The Life of a Business Plan

October 6, 2010 04:22 AM
 
RonSwanson

A business plan is a living document, says Ron Swanson, who farms in Galt, Iowa. "I like to review mine in depth at least once a year. Some parts, like the history of the farm and our mission, don’t change very often. Others, such as my marketing plan, change frequently. I don’t think of it as one huge document but bits and pieces that together create a whole."

Business plans have new importance in the current lending environment: Many lenders are requiring longer-term financial projections and plans. Basically, business plans "provide direction by making you discuss where you want to take the venture and define what you expect out of it," says Purdue University economist Jay Akridge. "They provide structure to your thinking and help you make sure you’ve covered important issues."

Done right, they also document business assumptions. "Business managers often fall into treating business assumptions as fact and fail to plan for changes," he says.

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Financial thinking goes beyond bookkeeping, adds Michael Boehlje, an economist also at Purdue. "The manager needs to address insurance, financial planning, accounting systems, cost control and auditing.

"You can be profitable according to your tax return and income statement, but unless you are generating enough income and revenue to reward yourself for your contributions to the business, you may not have created value," he says. "You need to get paid for intellectual and managerial capacity and for your capital as well." Including those factors in your business plan makes your expectations concrete.

Swanson’s annual review of the entire plan is what economists quote as a minimum. Other reasons to revisit the entire plan include events such as a major expansion opportunity or a transition in owner-ship or management.

When to Rewrite. Swanson is working on his succession plan to transfer assets to his son. "We have two distinct management units," he says. "My son farms his own land and has a hog operation that he manages separately from the land I farm. As I work on the transition of my land to my son and two off-farm children, at some point I may need to rewrite part of my business plan."

You’ll want to review the marketing and financial portions of your plan when seismic shifts occur in your assumptions, says Danny Klinefelter of Texas A&M AgriLife.    

"If input prices soar or milk price is cut in half, it can’t be ignored," he says. "You need to revise your management strategy immediately." 


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