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‘Shoot From The Hip’ Management Style

This is the time of year when many of you are taking time to think about your business in 2007 and beyond. I was asked a question concerning the effectiveness of business planning in a webinar I conducted.

A recent study we conducted at Virginia Tech of approximately 350 producers from five different states provides some insight.

A general overview of the results finds the larger your business becomes, the more important deliberate and objective growth and business planning is. Written plans are particularly critical for larger farms that generate over one million dollars in revenue and earn more than $100,000 of net income annually. In the study, these farms and ranches were 25% more profitable than similar sized farms that ‘shoot from the hip’ and don’t plan ahead.

Another factor that contributes to more deliberate and formal business planning is the level of debt. Generally speaking, producers with more debt are required to answer to a critical supplier of capital that needs accurate information to make decisions.

In my experience working with producers, formal business plans are critical for any business that is expanding with multiple family members or partners in a LLC, partnership or corporation. If the business is facing financial or management adversity, in the midst of business transition, or generating over $40,000 in net income, planning vs. ‘shoot from the hip’ management is not an option but a requirement.

Editor’s note: Dave Kohl, The Corn And Soybean Digest Trends Editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at sullylab@vt.edu.