
The second quarter of the 21st century will be one filled with uncertainty and accelerated change in domestic and global forces impacting the financial bottom line of the agriculture industry. Now, more than ever, developing and executing a business plan is critical for scenario planning and maintaining focus in a world that changes in a New York minute. What are some of the critical elements in this game plan?
Goal establishment: Business and life transformation
An often-overlooked component of a written business plan is the basic goal setting process that will aid you in the journey of business and life transformation. Short-term goals have a timeline of less than one year and longer-term goals are three to five years. To provide balance, business, family, and personal goals all need to be defined. Take the process a step further by recording your mental, physical, and spiritual goals. All of your goals should be SMART (specific, measurable, attainable, realistic and have a timeline). If you develop written goals, you will be ahead of the curve because only one out of every five Americans has written goals. Whether it is financial or business planning, those businesses that conduct the basics are four to nine times more profitable. According to a Canadian agricultural study conducted in 2022, the goal setting process also contributes to improved stability and mental health.
Cash flow
As we enter the next quarter century, the agriculture economy is bifurcated. The grain industry and row crops are struggling while those on the livestock side and some value-added industries are doing quite well.
Many producers developing a monthly or quarterly cash flow for grain and row crop operations will need to determine what it will take to break even, minimize losses, and garner a small profit. This will require one to carefully think about production plans along with marketing and risk management programs with a careful eye on expense management. Rent and lease strategies along with crop input management will need to be carefully scrutinized for potential opportunities. A breakeven analysis with different scenarios will provide the guardrails and the boundaries of possibilities that can be monitored throughout the year. A word of caution, do not expect another government payout in your planning.
Be careful when developing a cash flow for livestock or value-added enterprises with favorable price-cost variables. Often the worst financial decisions are made during the best economic times. Again, production, marketing, and risk management programs must be developed, executed, and monitored. If you are profitable, make sure that you have a profit plan for efficiency, growth, and building working capital with a prudent tax management program. Be careful of spending $1.00 to save $0.20 in taxes while also obligating cash flow to service debt over the next three to five years.
Finally, update your business and personal balance sheet in the month of January. If you follow these steps, you will be prepared for your lender and you will also be ready to manage some of the basics of finance that can put the odds of business success in your favor.
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