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Neglecting to plan results in failure to thrive

Background

A large family farming business resisted formal business planning beyond its daily operational activities. While the business was relatively innovative and appeared to achieve substantial long-term growth, the owners failed to grow with it.

Size and sophisticated management techniques are fast becoming a necessity for success in this industry. Ostensibly, the business was highly successful and secure. However, it was ‘sailing very close to the wind’.

As the first-generation owners transitioned control to the next, they jeopardised the third generation’s opportunity for success. Lack of planning increased risk, led to poor decisions, and resulted in significant lost capital and missed opportunities.

The owners couldn’t move past the belief that forecasting was inaccurate and, therefore, planning was a waste of time. Uncomfortable with managing uncertainty, they limited their business planning to very little beyond planning production. They chose to be reactive rather than planning for events proactively.

Consequently, the business set no clear direction. The first-generation owners continued making irrational and imprudent investment decisions.

Outcome

Opportunities and capital were squandered, inviting financial catastrophe. That forecasts inherently deal with the unknown missed the point. The owners couldn’t see the value and benefit that comes from:

  • Clarifying and defining targets and objectives and how this guides business resource allocation
  • Logically stepping through opportunities and threats and making the most of insights in their decision-making processes
  • Anticipating and managing opportunities and threats associated with multiple scenarios and planning accordingly
  • Improved communication with one another, banks and others they relied on.

While the owners reluctantly submitted to occasional formal planning requirements as their banks demanded, their attitude and unwillingness to adopt appropriate levels of planning lead to:

  • Easily avoided losses due to lack of clear direction and a more robust opportunity and threat evaluation process
  • Missed opportunities and constrained growth because banks limited access to capital needed for projects
  • Increased gearing due to lost capital and increased financial costs when the bank recognised their suboptimal management practices and higher financial risk
  • Lower profits, increased risk, and a decline in business value.

Moving past the misconception that uncertainty around forecasting rendered business planning ineffective, the farm owners might have achieved far superior growth and wealth! They could have better shaped their future by reducing their business risk, significantly improving their focus and returns.

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