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THE FARM BUSINESS PLAN

Trish Murphy

NSW Department of Agriculture. Wagga Wagga. 2650

Introduction

"The future is not inevitable. We can influence it, if we know what we want it to be."

- Charles Handy

The aim of developing a business plan is to help you strive towards the opportunities of tomorrow. It is a process used by those who aim for continued improvement and for those who wish to make more of better things, with less resource, less cost and less human effort. Business plans help maintain the difference between mediocrity and superiority. That is why we are here, isn't it?

To strive towards the opportunities of tomorrow, we need to understand change. Change is not what it used to be. The status quo will no longer be the way forward. Those who realise where changes are heading are better able to use changes to their own advantage.

That is why the theme of today's conference is so relevant. We need to spend time in the office researching, networking, learning to realise where change is heading; we then need to take this two steps further turning this knowledge to our advantage by planning and doing.

Charles Handy, in his book The Age of Unreason, quotes the story of a frog in water.

If we put a frog in a bowl of water and slowly heat it, it will not move, slowly letting itself be boiled alive. If we put a frog in a bowl of boiling water it will immediately jump out.

To embrace change means to completely rethink the way we do things. One of the ways to stand back and rethink is to prepare a business plan.

Do we always need a painful jolt to start re-thinking? Did the Titanic need to sink before it became compulsory for ships to carry enough life rafts for all passengers? Why is it that I see so many businesses preparing their first business plan just as they are about to hit the wall?

Preparing a farm business plan helps us to anticipate problems and decide how to handle them.

What is Farm Business Planning?

So, that brings us to the question - what is farm business planning and how do we do it? Farm business planning involves a process of thinking how you want the farm to develop and how you will provide the resources to achieve that development; a process integrating natural resource management, production objectives and economics into a plan consistant with family goals. In other words it is a strategic plan that shows the direction of the farm business, what you want to do, how you will do it, and when it will happen.

Effective business planning is not a series of brilliant decisions. In preparing a business plan we need to be open to new ideas. thinking the unthinkable is a way of getting the wheel of learning moving. Ideas can change your business. In preparing business plans it is vital we listen to these ideas and ask ourselves why not? Preparing a business plan is a little like brainstorming - it is easy to think of a violent objection to every idea; it may be harder, but it is more exciting to listen and ask why not?

The Planning Process

There are many approaches or models for planning. One such example can be depicted as follows:

Defining

the situation

ŕ

Planning

ýţ

Evaluating Acting

Ű Ý

Monitoring

The five important areas in the planning process can be described as:

1. Defining the Situation: Determining the current situation of the business. The process forces us to gather all the financial, physical and personal information together, putting it into a more useable format.

2. Planning: Thinking what you want to achieve and how you would like to do it. A farm business plan should provide us with a well thought out direction to focus on.

3. Acting: Doing what you have planned.

4. Monitoring: Measuring the outcomes from acting out your plans. Planning provides a benchmark against which you can measure, compare and evaluate performance.

5. Evaluating: Analysing the impact of carrying out the plan. How has the situation changed?

Expanding this model to incorporate an additional four specific stages, we have the following:

Defining the situation

ŕ

Strategic Planning

­Defining a vision

ý ­Obstacles

­Strategies

Evaluating ­Action Plans

ţ

Ű Acting

Monitoring Ý

1. Defining a vision: What would you like to see in place in your farm business in the future? A vision should be challenging, exciting, concrete and specific enough so that you can picture it. Above all, it must be attainable.

2. Obstacles: What are the obstacles or barriers that currently exist which prevent your vision becoming a reality?

3. Strategies: What are the strategies you could put in place to overcome the current obstacles that prevent your vision becoming a reality?

4. Action Plans: What specific actions will need to be done to implement the strategies?

a. Who will do them?

b. When will they do them?

The reason I particularly like this model for planning is because by defining our vision it is encouraging our ideas: by looking at the obstacles it forces us to ask ourselves why not? If we can overcome our obstacles via developing strategies then there is nothing to stop our ideas becoming a reality. All that is left to happen is to go out and get on with the job.

Let us have a look at some tips you might consider when undertaking your farm business plan.

Firstly, and let me emphasise it again, be prepared to challenge your previous thinking.

Secondly, the process will only work if you are honest and realistic with yourself and those involved in the planning process.

Thirdly, never do a business plan by yourself. Involve all key players - the best ideas may come from others. Encouraging contribution will encourage commitment to the plan. Do not be afraid to seek help from others, e.g. consultants, accountants, facilitators - a broad perspective may be very useful.

Fourthly, consider the personal goals of everyone involved in the farm business. Otherwise, instead of pushing the farm business in the same direction, you could each be unknowingly pulling the business in different directions and going nowhere.

Additional Uses for Your Farm Business Plan

Having taken the time to prepare a business plan, primarily for yourselves and thus establishing the basis of comparative advantage for your business, do not discard some of the other potential uses now you have a documented plan. Let us look at some of those.

A fully documented business plan is a good tool to convince other people of what you are doing. It is a document which can indicate ability, commitment and dedication. It can be used as a marketing tool to establish relationships showing, for example, feedlots and woolmills that you are strategically planning and have the mechanisms in place to deliver the products they want.

Sharing your business plans will enable more effective advice to be obtained from solicitors, consultants, agronomists. They will understand where you are going and will ensure suggestions and advice are compatible with your long term goals.

A business plan is a tool which can be used to attract financial backers or equity partners. Increasingly, business plans are becoming a tool for banks, lenders and other parties to effectively evaluate the economic viability of a business, projected growth path or likely possibility of success.

It is, however, important that when using your business plan for these additional reasons that its form follows its function. The presentation of your business plan may take an entirely different format to the process used to derive it.

Presenting Your Farm Business Plan

Given the emphasis the banking sector is currently placing on business plans, and their potential to influence risk ratings and hence the margins we pay, I would like to suggest some of the broad areas you may like to include when presenting a business plan as part of an application for finance. However, a word of caution - the aim is to shift the emphasis of your business plan as needed for presentation purposes. It is not about changing content which would lead to an unbalanced view and lack of continuity. For example, you might choose to bolster the definition of your situation with photographs; or include specific financial indicators; summarise sections of lessor importance to the financier.

A presentation format for your business plan may include the following topics:

• Executive Summary

• Vision Statement

• Management Profile

• Enterprise Plans

• Physicals Plans

• Development Plans

• Marketing Plans

• Succession Plans

Financial Plans

The last thing I want to do is give you the "magic recipe" because there isn't one. The above list is by no means exhaustive. The challenge is that you tie each component together to ensure they are all working towards the same goal.

What is the role of NSW Agriculture in Farm Business Planning?

NSW Agriculture, has joined forces with the Department of Land and Water Conservation and the National Parks and Wildlife Service, under a program entitled 'Farming for the Future' to offer workshops to groups of landholders with the broad aim of increasing landholder sustainability in conjunction with economic viability. The workshops are designed to help make planning easier, with an underlying theme of integrating natural resource management, production objectives and economics into a plan consistent with family business goals. To find out more about these workshops contact your local Farming for the Future representative.

Conclusion

I would like to ask if you can relate to the following quote:

"It's incredibly easy to get caught up in an activity trip, in the busy-ness of life, to work harder and harder at climbing the ladder of success only to discover it's leaning against the wrong wall. It is possible to be busy - very busy without being effective."

(Stephen Covey, 1989)

Developing a farm business plan helps us to ensure the ladder is leaning against the right wall; the right wall of the right building. Preparing a business plan provides a process to evaluate the things we do in relation to our goals, maximising our chance of being effective.

To my way of thinking success is not related to the amount of labour put into agriculture. To my way of thinking comparative advantage in agriculture will come down to brains - clever people producing clever things with fewer resources for more reward. Clever farm businesses or organisations will spend much of their time handling information and planning for change. By anticipating change rather than reacting to it we will ensure that we jump from the boiling water rather than let ourselves be boiled alive.

References

1. Duffy, T., Murphy, P. and George, D. (1995). A facilitator's guide to a workshop on farm business planning.

2. Handy, C. (1989). The Age of Unreason. Arrow Books.

3. McGuckian, N. and Stephens, M. (1991). The why and how of constructing a five year business plan.

4. Sampson, D. (1988). Preparing a farm business plan. National Industry Extension Service Publication.

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