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How to Write your Farm Business Plan

Date: 
Author: 
Paul Dietmann
Educational Opportunities: 
Articles
Interests: 
Grain, Dairy, Swine, Beef, Young, Beginning Farmers, Specialty Industries
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Most farms have a business plan, it just isn’t written down anywhere.  If we all know the plan, why do we need to write it down?

A written business plan is an excellent tool for both on-farm and off-farm use. On-farm, it’s a place for all of the farm’s stakeholders to pull together their accomplishments, goals and aspirations for the farm operation, and to create a roadmap for the future. Off-farm, it can be used to obtain funding to implement the plan.

The process of writing a business plan can be daunting. Where do we begin? What information should we include or exclude? How long should it be? How will we know when it’s done?

In this article, we’ll walk through the six basic parts of a farm business plan and explain what information is needed to complete each section. It helps to keep in mind though, that the business plan is never really completed. It’s meant to be a living document that changes as the environment in which the farm operates changes. Make sure to download our free business plan template to use as a reference as we walk through the six parts.

The six parts of a farm business plan are:
Executive Summary – It’s the first piece that appears in a business plan but should be the last part you write.  It’s essentially the cover letter of the plan. It should be short, no longer than one page, and serve as a summary of the rest of the plan.

Business Description – This is where you start writing, and it should be the easiest part. The business description is just a brief overview of the farm. Where is it located? Who owns and operates it? How many acres are owned or rented? What are the facilities like? What is the history of the farm, and what are some of the milestones achieved? You don’t have to get too detailed in this section; we’ll go deeper as we move ahead.

Operations – This is the section where we dig deep. For a farm that primarily grows and markets commodities, the operations section will likely be the longest part of the business plan. What products or services does your farm offer? Describe your production systems and how they are unique. Talk about production and marketing risks, and how you manage risks. Explain your plans for improvement and expansion over time. Sketch out a timeline for implementation of the business plan.

Marketing Plan – In this section you’ll describe the broad market trends impacting your segment of agriculture and where your farm fits. Include historic and projected sales data for your major products. If you’re selling commodities, where is your production going and how is it being priced. If you are selling value-added Ag products, who are your target customers? How are you pricing, promoting and distributing your products? 

Management and Organization – This is the section where you’ll describe the farm’s business management.  Is the farm organized as a sole proprietorship, partnership, LLC or corporation?  Who are the members of the farm’s management team? What knowledge, training, skills, and talents do they bring to the team that enhance the farm’s success? Who are the key outside advisors that add value to the business such as accountants, lenders, veterinarians, crop or nutrition consultants, extension agents, or others?

Financial Plan – This is a particularly important section if the farm is planning to present the plan to a potential lender. At minimum, include a current balance sheet, month-by-month cash flow projections, detailed notes to back up the cash flow projections, a projected Profit & Loss (P&L) statement for the next calendar year, and a summary of the financing request. It’s ideal to have historic balance sheets as of January 1 each year and projected balance sheets for two or three years in the future, in addition to cash flow projections and/or projected P&Ls for the next two or three years.

The business plan can be as brief or as long as you would like it to be.  A “lean” business plan may only be two pages long. Some plans run hundreds of pages, which is way too long. If you’re presenting the plan to a potential lender, try to keep it concise; no longer than 15-20 pages at the most. If you need to add more detailed information, attach it to the back of the plan as an appendix. A lender will typically read the Executive Summary, scrutinize the Financial Plan, and then skim through the rest of the document. Make sure your financing request is clear in both the Executive Summary and the Financial Plan sections.

It’s important when writing a business plan to be brutally honest with yourself about the potential risks your farm might face as the plan is implemented. Have someone who is not involved in the management of the farm read through the plan and give you an honest risk assessment. It’s much cheaper to fix a miscalculation in the business plan than it is to deal with it after implementation.

There is good help available to you as you develop your business plan. Most areas of the country have a Small Business Development Center (SBDC) staffed with business planning experts who can provide free assistance.  The Service Corps of Retired Executives (SCORE) is a network of dedicated, experienced professionals who can provide advice and mentoring on various aspects of your business plan. The University of Minnesota has a business plan writing tool called AgPlan that is available online for free.

The hardest part of writing a farm business plan is often just forcing yourself to sit down and pound out the first few words. Remember that the plan isn’t set in stone. It’s easy to modify and is meant to be changed along the way. Follow the guidelines above and you’ll have it sketched out in no time. You might even find it to be fun!
 
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