BUSINESS PLANNING FOR BETTER RISK MANAGEMENT

2013 Extension Risk Management Education National Conference

Winifred W. McGee, Senior Extension EducatorLynn F. Kime, Senior Extension Associate

Why Proactive Farm Management?Farmers need to look “down the road”• Existence of an expanded marketplace– Contracts– Direct marketing– Global competition

• More technology/complexity in production• Increasing impact of regulations• Economic roller coasters

Roles of Farm Business Planning• Putting thoughts in writing• Defines goals and objectives• Defines values and mission• Organizes the research needed• Shares the vision with others– Family/partners– Advisors– Lender

Research Data on Written Plans• 90% of lenders require a written business plan to

make a loan.• Farmers and business plans– <20% have written plans– ¼ of those having plans don’t use them

• Business plans are essential if you are– Seeking to improve profits and efficiency– attempting to secure financing or equity capital

Source: Business Planning Blues Part I, Dr. David M. Kohl. Business and Economy Trends. Ag Choice Farm Credit Website. February 18, 2011.

Many Uses for a Plan• Strategic Planning • Marketing• Expansion• Contingency Planning• Obtain Financing

Plans for Starting to Farm• Establishment of a traditional, or alternative

agricultural venture• Identification of– management tasks – financing options

• Ensure that daily actions are compatible with long-term personal, environmental, economic, and community values

By looking ahead, pre-venture,Address all five areas of risk:• Market – Level of demand/marketing venues• Financial – Investment needed/potential ROA• Production – Skills/equipment/variables• Human Resource – Involve family/partners• Legal – Licenses & permits/regulations

Visualize before action!

Not Just for Start-ups!Experienced producers use written plans to make decisions in a better-informed way:– add value to the existing operation through• product processing -- cooperative marketing • direct sales

– explore market options– map out a transition on the farm– incorporate more family members/partners– transfer or sell the business

Plans for Existing FarmsAddress all five areas of risk:• Market – Direct Sales/Consumer Expectations• Financial – Pro forma Budgets/Insurance• Production – Visualize processes/products• Human Resource – Involve family/advisors• Legal – Licenses & permits/environmental

and food safety regulationsRetrofitting and enhancing for profitability/

sustainability!

Educational OpportunitiesSeven Penn State Extension Workshops support agricultural entrepreneurship:– Exploring the Small Farm Dream

– Your Future in Focus– Annie’s Project– Food for Profit– Managing Risk for Food Businesses– Farm Sense– Farm Transitions

Objectives of Your Future in Focus• To challenge participants to farm

proactively• To draft a written business plan• To establish communication/

networks– Professional service and support– Family & partners– Other owners

Your Future in FocusBusiness planning, step-by-step– Defining the business mission/vision/values– Setting goals and objectives– Research, resources and tools– Business strategies– Marketing/promotion– Financial management– Financing options– Implementing and updating the plan

Your Future in Focus Features• Peer-reviewed text– Step-by-step plan development– “Case study families”– Real-life sample sections

• In-class applications– Guest speakers– Worksheets– Tie to UMN AgPlan on-line tool

Pilot Sessions for the Curriculum• Lancaster – 9 evenings

(Jan – Mar 2009) 9 participants

• Montrose -- 5 days (Jan – Mar 2009) 7 participants

• Gettysburg – 5 days (Jan – Mar 2010) 5 participants

Pilot Project Impacts• 17 of 21 participants completed post-survey• Carry out an entrepreneurial self-assessment– 15 had done so– 1 “not yet”– 1 N/A (decided not to go into business)

• Written mission statement – 15 crafted a business mission description– 10 of the 15 had used the mission statement to define

their enterprise goals and objectives

37%

13%

38%

6% 6%

Selection of Business Structure

Sole Proprietor Corporation (S- or C-)

LLC Non-Profit

Not Sure

0

5

10

15

Defined product &

market

Defined product

No definite product

Progress Toward Direct Marketing

Business Planning Steps Reported• Identifying target market– 8 asserted demographics were robust– 2 intended to do the research– 6 not sure about demographics

• Identifying applicable regulations– 9 (53%) learned about appropriate

rules/standards from class guest speakers

27%

14%

8%24%

22% 3% 2%

Sources of Information for the Plan

Internet Browsing On-line Library

Print Library Observation

Prof Associations Focus Groups

Apprenticeship

Generate break eve

n

Create enterprise budget

Calculate/u

se ra

tios

0

5

10

15

Making and Using Accurate Financials

149

6 6 8 8 10

1

Members of Advisory Committees

Long-term Impact – Success Stories• Second generation integration– Strack’s Tree Farm

• New enterprise development– Ladys’ Center Mills Farm, LLC

• Reinventing a farm– Lindenhof Farm, LLC

• Mentoring business plan development– Patches Family Creamery

Stracks Tree Farm

Ladys’ Center Mills Farm, LLC

Lindenhof Farm, LLC

Patches Family Creamery

Building an Enterprise Plan

• Time investment• Written down• Networking with others• Think things through• PLAN FOR SUCCESS