Planning for 2019 and Decade Ahead

This is the time of the year when the days become shorter and focus comes back in from the fields to the office. This year – more than many other years – a sound business plan will be critical to not only obtain the required funds for operating and long-term capital, but to provide necessary focus as we close out the decade.

First, you will need to consider operating in an environment with razor-thin margins and extreme economic volatility when developing your business cash flow for the upcoming year. In 2019, consider the possibility of two or three additional interest rate increases on borrowed funds with variable interest rates.

The development of a cash flow for your business encompasses about 80% of the business plan. This process requires you to think through production options and schedules, marketing strategies, and operating expense cycles. Developing a cash flow will also be critical for calculating your 2019 operating needs.


 

Shock Test and Calculate Costs


In planning for next year, economically shock test production rates, price, cost, and interest rates. Then, calculate the cost of production per acre or per animal unit. This can be a major first step in developing a marketing plan. 

One of my former students, a farm business consultant at Clemson University, has found that strategic marketing is a difference maker. After analyzing more than 30 years of data, he found that 75% of the time, marketing corn during the planting period rather than at harvest resulted in an average gain of $0.19 per bushel. Even better results were observed for soybeans and wheat.
 

Link Marketing to Financial Goals


Having a marketing plan linked to a financial goal and knowing your cost of production are best management practices of managers who have a high business IQ.

An inward examination of priorities should be high on your agenda for your planning session. My favorite exercise amongst groups is to ask each person to make a five point bulleted list defining personal or business success. Once this list is developed, refine it into your written business, family, and personal goals. Only the top 20% of elite agriculture managers do this basic planning exercise that provides focus and prioritizes strategies in a crazy world dominated by headlines and social media. If multiple stakeholders and parties are involved, each must conduct this exercise separately and then come together to compare and contrast the similarities and differences.

Adjust Values and Benchmark Key Ratios


Planning for next year involves updating your year-end balance sheet with adjusted values based on the current situation. Then benchmark your key financial ratios – such as working capital-to-expenses and debt-to-asset ratios – to other businesses. 

This exercise will assist you in obtaining credit and allow you to monitor your financial progress. Your state’s farm financial record systems provide good metrics to benchmark against. Remember it is an investment, not a cost. Compare your results to other peer operations to receive optimal output from this investment and to set yourself apart from the competition. This exercise will help identify strengths and possible areas for improvement.

Prioritize Family Living Budgeting


Remember to consider the personal side when planning for next year. Yes, those pesky family living budgets are just as important as farm budgets. 

These expenses need to be included in the cost of production metrics. Determine what your living costs are and how many people are living off the business.

Finally, your business plan should address your personal development. As I travel and lecture to farm groups, I have noticed many producers are actively involved in exercise programs. Other producers are occasionally shutting off the technology and taking time to read, attend educational events, or participate in other activities. These activities away from the farm help enhance your knowledge and spiritual well-being.

The balance between business and personal life skills in your business plan provides a pathway not only for next year, but for the decade ahead.
 

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