With all that is happening in the world right now, it’s a good time to talk about how and why you should update your business plan.
So, you sat down and made this amazing plan at the beginning of the year. You projected your income, set a budget, updated your financial statement, and ran some possible scenarios. Now that the crop year has started are you following the plan? Is there a reason why you can’t? Has something changed? Why go to all the trouble of making a great plan if you are not going to update it to track your progress along the way?
To make your hard work pay off, a plan can and should be updated throughout the year. There are bound to be changes no matter how bulletproof your original plan was. You may be over or under budget in some categories, or you may now be expecting a different price on a certain crop.
A number of things could happen that were unexpected and that is precisely why you have to monitor your plan and reforecast your budgets.
Every year I have clients who wonder what happened during the year that caused them to lose money. They can’t figure out why they don’t have enough funds left at the end of the crop year to make ends meet. Well, if they had been monitoring their plans throughout the year they would have known precisely when things began to go awry.
Sometimes you just have to spend more money than you anticipated, and you go over budget. Stuff happens. The key is to not let these events that you spend money on throughout the year come back to bite you at the end of the year.
When you go over on one category (say, repairs), then you should take a look to see if you are under on any other category (possibly labor) to see if this may end up balancing out.
If you are at capacity or know you will definitely not be under in another category, that is when you need to examine to see how much this overage will impact your bottom line and ability to pay debts.
By addressing this as it happens you are more likely to find a workable solution.
The longer you let it “work itself out,” the more likely you will be one of the puzzled ones at the end of the year.
You didn’t make that awesome plan just to say you made one. Yes, you may have needed it for the bank, but you also need to use it! Reforecast throughout the year and run sensitivity analyses to see what would happen “if” this or “if” that.
In my next post we will discuss how to run a quick sensitivity analysis. Watch for it on FarmFutures.com