Editor’s note: This article was written by Dennis Stein, Extension Farm Management Educator with Michigan State University and originally appeared in the July 2010 Michigan Dairy Review.
When things get tough consider developing a plan of action. For many dairy farms, today is an excellent time to build or update a farm business plan. Often people think of this as a tool that is only used when a person is trying to start or expand an existing farm. You are now in a situation where the market price for milk has pushed your farm to change its operations to meet current and future financial situations.
This may not be what you want to do but a business plan is a great tool to empower the current owner/management and the future owner/ management to flesh out their vision of the future. If you are uncomfortable with the idea of writing a full business plan because it has so many components, just think of it as a series of building blocks. Placing one block at a time, you can build a complete detailed business plan.
What's a Farm Management Plan?
Let’s look at a couple of points in the business plan that can be very helpful. When times get tough, it is important for any farm or business to stay focused on the mission. The mission statement should define what your farm business is all about and your business’s purpose. Use the mission to identify what is important and what is not important.
When time and resources are limited, you need to stay focused on what is important. Along this same line, a mission statement can give you and your farm management team a sense of direction which is vital in the decision-making process. When resources are limited, you want to focus finances and efforts to those things that support getting the farm to that future place you want to achieve.
Another part of a business plan is keeping a set of current and future goals that the entire farm and management team are aware of and working toward. Having a vision of the future and goals are vital when putting together the farm’s cash flow projections. In addition, the vision will help the farm management team identify or prioritize what resources will be available for farm maintenance, repair and expansion. Yes, I did say expansion.
For me, expansion is the replacement of old equipment and buildings along with steps to continue to grow the farm’s business enterprise. In the current economic situation and in other cases, growing the farm may be one tool to help the farm become more cost-effective.
Every dairy farm today can benefit from having a clear written financial plan with 1 to 3-year cash flow projections. For many, you already have been submitting these to your lender as supporting information to help them feel comfortable with maintaining your line of credit. For the farm’s management team, these projections can serve as a set of benchmarks to measure the cost of inputs and revenues that are generated each month. By having monthly checks of the farm’s financial status, you can make smaller changes, if needed, rather than trying to dig out of a hole after 6 or 9 months of not knowing. In tough financial times, keeping closer track of the income and expenses will be more comfortable and productive so that you can take actions and work with your suppliers, customers and lenders on a proactive basis.
A farm business plan may not in itself make your farm more profitable. But, a farm with a plan has put in place a road map that can help focus (or refocus) the efforts of the farm’s ownership and management teams. The business plan can be used as a tool to help both input supply companies and lenders to see the direction and action steps that you are taking on your farm to ensure its future.
Putting this all together using the farm’s business plan as the guide can in many cases bring together a much larger and more focused team that can work together with the success of your dairy farm as the goal.
Ask For Help
If you are not sure how to get started, you can ask your local Michigan State University Extension Dairy Educator for some assistance. Several organizations and community colleges offer ongoing group sessions that help walk you through the business planning process. Or you can find some simple- to-use outlines and interactive business planning web sites that can help you to get your farm business plan together: http://www.msu.edu/user/steind/.
Should you not choose to develop a full business plan at least do this:
Take a little time from your busy schedule to sit down with your management team and family to talk about what is important.
Be sure to put together the vision of where all agree the farm should be in 5 - 10 years.
As a business tool to monitor the progress of the farm, build a cash-flow projection for a time frame of 12 to 36 months that considers not only day-to-day expenses but the maintenance and updating of equipment as needed.
The lines of communication must be open between all members of the family, management, and ownership by having them contribute to and be a part of the farm’s business plan development.
Source: Michigan Dairy Review