8 Reasons to Create a Business Plan For Your Small Farm
Updated: Mar 21, 2020
Bottom Line Up Front: There are several reasons that small farms and homesteads should write a business plan for their operations. Business plans serve as planning tools, help you identify risks, aid in personnel management, and provide an opportunity to highlight your financial situation to potential lenders.
You have a vision for your farm. Maybe you already have a farming operation, or perhaps you're dreaming about having one in the future. Obviously you want it to be successful, and I believe one of the best things you can do right now to help steer you toward success is create a business plan.
Do I really need a business plan? Sounds like a lot of work, and I'm not sure I have the time to write one or maintain it.
Why a business plan? Maybe you think your farm will be too small for something as formal-sounding as a business plan. Or maybe your farm is a side-hustle for earning a little extra cash and don't believe you need to invest much time in planning to run your project as a business. No matter what your goals are or the size of your farm, you will find going through the steps to create a business plan is incredibly helpful for meeting your objectives. It is a tool that allows you, in a very tangible way, to identify how you will achieve your goals and manage your resources.
I hope you consider writing one. They don't have to be complicated or long - I know small farmers with 2-page business plans. Here is a link to my article on how to write a business plan for your small farm. And below are my 8 reasons you should create a business plan for your own operation.
1. Above All, is it a Planning Tool.
All the reasons for creating and using a business plan can be summed up by this first point: it's a planning tool. The Small Business Administration (SBA) describes it perfectly in saying, "a business plan guides you through each stage of starting a managing your business. You'll use your business plan as a road map for how to structure, run, and grow your business. It's a way to think through the key elements of your business."
The last sentence is important. When you follow common templates for writing a plan you will have to think through those "key elements" such as, what you produce, how you produce it, how you manage tasks, how you spend and make money.
And remember, it's a tool. It's not supposed to be a burden. If it's overly complicated for your operation or so big that it's a major chore just to review it, then it won't be useful to you. Write it so that it serves you in making planning decisions.
2. Defines Your Mission and Goals.
When you put pen to paper (or probably keystroke to computer these days) you give structure to your thoughts. Those daydreams you have about a pleasant farm outside of town that sells fresh produce is great, and by writing them down you begin to define that dream and why it's important.
Most business plans include a mission statement. Look at it as an explanation of why your farm exists, and it should be an extension of your vision.
I know for me I may have lots of ideas on a way ahead, but if I don't write them down I tend to flounder or at least be very inefficient in moving forward to making those ideas - or goals - become realities. Defining your goals gives you direction for a way ahead. Where do you want to be in one year? How about 10? Describe your goals and how you plan to achieve them.
3. Helps Identify Risks to Your Operation.
We should all be doing this with or without a business plan. We need to understand what risks there are to us and our farm or homestead. Furthermore we should think about ways to manage these risks.
Consider risks from several different angles. Look at operational risk and ask what sort of threats do you see to your production. Disease, insects, predators, drought, and so on. Anything that could negatively affect your end product.
Also consider personnel risk. What takes place on your farm that could lead to injury or illness for you or others?
Financial risk is another area to plan for. Do you have money to operate with? How will you pay back loans or ensure your employees or contractors are paid?
Other areas you may want to identify risk for include competition, market, and access to land if you rent.
Now for each risk you identified, explain how you will reduce or manage those threats. For example if you see predators as a risk to your flock of sheep, perhaps you'll deploy guardian dogs to keep them safe. Another example might be operating machinery, and you develop a training plan that teaches safe handling for any employees who use the equipment.
The bottom line here is you think about risks for what you do and how you will handle those risks so that they do not derail you from reaching your farm's goals.
4. Highlights Your Personnel Plan and Management Structure.
It's a given, you have many tasks to do on your farm. And they vary depending on the day, the month, or the season. It's a smart exercise to spend some time writing out all those tasks and how they are accomplished. If you have employees, here is where you explain how they are managed, trained, and assigned duties on the farm.
Likewise, you think about how your farm is managed. Decisions have to be made all the time, and it's helpful to consider how those decisions are made and who makes them. Think about decisions on how to spend money, what vegetables you will plant, pursuing new markets, adding new operations or increasing your output.
Even if it's just you, or you and your significant other, this part of the business plan gets your mental gears turning in thinking about what needs to be accomplished and when, as well as how decisions are made.
5. Makes You Consider Your Farm's Strengths and Weaknesses.
In a business plan you write out your mission, your goals, your risks, explain your operations, and lay out a personnel management plan (or at least list of recurring tasks). In doing this you should be identifying what you are good at and what you may need help with.
None of us can be experts in everything we do or know all there is to know. With that in mind it's important describe those areas we see as strengths and those that are weaknesses. How do you use the strengths to your advantage, and what is your plan to shore up areas of weakness?
You may consider performing a SWOT analysis to aid you. It stands for Strengths, Weaknesses, Opportunities, and Threats. A SWOT analysis requires you to look at yourself and your organization to determine those strengths and weaknesses, and also look outside your farm to identify areas where there are opportunities and what threats there are to your operation. Doing a SWOT analysis is a great exercise that aides in completing a business plan.
6. Examines Your Financial Situation.
Is your farm financially stable? Are you sure? A traditional business plan requires a review of past financial performance as well as projections for the future. This provides a great opportunity to go over your expenses and income to see both how you spend money and how you earn it.
If you have multiple operations, for example vegetables and poultry, you should look at them separately. It's not uncommon for a small farm to lump all its income together. Looking at the finances for different operations apart from one another gives you the ability to see what operations are efficient and profitable, and which may not be.
For side-hustle farmers, this is very important in demonstrating that what you do for extra cash is in fact making you money and not wasting it. If you're not making money, then you should adjust your expenses or settle on defining your endeavor as a hobby.
7. Necessary For Most Funding Requests.
In most instances where you request a loan or grant money for your farm you will be asked to provide a business plan as part of your request. That's okay, and it's nothing to fret about. Just imagine you are in the shoes of the banker or the board that awards grants. What would you be looking for if someone asks you for funding?
Through your business plan you are telling the lender that you understand all the aspects of your farm, you have a plan that is used to achieve your objectives, you are aware of you financial situation, and you have a legitimate plan for how you will use the funding you are requesting (as well as pay back a loan if that's what you're seeking).
8. Provides Legitimacy.
I saw an advertisement recently for a website-building service that says a website makes it real, suggesting that you are not a legitimate business until you have a website. I would say in reality it is a business plan that makes it real. A business plan tells the world you have done your research, you know what you are , why you do what you do, and how you do it. It says you understand what you're good at and what you need help with to meet your bottom line. It communicates that you take what you do seriously and you have a plan in place to be successful.
You may be thinking, Look fella, I don't reaaaally need to write a whole dang business plan just to accomplish these tasks. And you're not wrong. I'm not saying you should have a business plan just for the sake of having one. I'm saying you should consider writing one because it can be a tool for your success. And the process of writing one makes you go through a lot of mental and planning exercises that you may not do without outside prompting.
I hope this article gives you some good food for thought on why writing a business plan is a great idea for your farm or homestead. Even if your operation is a hobby or weekend side-hustle, it will aid you by providing a plan on how to achieve success.
Do you have a business plan? What else would you suggest for someone contemplating writing a plan? If you have question or comments, please leave them below. Thank you!