Planning Is Not Optional

Less than 45% of family farm businesses stick to a detailed budget and that less than 29% of farm businesses have a written business plan.

Farmers are too busy farming and don’t have time to plan, yet all the “experts” call for it and complicate things further by calling everything a farmer has to do as “planning”.  Strategic planning, operational planning, marketing plans, business planning, estate planning, family planning, retirement planning.  Whoa!

All I know is…Planning Is Not Optional.

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Our experience with clients reveals that above-average performing family farm operations strongly believe in, plan for and find value in all the various types of planning.  It pays dividends, helps relieve worry about the future and frankly, has more impact on your business than almost any other managerial function.  Can it be overwhelming?  Indeed.  Does it take time?  Of course!  A key to effective planning is to understand how the various planning tasks fit into the overall management of your family business.

Let’s review some basic concepts and simplify a few areas.  Planning activities are generally categorized into one of two buckets:  operational and strategic.  Operational Planning deals with more day-to-day activities…the who, what and when.  Strategic Planning is more longer-term focused and deals with the overall methodology of your business…the how and the why.

Operational Planning is focused on the production cycle which is typically recurring on an annual basis.  Sure, some crops are different, but the general idea is that operational planning usually has some sort of associated time-table.  Operational Planning projects the financial implications of the series of decisions that you need to make about your production cycle, including:

• Production Planning – what are you growing or processing
  
• Marketing Planning – what is the plan for marketing/selling your products or service
  
• Capital Asset Planning – what equipment, buildings or improvements need to be bought or sold and when
  
• Cash-Flow Planning – what are your sources of cash for this production cycle – cash, credit, investors, etc.

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"Let our advance worrying become advance thinking and planning."

 - Winston Churchill

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Your properly prepared budgets and plans should uncover your credit requirements, whether you are able to service any debts and purchase/replace capital assets and what your profit/loss and the resulting working capital and other financial ratios.  In essence, your operational planning culminates with a 

• Cash Flow Budget
  
• Projected Income Statement
  
• Projected Balance Sheet  
  

Together, these key financial documents and their analysis benefits you by providing a way to recognize whether your operational plan meets your goals.  We are assuming here that you have the technology or ability to crunch these numbers in a less-than burdensome manner.  If not, a goal for next year might be to incorporate the proper software and systems in place to help with this type of budgeting.  Indeed, operational planning is intimately related to budgeting.

Aside from your operational plan needing to be monitored on a periodic basis, say monthly or quarterly, your plan needs to have some ability to make adjustments when necessary.  Additionally and what is often ignored in smaller family farm operations, getting your team involved in this process is important for few reasons:

• If someone has an area of responsibility, they should have a voice in “The Plan”.  Otherwise, it’s not their plan…it’s your plan.  Get them involved and they will have a vested interest.
  
• By knowing the overall plan, your team members can be more effective in their specific activities

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As you can imagine, the results of poor planning or planning that is random and irregular often result in a jumbled mess.  Key managers are left wondering about decisions and their impact on the overall business.  Priorities are misplaced usually resulting in inefficient use of assets, including cash, credit, equipment and labor.  Crisis planning becomes the standard way of operating the business.  No budget, no planning calendar, no consistent meetings for planning generate lost business opportunities, high stress and horribly inefficient and frustrating work.  Oh joy.  How fun is that?

Operational planning at least gives you a clue about what to expect.  If you don’t like what your planning reveals and its impact on your business, without planning, you are shooting in the dark.  Turn the lights on, survey the situation and change things so that your performance becomes more acceptable for the continued growth of your family farm

Next week we will explore specific project planning, setting priorities and introduce strategic (long-term) planning concepts and ideas.