, and then keep a closer eye on them to really understand the fluctuations.”
De Groot, who is also an agriculture transition specialist with Farm Credit Canada, records the specific production and financial metrics that she and Mike want to focus on in their business plan. To aid in monitoring performance, they determine an expected range — or a range of comfort — for each metric.
“We produce month-by-month cash-flow statements and use our predetermined ranges to analyze the data quarterly. When things change significantly from expectations, meaning we get outside of that range, we know we have to put some energy into understanding the change or possibly step in and make some management decisions to adjust what we’re doing,” she says.
The first year of this routine can be challenging but after the second or third year of business planning, De Groot says it becomes easier to understand sways in the numbers. “You’ll learn what your drivers are and what kind of variance is to be expected throughout the year so you’re not chasing every number or responding to every small change.”
Intentional annual meetings
Following the fiscal year-end of their farm business, the De Groots schedule meeting time with the specific intention of reviewing the year’s events and evaluating the progress made towards their goals. But the review process is not just about where they went wrong.
“Farming can be very humbling but some things are within your control and dependent on your management decisions, so it is important to look for and recognize some good things that happened during the year,” says De Groot.
If they were unsuccessful in meeting any of their objectives, her first question is whether the circumstances that changed were inside or outside of their control as managers.
In 2020, for example, the COVID-19 pandemic had a significant impact on their business for a short period of time while processing plants were closed. The backup of market hogs altered their production flow and the changes they made in response were reflected in their financial results that quarter.
Since the processing delays were completely outside of their control, this situation and their related management decisions may be discussed at their year-end meeting but will not necessarily translate into an area for improvement.
De Groot finds it beneficial to assess performance as soon after year-end as possible so the production data and financial ratio analysis is current. This means using internal financial records as the basis for the annual review, as opposed to waiting for accountant-prepared statements which may not be completed until well into the next year.
“An annual meeting is a way of evaluating the performance of the farm in terms of people, production and profit,” explains Watson. “It is ultimately a chance to celebrate successes, identify areas for improvement to include in next year’s plan, and create buy-in for continued success among the farm family and management team.”
Continuing the planning cycle
After reviewing how the farm’s performance stacked up against the written plan, it is time to start the business planning cycle over again for the coming year. This process includes reassessing opportunities and challenges to ensure new and existing business goals align with the changing business environment and reality of the farm.
Farm advisors typically recommend business plans and operating plans be refreshed annually, with the strategic plan or vision moving three to five years out from each annual plan.
“Business planning should not be a practice you do once,” says De Groot. “It should be a continual process that evolves over time. As you get more comfortable with your business plan, you’re going to add more complexity to it. It’s a living document that can change as your operation changes but also as your level of management changes.”