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The Best Planning Style for Your Operation

Glenn Wachtler
Educational Opportunities: 
Grain, Young, Beginning Farmers, Specialty Industries
Home > Education & Events > February 2018 > The Best Planning Style for Your Operation

There’s no question, it’s tough out there for farmers. Many industry analysts believe low commodity prices could stretch out until 2020. Isn’t it time to start seeing things differently? As a grain producer, you have a choice. You can assume the situation is temporary and hope it improves. Or you can take control of an unpredictable future by shifting your business planning strategy to externalize the risks associated with weather and markets.

Your planning style makes a difference.
The secret to taking control in this economic environment is to adopt an approach to business planning that harnesses the risks associated with weather and markets. How? Start with the end in mind.
We’ve surveyed our clients and found that producers who embrace a “reverse planning” mindset for their farm operation earn higher returns per acre. Reverse planning means starting at the desired end goal and working backwards in order to make intentional choices that ensure you get there. It allows you to reduce the risk of your operation.
Conversely, “forward planning” is what you do when you start at the beginning and work progressively in the order you are going to act. It’s a typical approach that often – and somewhat surprisingly to those who adopt it -- produces lower than average results.
Powerful predictor of success
In our study, producers with earnings in the top 1/3 of the clients surveyed were the most likely to answer questions with responses associated with a reverse-planning perspective. All respondents who aligned with the “forward planning” approach placed below the median in earnings.

So, how, exactly, are these top third putting a reverse planning approach into practice? As we all know, every farm operation is different, but a few examples are as follows.

Capital Expenditures
Instead of buying a new piece of equipment when something breaks down or a dealer is liquidating last year’s inventory, start with your goals in mind. Look ahead to your six month, 12 month, 24 month and five year goals. Portioning out a timeline can help you zone in on priorities and identify “needs” versus “wants” for short and long term success.

Are you thinking too narrowly when it comes to pricing? There’s a much bigger picture to revenue than merely the price you get for your grain. Don’t just focus on the price at harvest or the “highest” price. Think about your margins, what you need to break even and how much more it will take to make a profit. Starting with the end price points in mind, gives you a clearer picture of how much you need to reduce input costs in order to impact the bottom line. After that, map out a strategy for negotiating with vendors, collaborating with family or neighbors to improve your buying power or trading services in order to keep costs down. These little drips will add up and, together, can make quite a positive impact on your revenue.

Cash Flow
Think broad and wide, and long-term when it comes to cash flow. Cash is your super power; it’s what gives you the ability to take advantage of opportunity when it comes along. Let your end-goals drive your capital goals. If you start with the end in mind, and know that you are wanting to build equity, expand, or transition your operation, you’ll be able to figure out how much cash is enough and when and where to leverage it for your future success.

A few years, grain growers were on a hot streak. Many cashed in and built up some assets. Now the odds are much tougher. Adopting a reverse planning approach can help position your farm operation for ongoing opportunity.
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