Business plans. Everyone groans when they hear those words, pictures of late nights, long financial forms and tedious time-consuming work popping up in their heads. The reality, however, is far less imposing than it appears at first glance. A farm business plan is merely a tool by which farmers can assess their operations, evaluating risks and profits. By having a business plan, your agricultural lender can see at a glance how your operation stands financially and operationally, enabling him/her to make you loans in a more efficient manner.
In a nutshell, a business plan is an evaluation of a farm, on paper. It describes all aspects of an operation, showing how each feature is affecting the farm overall. A plan can be divided into six broad categories: an overview, a marketing plan, an employee plan (if applicable), a production plan, goals and a financial plan.
An overview will define the purpose of production, the history of the farm and organization of the farm (sole ownership, partnership, corporation, etc.).
The marketing plan outlines how the farm products are to be sold and the strategy behind doing so. For example, as a cattle operation, are you selling stocker calves or breeding stock? Where will you sell them? Who are your competitors? Do you advertise? How do you determine the value of your cattle?
For those farming operations that have employees, the employee plan shows how those employees fit into the organization of the farm. This could include number of employees, pay and benefits, training requirements, hiring procedures, and job descriptions and responsibilities.
A production plan is merely a summarization of the farming operation, which can be supplemented by pictures. How much land is owned and/or rented by the operation? Are there any buildings, and if so, are they owned/rented? Is any future construction planned? What type of equipment, major supplies are owned and used by the farm? Are there production schedules for the farm products? Is the operation subject to any regulations, inspections or other legal controls?
The goals section simply just indicates what goals you as the producer/owner anticipate achieving over time; new construction, more cattle, etc. The typical goal structure is divided into short term (a year or less), mid-term (two to five years) and long term (over five years) goals.
Tax returns, personal financial statements, cash flows, purchasing and sale schedules, and listings of liabilities and equity would be included in the financial plan. This is the information an ag lender will be most interested in. This information will show him/her how highly financed your operation is, how well you should be able to repay your loan, what is the best loan package that can be offered, etc.
Many of you reading this have probably been noting to yourself that a farm business plan answers the majority of your ag lender’s questions throughout the loan process. By consolidating into one place the information that will probably be eventually required by your ag lender, you will be saving both yourself and your ag lender time and energy and enabling a smoother and faster loan process for both of you.
Jessica Bailey is an Agriculture Loan Division Assistant for Arvest Bank.
