Using whole farm planning approach

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laptop, notebook, desk

Hello, Northeast Ohio. We have all heard the saying “plan your work and work your plan.”

This month’s cold stretch of weather is an excellent time for farm managers to retreat to their farm office and turn their attention to the planning function of management.

Planning is one of the most important aspects of managing any business. This is especially true for farms and agribusinesses due to their complexity and the inherent uncertainties associated with agriculture.

The Ohio State University extension encourages farm families to adopt a whole farm planning approach as they develop strategies for the future success of their business.

The whole farm approach allows families to examine the internal structure of their business and then develop business, retirement, transition, estate and investment plans that work in harmony. So, let’s take a look at each of these areas.

Business plan

A business must be profitable in the long run in order to exist. On most farms, the major planning that occurs is for the farm’s production practices. An example of this is deciding what variety of corn to plant or deciding what sires to use for breeding cows.

However, planning for the success of the farm business should include much more. A comprehensive business plan should be developed. This plan not only helps the family develop a plan of action for production and operation practices but also helps develop plans for the financial, marketing, personnel and risk-management sectors of the business.

One recommended method of evaluating the farm business is to conduct a SWOT analysis, which examines the Strengths, Weaknesses, Opportunities and Threats in each of these areas. In short, the agricultural business plan presents a picture of the agricultural business or farm, where the business is going and how it will get there.

Retirement plan

No one expects to work forever. A strategy to help each business member meet his or her expected retirement needs should be developed.

The two main retirement questions that should be addressed are how much money does each family member need for retirement and what will the farm’s obligation be to retirees?

A variety of factors such as age at retirement, retirement housing and other retirement accounts held by the family will affect retirement needs. It is essential that retirement plans are established early for all members of the business.

It is also important that the profitability of the farm be such that a family member can retire and not adversely affect the financial position of the business.

Transition plan

The goal of transition planning is to ensure that the business has the resources to continue for many generations. Transition planning helps the family analyze its current situation, examine the future, and then develop a plan to transfer the business to the next generation. This includes planning not only for the transfer of assets but also managerial control.

Members of the primary generation should invest time in transferring their knowledge to the next generation.

Estate plan

Farm estate planning is determining how the farm assets, such as land, buildings, livestock, crops, investments, machinery, feed, savings, life insurance, personal possessions and debts owed to or by the farm, will be distributed upon the death of the principal operator(s).

The estate plan, in concert with the transition plan, helps to address how the off-farm heirs can be fairly treated without jeopardizing the future of the farming heir.

Investment plan

The primary investments made by farm families are usually in land, machinery and livestock. Farm operations may, however, wish to invest in such off-farm investments as stocks, bonds, mutual funds, real estate, life insurance, retirement homes, precious metals or disability insurance.

These investments allow farm families to save for future education or retirement needs and allow for investment diversification. Factors that farmers will need to consider during investment planning include the rate of return, personal risk tolerance levels, tax considerations and the time horizon available for investing.

Summary thoughts

It should be noted that each of these planning areas do not stand alone. Like spokes in a wheel, all will need to work in harmony to ensure the long-term viability of the business. Each area can positively or negatively affect the performance of the others.

A multitude of resources are available through Ohio State University extension to help farm operations plan. I encourage you to check out the Whole Farm Planning factsheet at ohioline.osu.edu/factsheet/anr-52.

In closing, I am reminded of Proverbs 21:5 which states, “The plans of the diligent lead to profit as surely as haste leads to poverty.”

Have a good and safe day!

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David Marrison is an associate professor and Extension educator, Agriculture & Natural Resources, Ohio State University Extension. He can be reached at 740-622-2265 or marrison.2@osu.edu.

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