Title: HANDLING RISK IN A FARM BUSINESS PLAN (PR)
Author(s): Brown, W.J. + Painter, M.
Organisation: University of Saskatchewan
This paper deals with the problem of assessing the risks involved in a business plan. Business plans are popular for summarizing and assessing the potential performance of a new or existing business. They present a plan for the business’s operations, human resources, marketing and financial performance. The financial performance in particular can be difficult to assess. Many think the financial plan should be very precise and try to predict what will happen financially in the future. This is next to impossible to accomplish. A more realistic approach is to plan for the future using reasonable estimates of what is most likely going to happen. Once this reasonable financial plan has been completed, the task moves to the search and control of the risks associated with the business. The two main sources of risk are; first, the risks stemming from the inherent nature of the business and the industry it is in (business risk) and second, how, and to what extent the business is financed by debt capital (financial risk). The next step requires searching for and discovering what the few critical variables are in a business plan, their impact on the financial performance of the business, how they can be controlled and if uncontrollable, developing contingency plans.