“Do I really need a business plan?” We hear this often around the bank from customers, and agricultural business customers are no exception. Customers and potential customers come into our lobby seeking information about a loan to expand their farm, purchase new equipment and so on. The correct answer according to how we make our loan decisions is: “Certain circumstances would require one, yes, but not all. Generally, loans for larger amounts of money or more complex projects do need one, but smaller amounts do not.” Although aspects of a typical business plan may not apply to your particular farm or ranch, they are still an important tool and resource for your everyday operations.
First, let’s start with the basic definition: A business plan is a written document describing the nature of the business, the sales and marketing strategy, the financial background and containing a projected profit and loss statement. Essentially they are an excellent tool to help a business owner think through all of the necessary and important aspects of starting a business and planning its future, no matter the size of the business.
A typical, well-prepared business plan will contain the following information: an executive summary, a description of the business, a market analysis, a description of the product or service, a competitive analysis, a description of the company’s operations and management, a description of the marketing and sales strategies and a discussion of the financial components of the company. Through this analysis of the operation, the owner is forced to think through specific topics such as annual crop production, weather patterns and market trends, and often will come across areas for growth and improvement.
A business plan for a farm may or may not include several of the categories listed above. For instance, a farmer looking for a loan to help in the purchase of additional land may not need a sales and marketing strategy but would benefit from explaining their business objectives, financial background and farm operations.
From a lending perspective, it’s important that the lender has confidence in the borrower that he/she will be able to repay the loan. By identifying your farm’s current financial situation, explaining how the loan will benefit your overall business objectives, and how the loan will ultimately be repaid through your business plan, the lender has a clear understanding of your farm’s position and is able to make informed decisions and adequately assess risk throughout the lending process.
Because a business plan is a long-term strategy, it must be adapted as both outside influences and the current status of your business evolves. Having a well thought out plan can help to manage your risks and make a farming operation more profitable as well as contribute to the success in working with your lending institution.
Jim Singleton is the community president of Arvest Bank in Gravette, Ark.