Planning: A “Whole Farm” Approach

Jan 4, 2024 | Uncategorized

Comprehensive planning is crucial for farm businesses because it ensures proactive management, addresses the unique challenges of agriculture, and lays a foundation for long-term sustainability and success.

But, it’s more than a simple business plan. Farm and ranch businesses combine the universal challenges of business with the complexities of family relationships, rural values, and “asset heavy, cash poor” models.

So let’s take a look at how to approach the various planning needs of a family farm and ranch business. We’ll begin with identifying some key components that span across the various planning areas.

This summary and upcoming thoughts was inspired by this article from Ohio State University.

The Farm Family

The family unit is central to agricultural businesses, and understanding its history, values, and goals is crucial. Reflection on past experiences, both successful and disappointing, can provide valuable lessons.

It’s also essential to understand the impact of all family members, even those not actively involved in operations, as their roles and relationships significantly affect decision-making and business dynamics.

Individual Assessment

There is no uniform skill set for agriculture careers, so each family member should self-assess their abilities in areas like communication, financial management, production, marketing, and general management.

Recognizing these skills helps determine how each person can contribute best to the farm’s operation, promoting efficiency and harmony.

Business Analysis

This involves a thorough review of the current state of the farm, assessing available resources such as land, labor, capital, and management.

It requires understanding the business’s physical, fiscal, and personnel status and identifying any underutilized resources. External influences that could impact the business, including political, economic, environmental, social, or technological factors, should also be considered.

Mission Statement

After analysis, a mission statement should be formulated, defining the farm’s fundamental purpose and reflecting the family business’s underlying values, goals, and purposes.

Developing Five Essential Plans

There’s significant interconnectedness of the various whole farm planning areas, and we ought to develop comprehensive strategies in each of these areas:

  1. Business Plan: Beyond production decisions, this plan encompasses financial, marketing, personnel, and risk-management strategies. A recommended tool is the SWOT analysis, which evaluates the business’s strengths, weaknesses, opportunities, and threats.
  2. Retirement Plan: This strategy considers the financial needs of each family member in retirement, emphasizing the importance of early planning and the farm’s profitability in meeting these future obligations.
  3. Transition Plan: Focused on the farm’s longevity, this plan outlines how to transfer business assets and managerial control across generations, ensuring the farm’s continued success and accommodating all heirs in the process.
  4. Estate Plan: This involves determining how farm assets will be distributed upon the death of the principal operator(s), with considerations for potential tax implications.
  5. Investment Plan: Besides traditional investments in land, machinery, and livestock, farm families are encouraged to diversify with off-farm investments, considering factors like return rates, risk tolerance, tax implications, and investment timelines.

Diagram Source Credit: OSU

To summarize, proactive and comprehensive planning will help secure the future success of farm businesses. Through the whole farm planning approach, these businesses can face future challenges confidently.

The Farm Family

Comprehensive planning is crucial for farm businesses because it ensures proactive management, addresses the unique challenges of agriculture, and lays a foundation for long-term sustainability and success.

The first and most important component to consider when looking at a whole farm planning approach is the farm family.

It’s the backbone of the whole operation.

Now, every family’s got its own story, things they believe in, and stuff they want to achieve together. It’s important for them to sit down and really think about all the highs and lows they’ve had on the farm. What worked in the past? What didn’t? It’s all about learning from what’s already happened to make smarter moves going forward.

Now, here’s the thing: families often have these big dreams and values, but they don’t always talk about them.

It’s crucial to get those ideas out in the open. That way, everyone knows what they’re all about and what they’re working towards. It keeps things real and helps avoid any nasty surprises or disagreements later on.

But it gets a bit tricky. You see, in any family, there are lots of personalities, right?

Even folks who aren’t working the land every day—like maybe an off-farm sibling, or an in-law, or an ex-spouse—they still have a part in the big picture. They might have opinions, expectations, or they’re somehow involved in the finances. Whatever the case, it’s important to consider their impact on the business to keep the peace and make sure things run smoothly.

Speaking of the future, there’s this whole big deal about who takes over the farm next. That’s a tough one. Families need to have those heart-to-hearts about who’s going to step up and how that transition’s going to happen. It’s not just about keeping the farm running; it’s about respecting everyone’s wishes and keeping the family close.

Now, mixing family and business? That’s like a double-edged sword. It’s awesome because you’re all in it together, but it can also stir up some drama. Setting some ground rules can help a lot here. This means making sure everyone knows when it’s time to talk business, when it’s family time, and maybe even bringing in someone from the outside for a fresh perspective when things get sticky.

And, the young ones need to get ready to lead someday, right? It’s not all about knowing how to plant crops or milk the cows. They’ve got to learn how to make tough calls, handle money, and understand what their family’s farm is all about. It’s about passing the torch the right way.

Lastly, don’t forget that neighbors and other folks around town are paying attention. A family that sticks together, shows they know what they’re doing, and treats people right. They’ll earn a lot of respect and support in the community.

So, in a nutshell, running a family farm is a big, beautiful challenge. It’s all about sticking together, having those open chats, planning for the future, and keeping those family vibes strong, all while making sure the business doesn’t miss a beat.

Individual Assessments

First, not everyone’s cut out for farm life. It’s not like there’s a single quiz out there that can tell you if someone’s a good fit for farming. It’s more about each person on the team taking a good, hard look at what they bring to the table. We’re talking about skills in managing people, handling money, growing things, getting products out there, and keeping the whole show running.

Here’s the deal: Every person has their own mix of things they’re awesome at. One might have a knack for keeping the books tight, while another is a whiz at caring for livestock or can fix a tractor with their eyes closed. With ag being as complex as it is, having a crew with a wide range of talents is a big win.

So, it’s a good move for everyone to take a step back and think about where they shine.

  • What makes you want to farm in the first place?
  • What’s really important to you?
  • What are your big dreams for the farm, and do they mesh with the family business plan or not?
  • What are you best at that can bring value to the operation?

Everyone’s got their strong points and their not-so-strong points. And it’s not just about the production side of things. It’s also asking yourself how you make decisions, how you handle conflict, if you’re willing to endure the struggles to realize the rewards.

Of course, there’s the personal side of things to think about—does your personality meld with the other workers? What does your family need, financially, to keep the lights on? And really, how does your family feel about the whole farming business?

Business Analysis

Doing a deep dive into your farm business is like pulling out a map during a road trip. You need to scope out where you’re at before you can hit the gas towards where you want to go. So, you start by taking a look at the basics: How much land do you have to work with? How labor is available to pitch in? What’s the state of your finances? And who’s keeping all the wheels turning?

Then you get into the nitty-gritty, the:

  • Who
  • What
  • Where
  • Why

of the farming enterprise. Answer those questions to determine the physicalfiscal, and personnel side of the business.

Now, efficiency is key. Your analysis ought to make sure you’re not wasting a single seed or a drop of sweat. If there’s something or someone that’s not being used to its full potential, you’re leaving money on the table.

Next up, you look at the cash coming in and the cash going out, the business structure, operating procedures, and key personnel. It’s also important to keep an eye on what’s going down around you. Things like new laws, market trends, even the weather—anything outside the farm that can throw you a curveball.

Once you’ve got a clear picture of the current farm scene, it’s time to huddle up and figure out where to go from here. Everyone involved in the operation needs to toss their dreams and skills into the pot. This way, you make sure the goals you set for the farm are actually doable because they’re based on what everyone’s good at and what they want out of the gig.

Remember, the best farm plans are the ones that reflect the whole squad. It’s about everyone being heard and finding the sweet spot where all those individual goals meet up with the farm’s goals. It’s like putting together a puzzle where each piece is crucial to get the full picture.

Mission Statement

Alright, let’s start with the mission statement. This is your farm’s battle cry. It’s a quick rundown of why your farm exists in the first place. A good mission statement keeps everyone on track—it’s like the North Star for your farm business, guiding all your decisions and actions.

Tips for Crafting a Mission Statement:

  • Keep it short and sweet: You want everyone to remember it, right?
  • Make it a mirror: It should reflect what your farm is all about—the core values and the big why.
  • Align it: Ensure it matches up with what you’re actually doing out there in the fields and how people see your farm.

Here’s an example from an Iowa corn, soybean & cow/calf operation:

The heart of our farm is to produce top-tier corn, soybeans, and grow a reputation cow/calf operation, maintaining the right size to ensure a solid living for our family and employees. We’re creating a place where kids can grow up with the land and learn the value of hard work. Our aim is to practice sustainability, guaranteeing our farm’s economic viability for future generations.

In our example, this Iowa farm’s mission statement isn’t just about growing crops and cattle. It’s about providing for the family, giving employees a solid job, and creating a place where kids can grow up right. Plus, they’re looking long-term, wanting the farm to last for generations.

Business Plan

Moving on to the business plan, think of this as the blueprint for your farm’s success. It’s more than just figuring out the day-to-day stuff, like which corn variety to plant or which bulls to use for breeding.

Here’s what you should include in a Business Plan:

  • Big Picture Thinking: It’s not just about growing products. You’ve got to plan for the money side, how you’ll sell your products, who’s going to help run the show, and how to cover your bases if things go sideways.
  • SWOT Analysis: This is a handy way to take a good look at your farm’s Strengths, Weaknesses, Opportunities, and Threats. It’s like taking your farm’s pulse to see what’s healthy and what needs a bit of TLC.
  • Get Detailed: Outline everything from cash flow to how you’ll deal with risks like bad weather or price drops. And don’t forget about who’s doing what on the farm.
  • Set Directions: This plan should lay out where you’re headed and how you’re going to get there. It’s the roadmap for your farm’s future.

We did an in-depth, comprehensive, 7-part series on building a business plan a couple months ago. Click here to see the last newsletter in that series, as it has links to each part for more details, ideas, and a template.

When you’re putting this together, remember all these plans—business, retirement, transition, estate, and investment—they all tie together. They’re like the spokes on a wheel; if one’s out of whack, the ride gets bumpy. So, when you’re planning in one area, think about how it impacts all the others. i.e. if you’re smart with your investments, you’ll have more cash to play with for the business or for when you retire.

Each part of your plan should be helping the others out. It’s a team effort, and when done right, it’ll keep your farm rolling smooth for the long haul.

Retirement Plan

When it comes to hanging up the work boots and settling into retirement, farm families need a solid game plan.

The big question is: How dollars will each family member need to enjoy their golden years, and what slice of that is the farm chipping in? It’s not just about picking a retirement age; you’ve got to think about where you’ll live and other savings you’ve got stashed away.

Here’s the gist: start planning early. The sooner, the better, because you want to make sure when someone’s ready to retire, it doesn’t put the farm’s finances in a tight spot. The farm (by itself) needs to be profitable enough so that when someone steps back, it doesn’t cause a financial hiccup to that successor generation.

So, it’s prudent to sit down and map out out what that retiring generation needs to live on (a retiring generation household budget) and identify the sources of that income. If a large percentage of that is from the current farm, families need to identify how to maintain that stream of income while also keeping the farming operation financially viable.

Insight for Farm Families:

  • Start Early: The earlier you plan, the more options you’ll have for a comfortable retirement.
  • Realistic Needs: Get real about how much you’ll need—factor in living costs, healthcare, additional insurance costs, and a little extra for the fun stuff.
  • Farm’s Health: Ensure the farm can stand strong financially, even when a family member retires.

Transition Plan

Transition planning is all about making sure the farm keeps on thriving when it’s time for the next generation to take the reins. It’s more than just handing over the keys; it’s about passing on the know-how and managerial savvy. The family needs to sit down, look at what they’ve got now, dream up what the future looks like, and map out how to get there. This means deciding when the up-and-comers get to make big purchases or start running the daily financial show.

Here’s what you need to chew on: It’s crucial to share your wisdom with that next generation early and often. And don’t forget about those family members who might not be farming. You’ve got to figure out how to treat them fairly in the handover without putting the farm’s future in jeopardy.

Insight for Farm Families:

  • Knowledge Transfer: Share your farming smarts—mentorship is key.
  • Timed Handover: Set clear timelines for when the next generation steps up to major tasks and managerial expectations.
  • Fairness: Balance the transition so it’s fair to everyone involved, even those off the farm, but still keeps the farm’s future secure.

By getting a grip on both retirement and transition plans, farm families can pave the way for a smooth shift from one generation to the next, ensuring the legacy and the livelihood keep going strong.

That’s often a big task… with multiple generations’ ideas, farm and personal financial situations, and family relational dynamics, it means months and years of work. Sometimes, it’s best to bring in a neutral third party to hep advise on how best to make that handoff. Don’t be afraid to reach out to your trusted advisors or other members of Braintrust Ag for support.

Each part of your plan should be helping the others out. It’s a team effort, and when done right, it’ll keep your farm rolling smooth for the long haul.

Estate Plan

Think of estate planning as the blueprint for how all the pieces of the farm—like the land, the barns, the animals, the crops, and all the gear—will be passed on when the inevitable occurs. Again, an estate plan is different from a transition plan, as it only comes into effect when the owners pass away.

It’s about making sure that everything you’ve worked so hard for goes where you want it to without a massive tax headache. That’s why you want a lawyer and a tax expert who know the ropes of farm transitions to help you draw up the plans.

Insight for Farm Families:

  • Get Expert Help: Team up with pros who know about farm estate laws to save you from tax troubles.
  • Plan Ahead: Don’t wait too long to get this sorted. It’s a big job, and you want it done right.
  • Clear Instructions: Make sure your will or trust is crystal clear to avoid any family fall-outs when it’s time to divvy up the farm.

Investment Plan

Investment planning for farm families isn’t just about pouring cash into crops and cows. It’s smart to look beyond the farm too—think stocks, bonds, real estate, or even a little nest egg for when you retire. These off-farm investments can be a safety net for things like college funds or your retirement beach house.

When you’re picking investments, you’ve got to weigh up stuff like how much you’re likely to earn back, how much risk you’re willing to take, the tax side of things, and how long you’ve got to let that money grow.

Insight for Farm Families:

  • Diversify: Don’t put all your eggs in one basket. A mix of farm and off-farm investments can keep you steady.
  • Risk vs. Return: Be honest about how much risk you can handle versus how much you hope to make.
  • Long-Term Thinking: The best investments are the ones that match up with your future plans—whether that’s college for the kids or a comfy retirement.

Estate and investment plans are critical pieces of the bigger picture that include retirement, transition, and business plans. While estate planning ensures the farm’s assets are passed on smoothly and tax-efficiently, investment planning builds a financial cushion that supports the farm’s and family’s future needs.

Together, these five plans interlock to safeguard the farm’s legacy, provide for the family’s present and future, and secure the operation’s ongoing success. They are the strategic threads that, when woven together, create a strong safety net for both the current and upcoming generations of the farm family.

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