Farming is never easy, but it might seem like an especially hard time to get into the profession, admits Jessica Lehman, associate vice president with Farm Credit Mid-America.
“Fortunately, there are a few key steps and business practices you can implement to ensure the longevity and future success of your operation,” she says.
In particular, Lehman recommends the following three strategies to maximize the chance of long-term success, even in today’s tough financial climate.
1. Understand and manage your margins. “The higher the margin, the better,” Lehman says. “Monitoring your margins will allow you to better analyze future capital purchases, farm cash flows and your family living budget.”
Lehman says farmers should be regularly mindful of their cash build or burn rate. Farmers who find themselves in a cash-flow deficit can do three things to minimize negative effects, including controlling fixed costs, rethinking liquidity and loan structures, and proactively line up operating financing.
2. Write a business plan every year. “The effectiveness of physically writing down personal goals is undeniable,” Lehman says. “The same holds true for your business. Commit to writing an annual business plan.”
Look at last year’s expenses to build more accurate projections for next year, Lehman says. Looking at net income versus net expenses will help you make more informed estimates and predictions of whether revenue is on the way up or the way down, she says.
“Once you have a projection in place, you can then evaluate how this revenue will impact your operational goals and balance sheet,” she says. “Can you invest in your operation? Do you need to make cuts anywhere? Is your asset list adequate for your operation’s success?”
Regularly revisit the business plan multiple times per year to make sure you’re on track, Lehman adds.
3. Get a financial mentor. Is it overwhelming to fulfill all leadership positions?
“There is no shortage of resources on the production side that can provide you guidance, from master agronomists to experts in herd health to a trusted mechanic,” Lehman says. “However, what you may be neglecting is mentorship and guidance for financial management.”
Who is considered a financial mentor? Lehman says it could be anyone from a successful farmer friend to a professional lender or financial advisor.
“The most important quality is that they can commit to helping you build the future of your operation,” she says. “The earlier you can tap into an expert financial resource, the better position you will be in. Having a mentor help you with financial statements and investments will only strengthen the business decisions you make.”