How to Write A Business Plan For Your Small Farm
Updated: Mar 22, 2020
Bottom Line Up Front: Business plans are useful for any small farm operation. In a business plan you define what you do, why you do it, and how you accomplish it. Writing a plan provides a way for you to think through the major elements of running your operation. The 6 major areas of most business plans include: 1. Executive Summary, 2. Business Description, 3. Operations, 4. Marketing Plan, 5. Management and Organization, and 6. Budget and Financial Projections.
Writing a business plan for your farm or homestead is a great idea regardless of how much income you plan to generate with your operation. A business plan provides structure for your vision and helps lay out a plan to reach your goals. This is true whether you intend to earn a full-time income with your farm or if you do it as a hobby. Furthermore, it provides legitimacy to what you're doing and will normally be necessary when you pursue funding through loans or grants.
And don't think for a minute that a business plan has to be complicated. All you're doing is answering the Why? What? and How? for your operation. It can be many pages in length or just a few. Regardless of how big you make your plan, it should be comprised of certain information. Below are the 6 areas you should include when writing a business plan for your own farm.
1. Executive Summary.
This is a brief explanation to the reader about your business. The executive summary will explain what you're about, why you do it, and a brief explanation of how you accomplish it. In this section you should have:
A business description. This is a concise description of your operation, what you produce, who your customers are, and how you sell your goods.
Mission Statement. Briefly explain what your mission is. Imagine a potential customer asked you at a farmers market to describe your farm, how would you answer in 30 seconds or less?
Goals. Define your near and far-term goals. Think of production levels, new markets, income, and so on.
Other things you might include in your executive summary would be your values (example: do you focus on organic, locally sourced, making affordable food for your community?), vision (similar to goals, but far reaching and long-term objectives), and requests for capital (if you're writing a plan as part of loan or grant request, you need to state up front how much money you are requesting and how it will be spent).
In a business plan you define what you do, why you do it, and how you accomplish it.
2. Business Description.
Here you explain to the reader how your operation is structured from a business perspective. Describe your infrastructure, who makes decisions, and where you do business. Even if your homestead is a hobby or side hustle, this makes you think about what resources you have on hand to accomplish your goals. Here are the topics that should be covered in the business description section:
Business overview. Summarize how you structure your farm and what the financial objectives are.
Location and facilities. Describe your location and what sort of infrastructure you have. Do you have an elaborate barn or a lean-to? How much land do you operate on and what sort of vegetation is there? Do you have access to water and power?
Business structure. If you farm to generate income, you should explain what your business structure is and perhaps why you are structured that way. In most cases it will be a sole proprietorship, but other examples are partnerships and limited liability companies (LLC). Discuss with an accountant what makes sense for your farm if you're not sure.
For most folks running a small farm or ranch, this will be the easiest section to write because it's where most of our energy and thought go. In the operations section you need to explain what your products are, how you produce them, how you manage risk, and what your production timeline looks like. In other words, how you get things done. Here's what you should tell the reader in this section:
Hint: This is a great area of the business plan for identifying whether what you do - or want to do - on your farm makes sense. After putting pen to paper it may become apparent you have too many dissimilar operations going on simultaneously for you to be effective in reaching your goals.
Products. Discuss specifically what products you offer. For example, don't say "beef products," but instead explain that you offer a wide variety of cuts of beef from grass-fed & grass-finished cattle that have been processed at a USDA-inspected butcher facility.
Services. Explain any sort of services you offer that are tied to your homestead. Perhaps you teach a quarterly workshop on beekeeping or host farm tours during the fall.
Productions System and Timeline. Explain the systems you use for production. Perhaps you use multi-paddock, multi-species rotational grazing methods until your animals have reached a certain weight. Do you practice organic production or conventional? Also, discuss your typical timeline for production. Think about when you breed, plant, vaccinate, wean, harvest, and so on.
Licenses, Permits, and Regulations. Are any of your activities tangled up in the government's red tape? List those things here along with any official requirements necessary for conducting your business.
Inventory Management. Here you should list both the resources you have on hand as well as how you manage your product inventory.
Risk Management. Explain how you identify and reduce or manage risks in all areas of your operation. This includes production risks (predators, pests, disease, drought), physical risks (operating machinery and equipment), and financial risks (avoiding or managing debt, use of loans, emergency funds).
Other areas you may want to address include how you conduct customer service, ensure quality control in your products, and how you manage environmental issues within your operation.
4. Marketing Plan.
A hobbyist may not have much concern when it comes to marketing, but for anyone looking to make significant income from their farm, you need to have a plan for how you sell your products. It's never as simple as just growing your crop and customers show up to buy it. You have to spend some time understanding your market, identifying a need you can fill, locating your customers, and making them aware of who you are and what you produce. Additionally, you need to address competition from other producers. Here is what to include in this section:
Hint: It's common for many farmers to focus on the operations and make marketing a secondary task. Often it's the growing of the product that is fun and fulfilling, and haggling over prices is a chore. Do you have a friend or significant other who can fill this role? In married couples there's often a natural delineation between who takes care of operations and who can do marketing. Don't be afraid to ask for help.
Target Market and Customers. Start off by identifying just who it is you sell your products to and why. Be specific in terms of demographics. Age and gender will often play a role, and don't be afraid to consider ethnicity. Different cultures have specific dietary preferences which may be a factor when it comes to potential customers.
Market Trends. Also discuss trends in your market. Is demand changing, and if so, why is it changing? This should be a prompt to do research on your market or desired market. Online you can find a great deal of literature discussing food trends from both government and private sources.
Pricing. Write about the variables you use to price your products. Do you price based on weight or quantity? Does it change with the season? Do you follow market price trends?
Distribution. Here you explain the logistics of how you get your products to the customers or how you bring the customers to you.
Promotion. Go into any strategies you use for promoting your product to potential customers. If you use social media this is a good place to explain how you use it for promoting your farm and products.
Partners. If you are in partnership with someone who buys or promotes your products, explain the relationship here. Maybe you sell seasonal vegetables to local restaurants or combine your products with a neighboring farm's.
Contracts. Similar to partnerships, do you have contracts with any other organizations who you sell to? Again, think of agreements with restaurants or even a distributor who wants a certain amount of grass-fed, grass-finished beef each year.
Competitive Advantage. Odds are there are other farms in your area producing the same things you are. They may be looking for the same customers. What makes your product better than a competitor's? Is it the quality? Price? Do you deliver when others don't?
Your business plan should be a living document. Do not create one then just let it collect dust.
5. Management and Organization.
This section is all about who does what and how decisions are made. Look at this in terms of human resources and how roles, training, and responsibilities are divvied out. Information you should include here for the reader:
Management Team. Define who is responsible for major responsibilities. Maybe it's just you, or just you and your spouse, but if nothing else this is an exercise in understanding the major tasks that are required to make your operation run properly. Who is the farm manager? Who handles finances? Marketing? Are there alternates for these roles?
Personnel Plan. Discuss the various recurring tasks - daily, weekly, monthly, seasonally - and who accomplishes them. Here are questions to answer: Do you have employees? Are they full-time, part-time, or seasonal? How are employees trained and paid? How are tasks assigned?
Professional Services. Whether you include them by name in a business plan or you keep them in a Rolodex (or more likely your phone), you should have a current list of people and businesses who provide services for various specialty requirements. This list should include (but is not limited to): veterinarians, extension service agents and other government agriculture representatives in your area, accountants, legal experts, bankers, insurance providers, mechanics, custom farm services, seed or parts suppliers, and so on.
Advisers. A large organization may define who makes up an advisory board for them, but for small operators you should consider who you turn to for trusted advice. It could be a mentor, a neighbor, a family member. Have an idea of who you call on for assistance in emergencies, making plans, and drafting strategies.
6. Budget and Financial Projections.
This is arguably the most important part of your business plan, the part where numbers need to back up everything you've written up to this point. Here you describe for the reader your assets and liabilities as well as examine your expected revenue and expenditures. For your own well-being you need to be honest here. Don't fudge numbers and don't give way to wishful forecasting. Work in the realm of the known, and use the best information you have available. Doing a good job with your budget helps identify areas to cut expenses, what revenue streams are working and which are not, and chart a plan for the future. Also, a realistic budget is necessary when applying for loans and grants. Include these items in your budget section:
Balance Sheet. Here you identify your assets and liabilities. Assets should include cash on hand, buildings, land, equipment, livestock, and investments. Liabilities should include loans, taxes, and debts.
Startup/Expansion Expenses. This isn't necessary if you have an established operation, but if you are new to farming, you should document all the expenses it takes to get up and running for production. Do this also if you are already expanding your farm by adding a new operation (example: you've only raised livestock to date, and you are adding a greenhouse to grow vegetables). These expenses will vary quite a bit depending on what you're producing. Examples include: purchasing breeding livestock, infrastructure (fences, water, pens), custom and contractor work, fuel, rent, loans, and so on.
Financial History and Projections. In short, explain your income and your expenses, which equals your profit (hopefully, otherwise it's a loss). Capture the most recent operating year and create projections for the upcoming year. Go further into the future if you have a good handle on your operations. If you have multiple operations resulting in several revenue streams, break out the income and expenses for each of them. Show both operating expenses (also known as variable expenses and include fuel, feed, services, labor, etc) and fixed expenses (taxes, insurance, depreciation, rent, etc.). subtracted from your gross income to reveal your total net return.
Asset Management. Explain how you protect and maintain your assets.
Capital Request. If you are submitting a business plan for a loan or grant request, this is your last chance to explain what you are requesting funding for and how you will use the funds. Remember to address this at the beginning of the business plan in the executive summary as well - you don't want to risk the reviewer to read only that portion and not understand what you are requesting.
Remember the business plan is a tool to help you make decisions for your farm. No matter what the size of your operation, it is a useful product.
Before we wrap this up, allow me to highlight a few important thoughts to consider when writing your plan.
1. This is not the only way to write a business plan. You can add and delete information from this template or move the order around to suit your own operation. There is no one right way, so make it work for you. Other business plan templates combine some of these sections or don't have broken out major sections at all. Whatever you do, approach writing a business plan with the intent to describe what your operation is to the reader, why you do what you do, and how you do it. And always capture financial information.
2. Your business plan should be a living document. Do not create one then just let it collect dust. Review it once a year, and resolve to update it immediately with any major changes. Barring any significant changes, plan to update it on a periodic basis.
3. For grant applications, make sure you comply with business plan format requirements. Grants are competitive, and you can expect them to limit the size of the business plans they receive as the judging panels simply do not have the time to read many long documents. That may require you shortening your plan. As it is, you should focus on a concise plan - no one wants to read a novel, and it's difficult to maintain a long document.
4. Be honest with yourself when writing a business plan. Remember it is a tool to help you plan and make decisions. Unrealistic data will make it useless, and lenders will be able to sniff out bogus information. If the end product reveals that your operation is not able to meet your goals, that's okay. Share it with your mentors and advisers so that they can provide assistance on where to change course so you can reach your objectives.
5. There are many business plan resources available online. I will write a separate post later highlighting some of them. The template used here is based off of instruction I received in the Battle Ground to Breaking Ground program, which is conducted by the Texas A&M AgriLife service with the objective of helping military veterans successfully transition to agricultural endeavors.
Remember the business plan is a tool to help you make decisions for your farm. No matter what the size of your operation, it is a useful product. It may seem daunting, but don't look at writing one as a difficult chore. Start writing, and if you are passionate about what you do, you will find the words comes rather easily. Share it with trusted mentors for input, and consider assistance through some of the many agencies that support small businesses, such as the Small Business Administration (SBA) or Small Business Development Center (SBDC). If you have tips or ideas of your own, please share them in the comments section.