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Advantages of a Business Plan for Small Farm Operations

Posted Feb. 1, 2010

Small farms should manage their operations similarly to larger agricultural enterprises to ensure long-term sustainability. To achieve this goal, substantial planning and development of a comprehensive business plan is key. A business plan is a written document that should be updated periodically. It defines the business goals, outlines reasons why these goals are attainable and details a plan for reaching these goals.

Small farms are susceptible to unexpected changes in output and input prices as well as other factors influencing their bottom line (e.g., losses due to adverse weather conditions). Small farm managers should develop and follow a business plan to better use the scarce resources (e.g., land, labor and time) needed to develop a profitable farm or ranch operation. Oftentimes, the action-oriented producer is tempted to skip the planning stage and focus on daily production activities. Even though a "getting the job done" attitude is needed, investment without planning is a risky venture.

Business plan development requires an initial commitment of time by the farm operator; however, the long-term benefits to the business are worth the effort. A sound business plan is necessary to obtain loans and secure appropriate interest rates. It is also viewed as evidence that your operation qualifies as a business with the intent to make a profit. Developing a comprehensive business plan can also help identify markets to attract new customers and increase overall demand and income.

According to the Small Business Administration (SBA), a business plan is an individualized document defining strategies needed to reach the goal of profitability. The SBA recommends that each basic plan include the following components:

  1. Description of Business - The plan should include the mission statement, vision for the future, goals and objectives. This section should tell the story of what the business is, what it stands for and where you see the business in the future.
  2. Marketing Plan - This section is an analysis of consumer needs. Operators should identify the business' customers, specific needs to be met and how those needs are expected to change over time. This section includes a description of the products and services available, advertising strategies and ways to remain competitive in a changing marketplace.
  3. Financial Management Analysis - The plan should include details of the business' current financial portfolio and foreseeable future income and expense. Agricultural producers should record expenses and income by enterprise (e.g., cow-calf, wheat, etc.) to determine the agricultural enterprise most suited for the available resources. Detailed production records and labor should also be recorded. More formal documents may be included, such as loan applications, equipment and inventory lists, breakeven projections, a balance sheet and a cash flow statement. Start-up businesses commonly do not have such records, but are expected to provide estimates.
  4. Organization and Management - This final component should describe the type of business ownership along with key personnel, their duties and the flow of operations. This section will include items not typically associated with daily agricultural production activities such as insurance, taxes, permits/licensing, employee management, estate planning and other legal concerns.

One should also review the businesses' strengths, weaknesses, opportunities and threats (SWOT) when developing a business plan. This strategic planning tool allows the operator to determine both internal qualities (strengths and weaknesses) and external factors (opportunities and threats) that may influence business performance. The SWOT analysis may be in bullet-point format and can be a good place to start for development of a new business plan.

A business plan is an invaluable tool that helps keep a producer on track to reach agricultural business goals. Whether you raise cattle, grow produce or something in between, it is an agricultural business. When treated as such, a well thought out business plan can be the key step in building a successful and sustainable farm or ranch.