The number gap is stark. In fact, it’s hard to think where you’d find one that’s wider: 88 per cent of farmers who have a written business plan say their plan has so many benefits (both to the farm and to themselves as farmers) that it more than pays for itself.
Yet only 21 per cent of Canada’s farmers regularly follow a written business plan.
The numbers are from a new survey put out by Farm Management Canada, showing 48 per cent rarely or never do any written business planning, and another 30 per cent are at best in the “sometimes” categories.
Not surprisingly, the 79 per cent who aren’t plan jockeys have lots of reasons why they aren’t. In fact, on the face of it, they seem such good reasons, like the notion that agriculture changes so fast, any plan you write has got to be out of date even before you put it on the shelf.
In a black swan year like 2020 with COVID-19, or a similarly black swan year like 2019, with the China-U.S. trade war, that just seems incontestably true.
But it turns out that it isn’t. Increasingly, such excuses are out of date. Most of the old reasons for not doing a business plan are simply out of sync with the times. At the very least, plan fans and plan foes seem to be talking different languages.
So maybe it’s time for a re-evaluation.
Would every farm do better with a written business plan? Maybe not. Would yours? Almost certainly yes.
And would that benefit be big enough to make it worth the work? Well, the 88 per cent in the first paragraph of this story are convinced it is for them.
To explore the topic in more depth, Glacier FarmMedia hosted a video panel on the arguments pro and con farm business planning, which ran as part of the summer’s Ag In Motion Discovery Plus and will also run mid-September at Canada’s Digital Farm Show.
The panelists were Heather Watson, executive director of Farm Management Canada and frequent Country Guide interviewee; Reg Dyck, farmer and business instructor at the University of Manitoba’s ag diploma program; and Rob Hannam, founder and client director at Guelph-based Synthesis Ag.
Before we turn to the experts, however, here are some more survey results, especially on the non-plan farmers. Why don’t they? The number one answer (41 per cent of all respondents) is simply that they feel they are succeeding without it. So why would they go to the bother? Besides, 33 per cent said planning takes time that they simply don’t have to give to it, and 26 per cent said that even if they did, farming is so volatile that any plan would have to be continuously updated to be relevant.
Another 21 per cent said they didn’t use a business plan because, in the complicated world of farming, it’s too hard to decide what to include and what to leave out.
And a final 21 per cent didn’t even get that far. They simply said the very idea of business planning in agriculture is overwhelming.
Maybe they’re onto something. FMC did another survey of business practices in early 2020 and found the adoption rate had actually slipped, falling to close to 18 per cent, or fewer than one farmer in five.
Against those odds, can business planning make a breakthrough? The experts think so, with reasons that might surprise you.
Why business planning works
The science of business planning has changed dramatically in recent years. In at least some cases, farm thinking may not have caught up.
The common idea used to be that the business plan would have to predict the ups and downs of farm markets and production.
At the very least, the assumption was that the plan would only be useful if it could lay out exactly what steps you’d take under a precise set of circumstances.
Today, the focus is much more on resiliency and risk management. Rob Hannam compares it to doing some advance planning for disease control on a livestock farm. There isn’t much chance that you’d be able to predict exactly how and when the disease might hit your barn. But by going through a planning exercise, you could work out a protocol so you screen the animals to detect the disease, you talked to the veterinarian to define best steps, you have segregation pens ready, you’re aware of market implications, etc.
Business planning is similar, Hannam says. It makes sure you’re watching key factors and that you have a process for responding to them. A business plan may never predict COVID-19 or Chinese trade barriers, but it makes you much more efficient at dealing with them.
A business plan prepares the farm for opportunities too, not just for threats. So while it can’t predict when the neighbour’s farm might come up for sale, or when you might get invited to join a new partnership, it helps you decide whether such steps are consistent with the farm’s overall objectives and whether they’ll help you get there.
Crucially, says Watson, new research shows that a business plan will help you cope with the stress that comes with making big decisions or dealing with COVID-like challenges. This year’s Healthy Minds, Healthy Farms study, available on the FMC website, shows that having a business plan helps farmers keep their emotions in check, it helps them keep their performance up by ensuring they sleep better at tight and take better care of their health, and it helps ensure they keep up connections with their families and others.
The business plan provides a roadmap, Watson says. It helps you monitor your progress and put the challenges to the farm in perspective, so no wonder it has health implications. You’re dealing with certainties, not doubts. And, critically, it helps keep the team united.
It turns out that when farms do business planning, all sorts of other good things tend to happen too.
Watson points out that surveys consistently show that farmers who use business plans also tend to use other business tools, such as better financial tracking, benchmarking for production and overall performance, and skills-upgrade opportunities.
Detailed studies consistently link such tools to farm profitability. University of Manitoba instructor Reg Dyck points that, on the farm, small changes in management efficiency can make huge differences in farm performance. Historically, he points out, the farmer’s margin is a small fraction of what a crop sells for. If farm management tools mean a higher percentage of retained gross income, it may double overall profitability.
Tied in with this is that a business plan can improve the payback from working with off-farm experts, points out Hannam.
He advocates sharing the plan not just with bankers and lenders, but also with accountants, lawyers and even suppliers.
Does it have to be written down?
Every farm has a strategy, and every farm has a plan, Hannam says. They have a sense of how they want to evolve over the short-, medium- and long-term, and have a pretty clear idea of what it’s going to cost to get there.
So why go to all the trouble of creating a written plan? The first answer may be discipline, says Watson. Putting together a business plan means that you put the numbers together and then you run them through a number of scenarios. By doing so, it confirms your hunches or makes you ask questions about them.
And that’s only one reason for going through the process. In fact, says Hannam, the process itself accounts for much of the value.
“The activity of planning is gold,” he says.
Don’t forget, too, says Dyck, that planning is a great way to bring the next generation into the farm. That doesn’t mean they have an equal voice with the parents, but it exposes them to the family’s values and to the parents’ overall approach.
Most important, says Dyck, it also means that when it’s time for the next generation to start taking on some responsibility and making some decisions, they aren’t going into it cold. They will benefit more from the parents’ experience, and while they may still make some mistakes, they’ll be faster to spot and to correct them.
Will planning get more popular?
Hannam is convinced that planning is on the way up, and not only because lenders are insisting on it.
“We will see more planning in the future because younger farmers are good at it,” Hannam says. They’re good at the business tools, in part because of the increased emphasis on business management in farm colleges, and they are so comfortable with the technology.
“You don’t need paper and a binder to do a business plan,” Hannam points out. “You can do it with an app and notes on your phone.”
Watson also brings a longer perspective to the discussion. More farmers are more open to some pretty basic questions, she says. She refers back to the 41 per cent who said they don’t create a business plan because they are succeeding without it, but in today’s agriculture, where business planning is proven to improve the farmer’s health, boost financial performance, and result in healthier family relationships, she says, “You have to ask what they mean by succeeding. It’s an important question.”
— Tom Button is editor of Country Guide. This article originally appeared in the September 2020 edition of Country Guide.