The importance of a business plan for farming

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You wouldn’t drive a car without a steering wheel. So why run a farm without a business plan?

The importance of a business plan
A business plan should list all risks involved in the operation, such as drought and rising input costs, and explain how you intend to mitigate these.
Photo: FW Archive

A good business plan is a must for a new farmer: it provides a clear strategy and objectives, and helps everyone involved in the operation to stay productive and focused.

In compiling a business plan, you may make mistakes. Never mind! These can be corrected easily on paper before the plan is implemented, saving you money.

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Having a business plan also shows banks and other investors that you take your farming operation seriously.

A good business plan involves research on the external and internal business environment, including competitors, suppliers and consumers.

This can be translated into a detailed action plan showing your competitive advantages and how to address problems. Identify milestones with time-frames to help you achieve your objectives within the stipulated schedules.

Beware of these mistakes when drafting a business plan:

Cash flow
Most prospective farmers focus on the infrastructure required and ignore cash flow. Cash flow is crucial to the operation and helps to manage financial resources, debtors and creditors.

Too vague
Don’t assume that the person reading your business plan knows what the venture is all about. Provide as much detail as possible, explaining exactly what you will require financing for.

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Unrealistic assumptions
All business plan writers assume that the business will succeed, so they often make unrealistic assumptions. Study existing or similar businesses for acceptable standards. The goals of the business must be achievable. Rather start small and expand.

Risk
A business plan should list all risks and explain how you intend to mitigate these.

The competition
Many prospective farmers fail to include information on competitors, either through lack of knowledge of them or because they are not aware of the significance of this competition. Show your awareness of the competition and discuss how you intend to do better.

Suppliers
Suppliers play a key role in every farming operation. If you are unable to receive inputs efficiently, your production will suffer and you might not even be able to deliver your products to the market.

Building and strengthening relationships with suppliers will contribute to the long-term sustainability of your farming operation, so mention your suppliers in the business plan.

Source: Directorate Co-operative and Enterprise Development, department of agriculture.