Having a business plan will help grow your stock as well as your business.

Dairying 101: Charting your course

Karen Trebilcock

A business plan needs to be more than a document to convince the bank that your dairy operation will somehow make money.

We can do budgets and planning till the cows come home (and they do come home – usually twice a day) but often it feels like a pointless exercise because in farming, no year is ever a normal year.

Who knows when the tractor is going to blow up, a worker put the penicillin milk in the vat and then promptly forget about it or, of course, the payout drop yet again.

Include benchmarking and explain why some of your figures are better, or worse, than those you have benchmarked against.

And then there is the weather – droughts, floods and even earthquakes. They all affect your bottom line.

But business plans are much more than budgets and forecasts. They’re a statement of how you got to where you are now, where you are now, and where you hope to end up.

Your analysis of all three should show your knowledge of your farming business.

It’s a document that you should keep up-to-date even if the bank or whoever is not asking for it – this document is about your business, for your business. It’s about knowing what you’re doing and why you’re doing it.

And when you get up at 4am every day to milk cows, it’s a really good idea to know the why.

Sitting down to start writing a business plan is probably the hardest part of the whole process. It’s that white piece of paper, that blank screen.

Start with a template instead – one where you just fill in the answers. There are plenty around – either google to find them or ask your accountant, bank or farm consultant for examples.

Most of them begin with how you started out and how you got to where you are today. Add in as much detail as you want – if it’s important to you then write it down.

Then state what your business looks like now – who’s involved, how those people interact, what responsibilities they have.

Include all the things that you own that are part of the business (ute, motorbikes, tractors, cows) and talk about the farm you’re on whether you own it or not, including its good points and bad.

All of this should not simply be a list. Analyse it, saying whether it contributes to or limits your success. For example your new tractor might be great at doing the job you need it to do and maintenance bills have halved since you got rid of the old one but the interest payments are affecting cash flow.

Starting with a blank piece of paper can be the hardest thing to do.

After writing all of this then start on the financial planning section which is your budget for the season, cash flow for each month and equity growth projections.

Include how much equity do you believe you can grow each year and how you are going to do it, how are you going to use it?

Include benchmarking and explain why some of your figures are better, or worse, than those you have benchmarked against.

Identify areas for growth, opportunities and strengths. A larger than normal calf rearing shed on the farm may allow you to raise more calves for sale or having your own baler means you can go contracting.

Do a SWOT (strengths, weakness, opportunities and threats) analysis showing that you are aware of what could go wrong, but also how to mitigate them if they do.

State your risk management – how regional council plans will affect your business, how you can reduce costs if the payout crashes or whether you can sell land and consolidate your business if interest rates rise. If the farm is known to flood put in your contingencies for when this happens.

Doing this makes you think about all the possibilities and makes you put plans in place before the worse happens.

Also include your long-term goals – the where you want to get to. In today’s changing world financial security looks a lot different now to what it will be in 10 years’ time, or 60.

In the 1970s everyone’s dream was to retire at the age of 50, in the 1990s it was to own your own farm. In the 2000s it was the overseas trip in the offseason.

Now it might be just to stay afloat, put the kids through university without too big a student debt and getting them somehow on the property ladder.

Don’t feel bad that your goals change. Life happens. Children, health issues and the economy all throw curve balls at us. Don’t be blinkered by them. Learn from them instead. Enjoy the ride.

Your goal might have been once to own your own farm but don’t feel let down or guilty or that you have been unsuccessful as a farmer when you realise you are never going to get there.

And hey, if somehow you finally got enough equity to buy a dairy farm would that really be what you would spend all of those millions on right now? (Bach at the beach or milking cows? Luxury yacht or milking cows? I have so much money I can do whatever I want to or milking cows? Such tough decisions).

So, if you read your business plan from last year and your goal in it doesn’t mean the same to you as it did then, it’s time to rethink it.

If why you are milking cows is no longer true then alter it, find another reason (or stop milking cows).

Change is always happening. Some of it you can plan for (getting older), most of it you can’t.

Also add into the document your policies and procedures manual, your farm environment plan and your nutrient management plan.

You may not think they directly affect your finances but you need to at the very least show you have them and they are up-to-date, working documents.

Also include the purpose of your business – why are you a dairy farmer?

And the answer to this is not “my Dad made me do it”. He might have told you to milk the cows from before you can remember but you could have walked away. Something made you stay so what was it?

Dairying farming might give you and your family a place to live that you enjoy, the opportunity to be your own boss, to decide your own future, work the hours you want to, be part of a rural community or give you equity growth that you couldn’t get on wages.

Or it might be that you like working with animals/big green tractors/interesting young people that you can give opportunities to.

Or it could be your kids love it and you want to be able to pass the farm on to them one day.

If that’s the case, you better include a succession plan in it as well.