Step 5: Business planning (Part 2 of 2)
Breaking down the business plan
Part 1 - Introductory components
One-page executive summary
Successful businesspeople will often ask for your elevator pitch. They know that if you can explain your business proposal in a two or three-minute summary, you’ve fully thought things through.
- Write this part last. This might be the most important part of the plan so do the hard thinking first and work through the other components listed below.
- Make it concise and positive. Describe who you are, your business, the products or services you’re offering, your target market and some basic financial information. Refer to discussions you’ve already had and include goals, objectives and where you’re going as a business.
Goals and objectives
Business goals describe what you want to achieve. If you can accurately express your vision and have everyone read it and buy-in, you’ll be pulling in the same direction. Talk it through as a team and address the feedback to fine-tune this section.
- This is where the work you’ve done in your transition plan will have the most impact on your business plan.
- Go back and read Step 3 - Family values, vision and goals. Your vision of the future directly influences your farm business goals.
- Goals are the target and key strategies for the next three years. Objectives are the specific steps you’ll take to get there.
- If you can’t describe your goals and vision for the future in a way everyone understands and with enough detail that it matters, start the process again.
Company background or history
You might be surprised who ends up reading your business plan, so write it as though the reader knows nothing about your farm. The history section allows you to tell a story that sets the stage for the rest of the plan.
- Start with the obvious – where and when the farm was founded. But don’t get bogged down in family lore or minute details. The primary objective is to give everyone a sense of how the farm got to where it’s at today. This is helpful for the upcoming generation and for the transition team (lawyer, accountant, lenders) who may not know the background story.
- Include the business ventures that worked out and those that did not. Briefly explain why major decisions were made and the outcomes.
- Indicate when major assets like land, quota and major equipment purchases were made.
Part 2 - Internal analysis
After completing the introductory elements, it’s time to describe the internal workings of the operation, such as who owns the farm, how it operates, and whether the land is rented or owned.
Ownership, management and HR
Tragedy or unforeseen events can strike at any time. Spelling out ownership, management hierarchy and HR policies give everyone a sense of peace. And having it written down in a straightforward way is important. It will be a go-to resource and helps inform the transition plan.
- First question to answer - who owns the business, including the assets. It might be easier to plot ownership on a timeline if you’re in the middle of a transition, describing how ownership is slated to change over the next year or more.
- If there are multiple owners, describe the ownership structure. Are assets held by a corporation or individuals? Provide an indication of assets that are owned outright and those still being paid for.
People who review your business plan need to know who is at the helm and what bench strength they have around them. Don’t skip over holes in skills or training that is lacking. If you know that you really need a full-time mechanic, show that the plan is in place to fill the gap.
Describe who is on your core management team, including their experience, capabilities and the management structure surrounding the team. Consider any outside advisors that have a role in the management of the business. Write a paragraph introducing each member of the core team.
Here are some topics to consider when documenting the human resources section of your business plan:
- Recruitment of new staff
- Hiring process
- Performance monitoring/management
- Training and skills development for both management and employees
- Compensation determination for new and long-time employees
- Health and safety
It could be that up to now, hiring and firing employees was done ad hoc and without a plan. Going forward, a professional and consistent approach to human resources is essential. Use the transition and business plan process to make this a priority.
Financial position and projections
It’s easy to pull numbers out of the sky and paint a rosy picture of the past and future. For a business plan to be of value, the current and projected numbers need to be based on reality. This section is where the rubber hits the road.
- Provide an accurate snapshot of the current financial picture and projections, no matter where it takes the conversation. Done properly, this section will show that both the business and transition plan is reasonable and financially attainable.
- People have a way of subsidizing farms with off-farm income. It’s important that family members see the reality of the farm business financial data in black and white. Seeing the numbers could inspire some creative ideas that could be just what the farm needs to enable the next generation.
- There are many key indicators that should be in this section. Refer to Step 2 - Assessing transition readiness for a list of basic financial documents and ratio calculations that show the current and future health of a business. The income statement, balance sheet and cash flow statement are the starting point. If the financial section intimidates you, have your accountant help you work through it.
A good business plan will include the following:
- A basic description of the model for profitability (how does the farm make money?)
- Is the farm reliant on off-farm income?
- Current financial position
- Past financial performance
- Past financial decisions and the outcomes
- Expected financial performance into the future
- Financial management skills and capabilities of the business owners and management team
Part 3 - External analysis
This section of the plan considers the many external factors that will impact the farm business. Many of these cannot be controlled by the business. Some examples include interest rates, currency valuation, asset values, weather, consumer demand shifts and geopolitical events. Working through this section will help you identify and include exposure to risk from external factors and the opportunities for growth or improved business performance in the plan.
It’s likely that the senior generation has been operating in a specific sector of agriculture for long enough to have gained some valuable insights. Capture that knowledge and surround it with facts and figures to summarize where the sector is currently and where it’s going in the future.
- Start by painting a picture of the overall condition and outlook for the industry you’re in. Consider the economic trends that could affect your operation in the years ahead.
- Don’t just rely on your gut instinct or what your neighbour is saying. Life experience matters, but objective trends backed by solid numbers carry a lot of weight.
- Use public research or commodity boards/associations to understand the forces at work in specific sectors. If credible sources show a trend predicting a 20% increase in demand for your product over the next five years, that should be included in the business plan. If trends are not as rosy, that should be noted as well.
Assess your product, target market, and the competition
- Many business plans will go beyond what has been presented here. The level of detail and the scope of your business plan is up to you. It will depend on the type of operation and the nature of the transition plan. Assessing the financial realities of what the farm currently produces and crunching numbers on new business opportunities can help shape the path forward.
- Most non-farm business plans will include analysis and identification of the target market for the products and services offered. This may not apply to every farm, but if you are looking to sell directly to consumers, don’t skip this step.
- Keep an eye on the competition and be realistic about your ability to succeed. If your plan is to start an on-farm retail store for produce, but there are already two similar businesses in your area, your business plan needs to address how you can be viable in that space
Your business plan should continually be evolving
Don’t put your business plan on the shelf a week after you write it. It should be viewed as a complement to the transition plan. Use it to drive your decisions relating to advancing the business and optimizing the transition process. Going through the exercise of creating the plan will almost certainly identify some weak spots in your business operation and potentially steer you towards how to address them. Have some trusted advisors read your plan to map out ways to improve it.