Ag Info

Northeast Missouri Agriculture Newsletter serving
Lewis, Marion, Monroe, Ralls, and Pike Counties
August - September 2004

In this issue:

Planning For Your Future
State Beef Cattle Tour, Tenderness & Genetics, Show-Me-Select Heifer Sale
Do I Live In A Watershed?
Glyphosate-Resistant Horseweed, New Pasture Herbicides Labeled, and Soybean Diseases

I received a real treat recently. I got a phone call from my brother, who is stationed in Iraq. The conversation with my brother was highly unusual, especially coming from him. All he wanted to talk about was his 10-year plan. You see, he recently got engaged to his girlfriend. Through letters and the occasional phone call, they have created a 10-year plan for themselves. I was thoroughly impressed. My husband and I have made plans; however, they are in our heads, not on paper. A written plan, especially when it involves your business, can be very helpful. How many of you have a written plan for your farming operation? In this article, I want to discuss long-range business planning - planning for your future.

There are four issues to consider when developing a long-range business plan. They are:
* What your farming operation might do (its opportunities)
* What your operation can do (management capabilities and resources available)
* What you want to do (dreams, aspirations, personal values)
* What your operation should do in meeting obligations to society (following governmental regulations regarding use of chemicals, etc.)
Your task as the owner/manager is to blend these components into a long-range plan. Briefly, I will take you through a five-phase sequence for planning the future of your farming operation.

Phase 1: Evaluating your present farm situation and set tentative goals
It is impossible to plan for the future without evaluating the present situation of your farming operation. The first thing to do is to assess your past year’s business performance. Look at your financial statements. Use farm financial analysis software, such as FINPACK, to do a detailed analysis of your farming operation. This will help in assessing the strengths and weaknesses of your operation and show the general direction it is headed. Next, assess the future business environment. What are your expectations about farm prices? What about
production levels and farm costs? What effect will changes in government programs and regulations have on you? The third step is to determine the availability of resources. What is the quantity and quality of land, labor, and other capital and management resources? Lastly, set goals for your farming operation. Be sure to involve your family members or business partners in this process. Remember the farming operation affects them too!

Phase 2: Developing a long-range business plan
Now that you have evaluated your present farm situation, you can begin developing a long-range business plan. After evaluating your present farm situation, did you like your results? If you did, than you probably should continue with your present plan (just put it in writing). If not, than you need to ask yourself what do you need to do to make it better? Is there a short-term or long-term problem? If it is a more serious long-term problem, the next step is to identify opportunities for improving profitability. Some opportunities for improving profitability of your present farming operation include:
* Increasing returns over direct costs
* Making adjustments in the enterprise mix
* Improved management of overhead costs
* Expand or downsize your operation
The financial soundness of any business hinges on its ability to meet its financial obligations. If there are problems meeting cash flow or liquidity demands, examine opportunities to increase the net cash income from farm and nonfarm sources. Another option is to reduce income taxes through better farm management, reduce family living expenses, and other nonfarm draws. For solvency problems (high debt/asset ratios and/or declining net worth), look for ways to increase farm profits. Good tax management and watching family living expenditures will also improve the solvency position. You can also improve financial soundness through risk management.   Production and yield risks can be managed through crop insurance, diversification, and lower risk production practices. Develop a marketing plan to manage price and market risk. Maintain adequate cash and credit reserves to manage business and financial risks.

Phase 3: Developing a Transition Plan
Once you have decided on a long-range plan, your next step involves deciding “how to get there from here.” Usually no one can jump right in and make all necessary changes at once.  Therefore, you need to ask yourself what can be done now, and what is the most important.
Transition planning involves making production and financial projections for use in deciding the best way to achieve your long-range plan. These projections help the owner/manager to think through production and financial details of a new undertaking.

Phase 4: Finalizing your Plan
Before finalizing your plan, be sure to check with your lender and other resource providers.   Major changes usually require additional capital, so it is important that your lender agrees with your plan. Changes in a farming operation may also include tax and legal implications. Check with your tax advisor or attorney, in addition to your lender. Once again, be sure to include your family and business partners in the planning process.

Phase 5: Implement your Plan
The last thing to do before implementing your plan is to go through a checklist. If you are making substantial changes, work with your lender on securing funding. Be sure to define the roles that family members and/or business partners will be playing. Look at existing contracts such as leasing land, machinery, and buildings. Do your existing contracts need to be revised or should you enter new ones? Determine if your present business organization fits into the new long-range plan, or whether you should consider a different form of business organization such as a partnership, corporation, or LLC. Evaluate your current accounting and record-keeping system. Review current insurance coverage to determine if there is adequate protection for your business and family. Lastly, develop or update your estate plan.

A business plan is a roadmap for your farming operation. Yes, it does take work to develop one, but it is well worth the time. If you have any questions about developing a long-range business plan or have interest in trying the FINPACK software, call me at 573-633-2640.