Step 5: Business planning (Part 1 of 2)
Introduce your business plan to your transition plan – they need to talk
For this next step towards transition, focus on how a business plan fits into the process. It can be a tough sell. Many farms have been successful without ever writing one. Operational decisions are made daily on the fly and experience comes into play. No one has ever asked for a business plan before, and the farm continues to grow and prosper. So why would anyone take the time and effort to create one?
Any introductory business course will emphasize the need for a business plan, and all the reasons why are valid. But we’re talking about transition in this series, and one of the most important tests for a transition plan is that it matches the business plan.
Don’t be intimidated if you don’t have a business plan. If you’ve worked through Steps 1 to 4 in this series, you’ve already gathered much of the information needed. For transition, just focus on the parts that impact how the transition will proceed.
What does a business plan have to do with transition?
You need a business plan because farm transitions are complicated. They involve family and emotions and money, but at the centre, is a business that may cause complexities and challenges for transition.
A transition plan means change for the family and the business. Short-term, a business plan can be as simple as do what the senior generation did. But eventually, the business and transition plan must address retirement for the senior generation and the need for the younger generation to progress.
With a business plan, there may be different opinions about how the business is currently run and how it should be run for optimal performance. There’s truth to the saying “failure to plan is planning to fail.”
Tonight’s homework: Read, Writing a because I love you list and start writing your own.
Think of all the things you do in a day, a week, a year. If something unforeseen happened, could someone step into your shoes tomorrow and keep the lights on until they figure out how to make the farm operate on their own?
Write down all the passwords related to the business. Give your spouse your mobile phone password and any other keys – physical or virtual – to the farm. Do this today and keep it current.
Plan is not a four-letter word
Creating a plan is a significant hurdle to clear towards transition. No matter what happens to the farm – whether it is sold or changes direction or scale – it’s going to take a team and a family all buying into a plan to make the dreams come true.
The transition plan helps you and your family reach goals as the operation shifts due to retirement or changes to the business structure and ownership. A business plan creates an outline of how the business can be run optimally. It provides a roadmap to set priorities, secure financing and manage future growth to propel the transition plan forward.
And your transition and business plans must mesh.
If the transition plan is for the senior generation to retire, but continue to draw income from the farm, does the business plan allow for this? Is there enough revenue to support it?
Maybe past business plans relied on off-farm income, but the transition plan has mom and dad staying on the farm but not working and managing it. If the plan is for the child to leave their off-farm job to work full-time on the farm, does the business plan address this? Is the farm generating enough income to allow for this transition scenario?
This is why a business plan is essential for a successful transition. Making plans compatible forces a structured and honest conversation to ensure that the business can support the transition. One or both plans may have to evolve to make it all come together.
If you don’t have a business plan, write one. With all the steps on the transition pathway, a simple start with the basic information is a huge step forward. If you already have one, look it over and consider what needs to happen to accommodate your farm transition goals.
The business plan format
There are standard business plan templates that you can follow, but the information should be presented in a concise and logical way and serve your needs for transition planning. Any plan must make sense to you, your family and key people in your business.
A business plan template can be divided into three main parts:
- Introduction: One-page summary that covers background information for the company and includes goals and objectives.
- Internal analysis: A snapshot of how the business is run currently, considering challenges and future potential.
- External analysis: Considers the threats and opportunities that exist in the market and the strategies to address them.
Your business plan should answer the question, “Why?”
With every step, ask yourself why. Why have we decided on these goals? Why have we operated this way in the past? Why do we have these employees in these key roles?
Sometimes it’s easier to answer “what” than “why.” You might know what products and services you offer, but a business plan is good at teasing out the answer to the question “why?”
An example: The business plan identifies the practice of owning all equipment used on the farm, regardless of how much or little it’s used during a growing season. Why is this the case? Leasing equipment or hiring custom work services are options. Why have these choices not been investigated?
Creating the business plan leads management and family to review an ingrained practice and either validate it or look to change it. If the answer to the question “why” doesn’t come easy or doesn’t sit well, it’s telling you something - and makes the process worthwhile.
In Part 1, we discussed what a business plan is and why it’s important. In Part 2, we break down a business plan into its key elements with advice on what to include in each section.