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Value of farm business plan shows when death or illness strikes

published: October 16th 2020
by: By Linda Geist, University of Missouri E

Columbia, Mo. – The value of a farm business plan becomes clear when family members need to get on the same page or when sudden illness strikes, says Joe Horner, University of Missouri Extension agricultural economist.
    A farm’s business plan formalizes what is in owners’ heads, Horner says. Writing a farm business plan forces family owners to think things through and agree on goals.
    It eventually evolves into more of an operations manual, Horner says. If an owner or key employee becomes ill or dies, the plan can guide surviving workers and decision-makers.
    Some find the task daunting. “Make it easy,” he says. “Start with a simple plan and revise it. A two-page plan is a fine place to start.”
    Don’t wait to create a perfect business plan. “The goal isn’t to create a polished, perfect, spiral-bound book to pitch to a lender,” Horner says. “It is better to create a dog-eared, work-in-progress business plan that reflects practically who, where, when, why and how your farm business thrives.”
    There are many software applications for writing business plans, but few of them target commodity farming businesses. Horner recommends the University of Minnesota’s AgPlan, at AgPlan.umn.edu (opens in new window), for a simple, free, farmer-friendly business plan app with outlines, suggestions and videos.
    Farmers inspire confidence with lenders when they present clear business plans that include a financial history, some strategic thinking and a demonstration that all the stakeholders are on the same page. “If significant borrowing becomes necessary to buy land, fund expansion or get through rough times, lender confidence is critical,” Horner says. However, a business plan should be much more than a way to get credit.
    “One can divide a farm business plan into two parts, sort of like a front and back yard,” he says. “The formal portion of the farm business plan is what you present to outsiders, sort of like a front yard. The appendix to the business plan is more like a back yard, where you store and park stuff you might need someday.”
    As farms grow, employee turnover and training become bigger issues. Written standard operating procedures (SOPs) are increasingly common on farms. The appendix of a business plan is a good place to store and refine those SOPs.
    Think of a farm business plan as a cookbook for someone who needs to step into the owner’s shoes, Horner says. It can be an operating manual to help the farm run as seamlessly as possible.
    To save time when someone new steps into management, provide contact information for key service providers such as seed dealers, chemical applicators, veterinarians, nutritionists, repair and parts sources, bankers, lawyers, and insurance providers. Also include contact information for service providers who are used less frequently and may not be in recent paid bills file, such as the well service company, fence builders or a painter for the grain bins.
    “Your business plan appendix can be a catch-all for all of that information swimming around in the back of your head or those notes written on a scale ticket or piece of scrap paper in your wallet,” Horner says.
    Include calendars and checklists in the appendix. Note important dates such as lease renewals. Add copies of documents such as leases, permits, security agreements and depreciation lists.
    On family farms, several members may jointly own a piece of equipment. Write this down to help prevent misunderstandings among family members in the event of one party’s death.
When finished with the plan, make sure key members of your organization and family know where to find it.
    Also, share a copy of the formal part of the business plan with trusted lenders. The plan is a useful tool for bankers to document their files when called upon to make quick loan decisions if, for example, you want to bid on land or machinery at an auction.
    The goal of a business plan should be to make life less stressful, Horner says.
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