One-Page Financial Plan
Download One-Page Financial Plan
Farm Credit East also uses a One-Page Financial Plan to help beginning farmers and ranchers scope out the basic costs of their businesses, and the bottom line amount of money they will need to make a go of it. First and foremost, the plan helps entrepreneurs build a no-surprises budget. It follows the tried-and-true business maxim: Pay yourself first!
One of the biggest pitfalls of start-up businesses – agricultural or not – is that they underestimate the amount of capital they’ll need. Nobody plans to fail, they just fail to plan. Take a fresh market vegetable operation, for example. Such farms require an early cash outlay on the producer’s part for seeds, soils, fertilizer, crop protectants, tomato stakes or cages – the list goes on. The sales dollars aren’t collected, though, until the crop is sold. How will you cover those expenses in the meantime?
Not having the money up front isn’t the problem – it’s not lining up where the money will come from. Will you get a crop loan? Borrow from your savings? Perhaps you’ll start a CSA and have members pay for their shares up front. But what if you don’t sell enough shares in January and February to cover your expenses, since folks aren’t thinking about their summer vegetable sources yet? You may need a combination of these resources. Make sure the money is committed before you start. It’s a lot easier to line up assistance ahead of time than when you’re already in a pickle.
See the form here for a fill-in-the-blank income statement and budget, along with instructions. The process is short but intense and valuable. It includes steps for coming up with essential
financial factors that you as the business owner need to understand and use if your business is going to be profitable. Just like production goals, financial goals need to be set and measured so they can be managed.
The five-line income statement – and its accompanying budget – gives you a “flash report” with which to mange. These five numbers can help you determine if the big picture is on track, and if it’s not, you can then focus your efforts on the area that needs attention instead of wasting time on something that you can’t do much about in the short term. For instance, once you’ve paid your rent for the year, there is really nothing that will change that expense. Maybe you want to renegotiate next year, but here and now, your focus needs to be on this year’s crop.
Why focus on a budget? It is a tool to ensure that you are reaching your financial goals. A brand-new business owner once commented, ‘I don’t want to do that because it will only show me how much money I won’t have in 6 months.’ Does that sound like a business you would want to get involved with or invest in?
It’s not unusual that a start-up operation takes a year or two to achieve profitability. The biggest contributor to business failure, then, is the lack of planning for how to get through this start-up phase, not the lack of profitability in this time period. When faced with this situation, a budget is a tool that helps you point out the financial needs of the operation and develop a plan to address them. Think of it like this: If you’re trying to get from Miami, Florida to Juneau, Alaska and you just get in the car and drive, you’re going to hit some problems. First off, the shorts and sandals aren’t going to cut it farther north. Depending on the season, the road might be closed and you’ll need to take a plane. Did you remember to head northwest toward Orlando or you still on I-95 and now in North Carolina? These situations sound funny in a “car travel” scenario, but happen all too often to business owners who don’t take the time to figure out where they’re going before they get in the car and drive.
Perhaps you grow a common crop that experiences enormous cyclical variation in the price to producers. Dairy, cranberries, and many fresh vegetables are examples that come to mind. If you know now that the forecasted price is well below your cost of production, what decisions do you make now?
The biggest decision: stay in or get out? You know that you will lose money next year if the forecast is accurate. But do you have the wherewithal to withstand that downturn and come back strong, making more money than you lost? If you do, budgeting helps you determine how much additional capital you’ll need, and when, how you’ll fund those losses in the meantime, and how you’ll repay them in the future.
Once you’ve completed the one-page financial plan, work with an advisor on the next steps, which include a full income statement and an annual cash flow budget.
One final word of caution: is it better to make money or keep the money you’ve made? Too many entrepreneurs remain focused on the top line (sales) rather than the bottom line (profitability). Yes, you will need to achieve a certain level of capacity (sales) in order to be profitable. However, chasing unprofitable sales relationships for the sake of building sales doesn’t further your business plan!