BUSINESS PLANNING 401
Moving Beyond Annual Business Planning Basics
SC O T T HERRING Farm Credit East President and Chief Operating Officer
Okay. It’s the beginning of a new operating year, now what? You expect the usual advice from your Farm Credit lender: • Have a good set of records. • Figure out cost of production. • Do a budget for the coming year and share it with your loan officer.
• Participate in a benchmarking program to know how you compare to your peers.
This long-standing party line is still solid advice. But we live in an ever-changing world. In the past 10 or more years, many Northeast farm, forestry and fishing businesses have grown into more complex businesses. Expanding into value-added processing and perhaps retail has raised the bar for management teams. They expanded into providing certain services to like businesses or perhaps moved into a nonfarm business, such as over-the-road trucking. They invested in highly specialized technology, such as packing lines, specialty wood products, energy conservation and integration or robotics. Especially in dairy and other livestock enterprises, they have been required to invest heavily in CAFO and other environmental compliance. The scale and scope of leading farm businesses has greatly expanded. It’s not uncommon to have satellite operations, and some have farm businesses in distant states.
NORTHEAST AGRICULTURE 2015 INSIGHTS AND PERSPECTIVES
This complexity calls for a more sophisticated business planning approach that goes well beyond the basics of good business management. The current softening of the dairy, cash grain or other commodity-based cycles make this an especially good time to take your management game planning to a higher level. Based on my observations of highly successful operators over many years, I recommend the following checklist for freshening up annual business planning beyond the basics. 1. Real-time financial information throughout the year. You farm because you enjoy growing and selling crops, plant materials, timber, livestock or other products. But what about good accounting, including financial monitoring and controls? Well maybe not so much. It wasn’t that long ago, most producers kept a good enough set of records to satisfy their tax preparer at tax time. That Schedule F and a sit-down for your loan officer-generated balance sheet, in turn, satisfied the needs of Farm Credit to approve your loans. You knew it was a good year when you had plenty of extra cash in the checking account, and you knew times were tough when you ended the season with a pile of unpaid bills. As I look at credit packages, I see a wide (and growing wider) range in the speed with which producers react to industry downturns. Those