The importance of strategic planning in farm management

To be successful in farming, the modern farmer needs to grab both opportunities and challenges with the same enthusiasm, thereby adapting swiftly to the changes to the immediate and global agri markets. Success in farming requires an awareness of where you are as well as where you are heading. Thus, the farmer needs to have clear goals and direction in order to achieve sustainable success.

According to Earl Nightingale “Success is the progressive realisation of a worthy ideal”. A worthy goal, as well as a process to achieve this goal, therefore predict success.

Strategic and operational planning in farming enterprises

Strategic management is the integration of all functions so as to pro-actively manage the total farming system in harmony with the internal and external environment towards achieving the long term goals of the farming business. It is about  pulling back the lens to get a big picture view and consider future scenarios. It gives you the best opportunity to maintain control, avoid serious pitfalls and capitalize on opportunities. Thinking strategically about your farming business involves creating a vision for where you intend to be in three, five and ten years. Operational Planning is putting the strategy to work through breaking the long- term goals and plans down into shorter terms objectives and action plans. It answers to questions such as “Who is doing what?”, “What are the day-to-day activities?”, “What are the labour requirements?”  and “How do we optimize our resources?”.

Farming goals must be developed in direct support of the envisaged future and should focus on key performance areas, such as: Financial goals; Growth/ Expansion goals; Personal goals; Succession planning to ensure a next generation of farmers, and sustainability goals. Each one of these goals must be Specific; Measurable; Achievable; Results-focused and have timelines, hence SMART. Smart goals are easily understood and managed.

STRATEGIC PLANNING AND FINANCE

Strategy and finance are interwoven and financial reports provide critical information about your farming enterprise’s financial position and its financial performance during the period of strategic execution. There are four main financial statements in a complete set and a farmer would need all of them to get the whole financial picture of your farming operation for that period of time. These statements are the balance sheet;  the income and expense statement; the cash flow statement, and the closing net worth statement.

Four key areas of measurement in the financial reports will be helpful in reviewing your strategy. These measures are indicators of success, as well as risk and would also form the platform for credit risk analysis.

Financial ratios can be useful in managing the farm business as it provide a check on the performance of assets and a warning as to potential areas or risk. Combining these ratios with an analysis of production costs and returns should provide a farmer with an excellent basis for decision – making. Though these ratios and margins do not guarantee success, planning according to them will improve the probability of success.