Financial stability

Importance of business planning

The best way to protect against loss of financial stability, when the number and variety of issues to be considered is high, is to minimise risk and continuously improve the farm business model leading to the elimination of the surprise effect.

Consequently, good planning is necessary. A farm business plan is a plan for the operation of the farm, taking into account the goals, objectives, conditions for achieving them, as well as the expected economic results and financial impact. In drawing up the business plan, the general principle of economy should be kept in mind at all times. According to this principle, specific objectives should be achieved with as little effort and resources as possible. In the case of farms, this involves saving on capital expenditure (machinery, fuel, seed, fertiliser, etc.), as well as on labour and time, and on environmental costs.

The farm business plan must be built according to common sense: the choice of activities must not be random, must lead to a goal and must be feasible.

When creating a business plan it is necessary:

  • get to know well the farm for which we are developing a plan,
  • know the production assumptions,
  • know the target criteria,
  • know the limitations,
  • acquire the relevant knowledge,
  • make the final choice.

A farm should be planned along the lines of a living organism, in which all parts are necessary for the proper functioning of the whole and the whole serves the individual parts. A farm differs from a living organism in that it cannot grow old, even though there is constant wear and tear on the means of production and the business model.

Planning must be done wisely, starting by breaking down all the issues into:

  1. those over which we have influence,
  2. those over which we have no control.

It is important to focus on the factors we can influence and make further decisions in relation to them: what to sow, what to buy, what is needed, with whom to cooperate, and so on. The parts of the plan that can be consciously influenced should be made use of. This is very important and not easy. Choices must be made consciously, calculated coldly, so that there is as little chance as possible in the decisions, also taking into account the lessons of past mistakes. It is important to identify as many things as possible that we can influence.

We have no influence on the weather itself but we have some influence on its consequences. After all, you can insure yourself or build an irrigation system. We have no influence on the market. True, but we do have some influence on prices. You can work with buyers who pay better or more reliably. You can sign cultivation contracts or insure your crops. However, unforeseen events such as breakdowns, fire or theft are to a large extent predictable. It is possible to replace a worn-out part as a precautionary measure, to install a fire protection system or monitoring. Not always and not everything is possible, but decisions must be conscious, reducing the role of chance and surprise. It is better – when a wrong decision is made – to recognise this fact and not repeat it, rather than blame fate or third parties.

There are issues over which the farmer does not really have influence and will not have influence – high harvests in other parts of the world, disease epidemics, political turmoil, embargoes, etc. However, he can do the following three things:

  1. be aware of their existence and assume that they may occur; it is worth listing them or checking possible risks and difficulties on the available agricultural portals, e.g.
  2. to take account of their existence, assuming in the plan an adequate reserve for genuinely unforeseen events (e.g. cash for a “rainy day”, or the assumption of a fall in selling prices), and in crops to vary them accordingly; it is worth securing some kind of reserve, because such things simply happen,
  3. preparing an alternative contingency plan, in case the developed business plan fails and the existing reserves are not sufficient.