Business Planning Guide

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Steps in Risk Management Planning

Define Success: Identify business goals and objectives.
Identify Risks: Conduct a SWOT analysis
Assess Risks: Complete a risk assessment and identify available tools
Manage Margins: Understand costs, breakeven and sensitivity
Drive Performance: Execute, follow-through and evaluate

Risk Categories and Tools

Risk Categories and Tools

Category	Key Risks	Risk Management Tools
Production	Weather, diseases, pests, technology, land, water	Crop/product/service selections and mix, technology investment, yield insurance, production contracts
Human Resources	Management, labor supply, death, disability, divorce, business continuity, training/development, hiring the right people, systems, tools, compensation, benefits, immigration policy, partner disillusionment, retirement	Defined roles and responsibilities, job descriptions, regular performance reviews, delegated authorities, succession planning, life/disability insurance
Marketing/ Reputation	Market volatility (inputs and outputs), market access, consumer demand, trade restrictions, transportation, natural disasters, geopolitical environment, counterparty issues (related to individuals/entities you do business with), disease or health scare, neighbor issues, input suppliers, customer concentrations	Marketing plans, contracts, revenue insurance, contract production, letters of credit, customer mix management, hedging sales prices and/or input costs, public engagement, customer communication, traceability, input supplier relations
Operational	Priority-setting, execution, equipment management, facilities maintenance and repair, systems and processes	Management systems and processes, effective day-to-day communications and decision making
Financial	Profitability, liquidity, overall balance sheet position, cash management, access to capital, interest rates, credit obligations, funding growth, foreign exchange rates, accounting systems	Record keeping, financial management knowledge, meaningful tools and reports, enterprise accounting, rate management, life insurance, family living costs
Legal/Regulatory	Entity structure, contract enforceability, business/ personal liabilities, shifts in public policy, environmental regulation, urban encroachment	Sound legal advice, up-to-date documents, contract management, property and casualty insurance, industry group participation, regulatory engagement
Strategic	Communication, disagreement on business vision, asset control (lease vs. own), decision-making, ownership structure, family issues, identification of blind spots, estate planning, counterparty issues (related to individuals/entities you do business with)	Written strategic planning, strategic planning process, transition and estate planning, decision- making protocol, estate planning, landlord relationship plans

SWOT Analysis

Strengths & Weaknesses	Opportunities & Threats
Internal Factors Within Management’s Control	External Factors Outside of Management’s Control

Strengths & Weaknesses

Strengths	Weaknesses
Production: • Strong historical yields and quality • Productive relationship with field man	Production: • No crop plan in place • Heavy concentration in single crop
Human Resources: • Next generation ready to manage production • Market-based compensation in place	Human Resources: • Next generation not ready for financial mgt. • Conflict surrounding roles/responsibilities
Marketing/Reputation: • Positive reputation in the community • Solid relationships with customers	Marketing/Reputation: • No marketing plan in place • Unmanaged exposure to commodity prices
Operational: • New field equipment line • Effective harvest plan in place	Operational: • Conflicts arise surrounding daily priorities • No equipment maintenance/repair plan in place
Financial: • Good CPA • Strong liquidity position	Financial: • Budget not used in decision-making • Financials not understood by all owners
Legal/Regulatory: • Entity structure aligned with estate plan • Life and disability insurance in place	Legal/Regulatory: • No buy-sell agreement in place • No written agreements with largest landlord
Strategic: • Owners agree on future vision • Written strategic plan in place	Strategic: • Owners disagree about dividend policy • No formal process for decision-making

Opportunities & Threats

Opportunities	Threats
• Expiration of CRP/potential new leases • New genetics/crop technology • New production technology • Global demand for food/fiber/fuel • Niche product markets • Commodity volatility	• Weather events/disaster • Increasing production costs • Labor cost/availability • Loss of off-farm income • Water scarcity • Death, disability, disease, divorce

Example Risk Assessment Table

Column A Risk Event	Column B Probability Rating	Column C Impact Rating	Column D Total Risk Score Probability+Impact	Column E Strategy
Example risk	3	6	9	• Develop crop rotation plan • Add crop nutrient regimen

Probability Rating

Probability of Occurrence Within 3-Years	Rating
0 to 10 Percent	0
11 to 20 Percent	1
21 to 50 Percent	2
Greater than 50 Percent	3

Impact Rating

Operational Impact Description	Rating
Minimal impact. Short-term nuisance at worst.	0
Moderate profitability impact or operational disruption. Short-term implications.	1
Significant short-term/long-term impact. Survivable, but serious disruption/loss.	2
Severe or catastrophic hardship and/or loss. Continued operation will be difficult.	3

Total Risk Score

Total Risk Score (Probability Rating + Impact Rating)	Rating
No action required.	0 to 2
Not critical. May want to explore low-cost mitigation options.	3 to 4
May be critical. Explore effective mitigation options.	5 to 6
Action required. Implement mitigation options in the near-term.	7 to 8
URGENT ACTION REQUIRED! Implement mitigation options immediately!	9 to 12

Example Risk Assessment Table

Column A Risk Event	Column B Probability Rating	Column C Impact Rating	Column D Total Risk Score Probability+Impact	Column E Strategy
Example risk	3	6	9	• Develop crop rotation plan • Add crop nutrient regimen

Know Your Costs

Cost Type	Definition and Examples
Fixed Costs	Costs that remain constant, regardless of production levels. Examples: • General overhead (benefits, a.administrative salaries, etc.) • Land rent/lease • Living Expenses • Interest Expenses • Depreciation • General Expenses (repairs, utilities, etc.)
Variable Costs	Costs tied directly to production levels. Examples: • Harvest expenses • Raw product purchases • Packaging materials (bailing twine, potato sacks, wine bottles) • Processing and marketing charges • Freight

Assess Balance Sheet Risk

Cost Type	Definition and Examples
Price	The sales price per unit to generate zero profit *Calculation equation:* Sales minus Net Profit Before Tax (including non–farm or other income) divided by Total Units Produced
Cost	The total cost per unit excluding Non-Farm/Other Income *Calculation equation:* Variable Costs plus Fixed Costs (excluding non–farm or other income) divided by Total Units Produced
Throughput(volume)	The number of units sold to generate zero profit *Calculation equation:* Total Fixed Costs divided by Gross Profit per Unit
Cash Flow	The amount of cash inflow per unit needed to meet all cash obligations *Calculation equation:* (Fixed Costs minus Depreciation plus Distributions plus Principal Payments) divided by Gross Profit per Unit

Action Plan Example

Action Steps	Person Responsible	Due Date	Comments
Develop criteria to evaluate packers
Talk to well-respected peers about their experiences
Choose top 3 packers
Interview packers
Select packer and develop alliance