Business & Policy
Time to plan for 2015
By Alberta Agriculture and Rural Development
Feb. 18, 2015 - An Alberta Agriculture and Rural Development (ARD) specialist says now is the time to review operating plans, investment plans and cash requirements for the upcoming year in order to make strategic decisions and to prepare for discussions with business partners and operating creditors.
"The need to develop a strong business plan has been never greater," Rick Dehod, farm finance specialist with ARD in Edmonton, says. "With grain prices flattening, margins have been squeezed. Being proactive allows your business to strategically plan and manage for the risks and uncertainty that are inherent in the business of farming."
Dehod says producers should gather new information, and update information that the farm already has, and then write both down in an organized format. "This will aid you in preparing your 2015 business plan, a whole farm budget and projected income statement for 2015, and in comparing these to how your farm did in 2014."
To assist in this annual review and planning process producers will need:
- Their completed 2014 income and expense statement. "Preferably this statement is completed on an accrued basis," Dehod says. "You may want to compare this to previous years to see how the farm has progressed."
- An up-to-date net worth statement or balance sheet. "All assets should be at current market value and all liabilities as up-to-date as possible. The balance sheet is a comprehensive listing of all your inventories and account receivables plus a comprehensive listing of all accounts payables, including all trade credit and farm business credit card debt is required."
- A projected income and expense statement. "What is your projected net margin, and will it provide your business the funds to fulfill its current obligations and debt service? Stress-test your projection. What if yields were five per cent less that your farms averages or prices less than projected. What if interest rates went up one, two or five per cent? Could you still meet your obligations?"
- A list of possible capital expenditures planned for the year, how much down payment will be required, over what amortization, and how this will affect the farm's cash flow and repayment obligations.
"Once you have developed your 2015 business plan you need to review it with your business partner and with your ag lender," Dehod says. "Having these statements will allow you, the farm manager, to review your 2015 business plan, your farm's ability to pay its operating costs in an orderly manner, provide your farm family with its living costs and service the farm's debts. It will allow you, your business partners and your ag lender to have meaningful discussions on your plans for 2015, and make sure everyone understands how your farm business will proceed for 2015. It may also identify risks that you may have overlooked, so that your business partners and ag lender can assist you in improving the business plan to account for those risks."
For more information, visit the Farm Manager Homepage at www.agriculture.alberta.ca/farm-manager or call the Ag-Info Centre toll-free in Alberta at 310-FARM(3276).