When Perry, IA, farmer Doug Johnson decided to get married last year, he wanted his wife-to-be, Monika, to understand his plans for the 3,000-acre row-crop farm business. The best way to explain it, he decided, was a detailed business plan.
"I wanted to make sure that my version of what would take place in the future wasn't different than her version," he says.
Johnson hits at the heart of why you write a business plan. It's not just for you. If it was, a production and financial plan would be all you'd need. Writing down a mission statement, farm history, goals, etc., helps you focus your business. But the real value is that it defines your farm, past, present and future, to other people directly involved in your business.
For Johnson, the most important person who needed that information was his new bride. For others it might be a lender, a landlord or an attorney. Regardless of who you share it with, a business plan eliminates the chance of misunderstanding if you just talk about your business.
"One of the historical problems in farm families has been simple communication," says Parman Green, University of Missouri farm management specialist. "A written business plan helps make sure that the decisions you make are in line with the business and family goals and objectives. It helps minimize the conflicts between the business and the family. And it also helps you prioritize your goals and decide which ones are too important to sacrifice and which ones can be changed."
The farm history, written in part by his 86-year-old mother, was one of the most enlightening parts of Johnson's business plan. "Mom wrote things about our farm that I wasn't aware of," he says.
>From Monika's perspective, the business plan confirmed the plans she and >Doug had discussed about the farm. "When we put it all down in black and >white, it reassured me about the direction we have for the farm," she >says. "It tells me where we're going."
The value of a business plan has evolved over time for Marv Stech and his brothers, Ron and Gerald, of Osmond, NE.
"Dad always insisted that we write a cash-flow plan when we wanted to do something different," Stech says. "We had to prove it was going to work."
The next step for Stech was written production plans. "I write a plan for each farm for each year. It includes the crop, seed, chemical, fertilizer, etc. that will go on each field. We keep one copy in the office and one in the tractor cab," he says. "The hired man knows exactly what we need for each field. When I started farming, we made those decisions at the end of the row."
Computerized financial records joined the farm business at about the same time. In addition to the financial software he bought, Stech has developed some himself to help with financial decisions.
"I put together a worksheet to calculate what we can afford to pay for cash rent," he says. "I input our costs and the program creates a price matrix that shows the maximum affordable cash rent for different levels of price and production."
The financial data also helps the Stech brothers monitor their risk. "We spend a lot of time sitting at the table with all the information in front of us," Stech says. "It helps us decide how much risk there is in a decision, and what sacrifices we're willing to make to assume that risk, if necessary."
He hasn't taken the final step of pulling the segments of the business plan into one book. But they're all there.
"Our mission statement is real simple. We want to produce each unit as cheaply as possible."
One of their goals: expand the crop operation by 10-15% each year. That's difficult sometimes when one of their long-term goals is to never allow their total liability to exceed current assets.
But there's more to a business plan than just the business side of the operation. "We also ask ourselves, 'Why do we want to do this?' " says Stech. "We've made the decision before to give up profitability to enhance our lifestyles."
They also have drawn hard lines about what they don't want to do. "There has to be a moral side to the decision-making process, too. I'll never bid on a piece of land if the current renter wants to keep it. And, we don't work seven days a week. I'll starve before I do that."
A business plan also helps when working with landlords. "I show them exactly what I'm doing," says Stech. "They don't always understand why one piece of ground is worth more than another because of crop bases, etc. The written plan helps offset some of the coffee-shop talk. All it takes is communication."