Five Uses For Your Business Plan
A PFI beginning farmer recently asked a great question: “How can I use my business plan?” The process of writing a business plan can be overwhelming and may appear not worth the time. I can’t disagree that it may seem overwhelming, but it certainly isn’t in vain. Putting time and effort into crafting a quality plan not only makes your business stronger, you’ve also created a valuable tool with so many uses!
Five Uses For Your Business Plan:
1. A map for the future: Ever wanted to travel somewhere, but didn’t know how to get there? You got out a map and took it road by road. That’s exactly what a business plan is – a map of how you are going to get to where you want to go. I know, I know, you’ve got it all in your head. But taking the time to actually put the rubber on the road, or in this case, the pencil to the paper, forces you to think about each step you need to take to reach your goal. If you want to make it real and keep yourself accountable to stay on the path to your destination, make yourself a map.
2. A tool to secure funding: Walk into any lending institution with a business plan or include a business plan with an application for funding and you are more likely to get the attention you deserve. Taking the time to write a business plan proves you are serious about your business and your plan to succeed. You can talk about your business with confidence because you know it inside and out and have the data and numbers right at your fingertips to back you up. (Make sure to always bring an extra copy of your plan so they have a reason to make a file just for you.)
3. Know if, when, and how you are making money: Because of the seasonality that often goes along with farming enterprises, you have to know when you have money coming in and when you have money going out. And how much of each. Cash flow statements are like your calendar of cash. You need to be able to PLAN AHEAD for those months when bills are due and income is low. Projected income statements can be the motivator to keep your eye on the prize. Year One may have minimal profits, but just wait until Year Five – that’s when you can see your discipline, perseverance, and commitment start to pay off! Enterprise budgets make it very clear where you are making money and where you are possibly losing it. Matt Russell, PFI member, farmer, and Resilient Agriculture Coordinator with Drake University Agriculture Law Center knows first hand how important business planning can be to farm profits.
“The biggest lesson on our farm was when we raised the price of eggs last year to $5 a dozen. If our business plan had simply been “grow a bunch of stuff and try and sell it all”, we’d still be selling eggs for a lot less. But we used our records, went back through our past planning, and talked about where we wanted to go in the future. Having written records including hard copies of business planning, and not just memories of good thoughts, helped us make the move to raising our prices. Without all of those “exercises” and records to lean on, we would have forgone about $5000 of net income in the last year, because even with a 25% price increase, we are still selling out of eggs. Our only regret is that we hadn’t paid closer attention to our records and our business planning sooner when pricing our eggs.”
4. Marketing, marketing, marketing: Most farmers I know love to farm. Marketing is, well, a bit further down the list. You can grow it, but you’ve got to sell it to keep doing what you love. A good business plan needs to include a marketing element. Understand who your customers are and where they are. And who they are not and where they are not. Be able to communicate why your product is different and better. Going through the business planning process will help you more effectively market your product to your customers – because you know both, oh so well.
5. A guide for decision making: Have a decision to make with your business and not sure what to do? Take some pressure off yourself and let your business plan decide for you. Think about how your options may, or may not, support your vision, mission, and goals. A business plan can prevent you from making a hasty decision that leads you astray. On the other hand, it can reaffirm a decision because it is supported by your plan.
Keep in mind, your business plan is never a final draft! Update it anytime you have a major change to your business. Revisit it routinely to make sure all the pieces of the plan accurately reflect the farmer you want to be and the business you want to run.
Don’t forget to visit PFIs Beginning Farmer Resource Guide on our website for business planning resources. Check out Steve’s blog and email him (email@example.com) if you are aware of other resources we can add!