Holistic Management & Permaculture Design Tools for Effective Financial Planning: Planning Profit so You Can Live the Life you Dream Of

Mary Johnson is a Permaculture Design & Holistic Management consultant and trainer working with Terra Genesis International. She works with farmers and business owners in the US & internationally using concepts from both Permaculture and Holistic Management to help families, businesses, and organizations.  Her trainings help participants learn tools to manage projects and their lives so they feel empowered and are able to quickly achieve the life they dream of.

If you frequently talk with a room full of permaculturists or farmers like I do, and ask them questions like:

“Are you happy with your current financial situation?” and

“What goes into your financial planning?”

You may find yourself looking out at a roomful of blank stares, or worse, you may get loud sighs or judgmental groans in response to your questions.  If you yourself are having a similar gut reaction to this month’s Permaculture Activist articles, I challenge you to take a minute to suspend any feelings of distaste that you may be struggling with.   Also, if you think you already know enough about how to manage your life and finances, give yourself this quick quiz and allow yourself the opportunity to perhaps even make some profound and empowering changes in your life, I guarantee you will be happy you did

Financial Permaculture Literacy Quiz

1. What information does a gross profit analysis give you, and how can it help you evaluate an enterprise? Why is that important?

2. What is the purpose of doing a cash flow budget and how can the information be used in managing a Permaculture project or business?

3. Why calculate both a beginning and a projected ending net worth in the financial planning process?

4. What elements could comprise an increase in the net worth of a farm or business?

5. Describe the difference between being profit oriented versus production oriented?

Feeling confident, or does this all sound like Greek to you?  Unless you are living the life you dream of and feel relatively confident that you will be able to sustain that lifestyle into the future, you may want to ask yourself these questions: “What financial decisions did you make in the last year?” and “Do you think you had the best tools to make those decisions in a sound way?”  “Do you feel confident that you were using your precious time, money and energy in the most efficient way?” and “Did your decisions lead you towards achieving your overall goals for your life in the fastest way possible?”,  “Did the decisions support your deepest values?”

If you are still feeling good, you probably have a sound basis in financial permaculture already.  If your answers to any of these questions come up short, or leave you feeling a little uneasy, maybe it would be a good time for you to take a Financial Permaculture course, or to learn some Holistic Management Financial Planning & Decision making skills.

Many people know that permaculture design has great tools for planning and designing how to integrate human needs with the land, and how it helps us build resiliency and common sense into our daily lives.  Aside from the excellent land design aspects, there are ways that permaculture can also help us make better decisions about our finances, about how we use natural resources and build strong local communities. When paired with Holistic Management, HM Financial Planning and Decision Making tools, it can truly empower us to be able to actually live the life we’ve been dreaming of, allowing us to change how we act so we can see progress in a very short period of time.

Holistic Management International, Cornell Cooperative Extension, New Hampshire Extension, & CISA partnered together using USDA grant funding to offer a year-long Whole Farm Planning training to groups of NE Beginning Women Farmers.   I have been working closely with some of these women over the past four months, both as a mentor and as an instructor of some of their sessions.  They all have amazing stories about what led them to farming.  I have watched their excitement and frustration and listened to their unique viewpoints as they have diligently tackled homework assignments and made the long drive across the state to visit each other’s farms and grapple with the new concepts, sometimes with tears, often with lots of laughter and vociferous conversations that make teaching a challenge at times.  Already, they are beginning to integrate the concepts into their busy lives as business women, farm owners, mothers and wives among the million other hats they wear on a day-to-day basis.  All seem to agree, it’s not easy stuff, but the thought of being able to make better financial decisions ahead of time, and know they are on track to making a profit, is worth the extra effort.  Finding the discipline to do it, now that’s the real challenge, their mentee groups and the regular meetings help them stay committed.

Benefits of Holistic Financial Planning

Planning for & achieving a triple bottom line profit, one that is socially, financially and environmentally sound.

Prioritizing expenses to maximize investing in the areas that need it the most ex. focusing on wealth generating expenses first, and addressing the weakest link in the production chain, capping other unnecessary expenses and sticking with the plan so profits aren’t eaten up.

Analyzing your enterprises against each other and in relation to how they help cover overhead expenses and generate return on investment so you can maximize profit,

Monitoring your plan (usually monthly) and proactively making necessary changes along the way so you get where you said you want to be by the end of the year.

Holistic Decision Making also comes into play.  Once you have a holistic goal, you use the decision making tools each and every time you need to make a decision, whether that’s on where to spend your time and money, or to figure out what type of energy to use to produce a product.

HM testing questions:

1. Cause and Effect – Does this action address the root cause of the problem? Our answer was yes, it answered the root cause of her problem – they didn’t have enough labor to do all the jobs she needed to get done. Note: the answer would be different depending on the holistic goal for the decision makers.

2. Weakest link – this was an issue of the weakest link being a resource conversion problem

3. Marginal Reaction – which action provides the greatest return in terms of my holistic goal for the time and money spent? In this case, the alternative considered, was to hire more labor instead of buying a tractor.

4. Gross Profit Analysis – when comparing two or more enterprises which of these enterprises contributes most to covering the overheads of the business? This one didn’t apply because we weren’t comparing two different enterprises.

5. Energy Source and Use – Is the energy or money used in this action derived from the most appropriate source in terms of your holistic goal? This would really depend a lot of how the decision makers view sustainability, and what is in your quality of life and how those things relate to how you want to use energy ex. solar or human power versus petroleum based or money from family, savings, or a loan from a local bank versus a big bank who will use your interest to leverage even more money that supports other bigger businesses that destroy the environment like a huge mining corporation.

6. If we take this action will it lead toward or away from the future resource base described in our holistic goal?

The nine step HM Financial Planning Process created by Allan Savory and taught by HMI:

1. Review progress towards your holistic goal,

2. Assess starting net worth

3. Plan income

4. Plan profit

5. Define weak link per enterprise

6. Plan and sort expenses (Wealth Generating, Inescapable,  or Maintenance)

7.Cash flow

8. Assess ending net worth

9. Plan, monitor, control, replan

The steps described:

Step 1. The Holistic Management Annual Financial Planning Process is something you would sit down with all your decision makers and do at the start of each year, and then one person could monitor your progress on a weekly or monthly basis while doing accounting tasks.  First you would have to have co-created your Holistic Goal with all decision makers involved in the business.

At the start of each year, you sit down with the decision making team and complete an annual financial plan.  In the process, you review the previous year, and identify if there are any logjams that really hung up your progress last year.  You need to ask the question: Is there anything keeping us from making SIGNIFICANT progress toward our holistic goal? (Across the operation).  If so, it gets first priority for your time and money in the coming year.  Spending money to address a logjam is described in Holistic Management as a wealth generating expense. Other wealth generating expenses can be addressing issues of leadership, attitude, communication or time allocation that will result in earning more profit (remember in HM profit is considered on three levels – social, financial and environmental not just dollars and cents).

Step two – begin with outlining your Net Worth, total assets and total liabilities. Put the date on it. To do this you will need to find out the details and actual values for expense and income items, you will often rely on output from your accounting software.

You can have separate annual financial plans for a business and for your life, but if your holistic goal includes your business decisions and how they impact your life, then you should look at both your personal finances and your business and/or consider the business as one of potentially many enterprises you will undertake with your time and to benefit your life.

Holistic Management International supplies software, training, and worksheets that can help you organize this process.  Some of the interlinked worksheets include a net worth worksheet, a worksheet for monthly income expected for the year, and another for expenses.  HMI also offers tools that integrate rotational grazing planning tools with financial planning for complex decision making needed in intensively managed regenerative livestock operations.

Step 4: Planning for Profit, this step is very helpful.  Once you know how much profit you need and want, then you brainstorm all the ways that you can think of to keep that profit by the end of the year.  You may consider cutting expenses, putting off investments, or adding income.  After you have addressed log jam expenses you need to invest some of that profit in, you identify the weak link in the chain of production for each of your enterprises.  Note how this ties in with the Permaculture Principle Obtaining Yield – a surplus is a natural part of a well designed system, HM Financial Planning offers the permaculturist tools to help understand what a healthy surplus is, and where it will come from in a well designed business and identifies how best to catch and store that surplus and even how to redistribute it based on the values you define as important to you in your holistic goal (another important point in efficiency, you may as well focus on making the profit before spending too much time worrying about what you would do with it).

After you have outlined the expenses for the year month-by-month, then you are forced to refigure and replan, so you reduce your expenses as much as possible to the point that you can accomplish your planned profit, or determine that you will need to find another way to provide additional income needed to reach that profit you said you wanted.

Once you have the profit, you plan how you will use it – maybe to increase your net worth by shrinking debt, or add to savings for retirement, or just for spending on an overdue vacation that will improve your quality of life and increase the sustainability of your business by reinvigorating you and your family.  Knowing what you will spend the profit on are the are the carrots and the sticks that keep you moving on the plan from week-to-week, and that force you to make the tough decision so you don’t let that profit slip away from you. You can read more about Holistic Management and International Permaculture on Mary’s blog at https://wrcinashfield.wordpress.com or sign-up to attend an introductory webinar on Holistic Financial Planning.  She will also present at the next Financial Permaculture Course to be held in Hoenwald, TN in the fall of 2010.