By Vicky Boyd
Editor

Having a financial plan to guide your operation has always been a good, sound business practice. But in this era of falling prices and unstable markets, a business plan has become a necessity.

In fact, many financial institutions won't even look at perspective borrows unless they have at least a draft plan in hand when they come in to discuss production loans.

"I think your business plan--your budgeting system and your knowledge of your operation--is probably going to be one of the most important things that we are looking at this year," says Stephen Broussard, an ag lender with Hibernia National Bank in Jennings, La. "Most of our farmers are good farmers around here. They can go out and work the ground. They know what to do in the fields.

"What I've seen the past couple of years is they're having to become more business oriented, more managers, and you can't really put a price on that."

In addition to being a requirement by most lenders, a business plan can put you in the driver's seat rather than always having to put out fires, says John W. Miller, an assistant Extension marketing specialist with Louisiana State University's Agricultural Center in Baton, Rouge, La.

"I think that is one of the keys--you go from being in a position of reacting to problems to being in a more anticipatory position," Miller says. "You understand the impacts on your budget and what your courses of action are.

"I think most farmers, particularly those who have survived to this point, have a good understanding of their operations. What a business plan does is formalize all of those items into a well-written plan."

A financial guide

Although a business plan may sound like you need an MBA degree to prepare it, Miller says that isn't the case at all.

"I think all of the answers are there in their production plan and in their financial plan," Miller says. "It's just a matter of translating what's imbedded in those into a formal business plan document."

Take planting plans, for example. You have narrow windows of opportunity for planting and applying fertilizer and chemicals. The information involving planting dates and application rates and timings can be incorporated into a formal business plan.

You can obtain some of the other financial information from your accountant, bookkeeper or by going through a private consultant.

Broussard sends out a letter annually before the big loan season providing producers with the basic information they'll need. Among the items he looks for are yield histories, last year's tax returns, annual payments and the balances remaining, how they plan to service debt, relationships with the landlord or landlords, and the target prices they hope to obtain for the crop.

Broussard says he doesn't turn away producers who have made a good initial attempt at drafting a business plan, even if it lacks certain components. Instead, he will work with them to develop a complete plan both the lender and grower can be comfortable with.

But if growers come in with nothing in hand, Broussard says he'll send them home to do their homework.

Getting help

To help with developing a business plan, LSU's Ag Center publishes several guides and informational sheets. Among them is Publication 2780, "Planning for Success: A Practical Business Planning Guide for Louisiana's Agricultural and Forest-based Enterprises." The four-page pamphlet asks producers a series of questions about their operations. The answers can then be used as the basis of a draft business plan.

The 16-page Publication 2781, "A Strategic Management Guie for Managers of Louisiana's Agricultural and Forest Resources," goes into more depth and walks producers through analyzing their operation. Cooperative Extension offices in other rice-producing states have similar publications.

Once you've drafted a plan, Miller recommends having a third party with whom you feel comfortable--whether it's a county agent, an Extension specialist or a financial adviser--review your plan to ensure it's adequate.

Somewhere along the process, Miller also recommends bringing in all of the others involved in your farming operation--your spouse, your partners or other business associates.

"One of the most important and overlooked aspects is to get everyone with a stake involved," Miller says. "Otherwise, you don't have that unity and commitment. If everyone has ownership in the plan, you will have unity and commitment and less likely to have resentment."

Playing 'what ifs'

Once you have a plan that you're comfortable with, a computer program developed by Texas A&M University allows you to analyze different scenarios. It can also help refine activity scheduling and timing of financial needs.

Dubbed TAMFarm, the software allows you to conduct a detailed analysis and put numbers to the business plan, Miller says. Copies of the software are available by calling LSU's Ag Center at (225) 388-2145.

Price and yield are two forecast risk factors that can range widely. With the volatile markets, you probably don't want to plan your entire operations based on $6 cwt rice. Instead, you can use the TAMFarm program to see how $5 cwt, $7 cwt and $9 cwt rice may affect your operation.

And the same goes for yield. You probably don't want to base your entire business plan on optimum yields.

"Obviously, you want to run finances across a set of prices and yield," Miller says. "That's why a computer tool is so useful. You can change one number and it will calculate everything for you."

Keep current

Once you've made the effort to draft a formal plan, Miller says keeping it updated is much less daunting. He recommends growers revise it at least annually to reflect changes in the market and their operations, among other items.

"If you go longer than a year, it's getting pretty risk in terms of updating the plan," Miller says.