Most farmers love to produce but struggle when it comes to financial management, human resources, family business governance and strategic planning.
Those skill-building areas keep Dick Wittman busy these days. The Idaho rancher and farm management consultant has worked with countless farm families to formalize business governance practices that can lead to more profitable, professional operations.
“In my experience, these are areas where people just get by, or don’t do it at all,” he says. “Many people ignore financial planning and just coast by on gut feel. Because they are making money, they don’t bother with in-depth financial disciplines.”
A proactive operation, for example, will create budgets and can project year-end revenues throughout the year through a dynamic, ongoing updating process. At various checkpoints in the year, it can project new year-end tax and accrual figures.
“That’s something very few farmers actually do, and it’s just one example,” Wittman says. “Too many of us just get by on the financial side, so we can get back to the fun part of farming.”
The need for better planning and financial management has never been higher than it is today due to inflation and the vast sums of money farm operations work with. You need a well thought-out capital expenditure budget, with analytics that inform on how to optimize a decision to lease, buy, custom-hire or try a joint venture.
“A lot of businesses are annually making at least one or more decisions to acquire equipment costing over $500K to $750K,” Wittman notes. “We would never make a decision of this magnitude without going through the analytics. For many operations, the least-cost option is to rent or custom-hire, but there must be a culture where the metric is to seek the optimal approach, as opposed to, ‘I can afford it and the bank will finance it.’ ”
So how do you start identifying weaknesses and incorporating best practices in your business? Not everyone can enjoy a face-to-face meeting with a leading management guru.
For one, take Wittman’s farm management proficiency test, found in his updated guidebook, Building an Effective Farm Management System, at wittmanconsulting.com. It’s a 34-question snapshot designed to help you assess what you’re good at and where you need help.
The quiz is designed for farmers running a business. Answers range from “Working on it” to “Need it” to “In place now.” Try having others on your farm team and your advisory board take this test and then compare answers.
“If you don’t have written policies, no org chart, you have people fighting over who is in charge, no division of roles, for example, you know you have areas to fix,” Wittman says. “People have to be honest about where improvement is needed. A thoughtful reflection about your answers to the proficiency test can point to areas you need to reevaluate, strengthen skill sets and make changes.”
Another option is to attend farm management workshops, like The Executive Program for Agricultural Producers (TEPAP), your state’s ag leadership program, or the Farm Futures Business Summit. Take an online course through Extension, or send your staff to meetings where they share ideas with other operators.
Just get started
If it feels like your farming game needs a lot of work, don’t get discouraged. Many farm operators “don’t know what they don’t know,” Wittman says.
Folks who went through TEPAP over the past two decades have taken his proficiency test at the start of their training, and the results for the class profile were often eye-opening:
- Only 29% had a written strategic plan.
- Less than half prepared cash flow budgets and monitored budget performance regularly.
- Only 34% used financial analysis tools to optimize capital acquisition decisions.
The TEPAP experience was a reminder of skills they maybe were exposed to earlier in their educational journey but had not experienced a meaningful or consistent implementation path. Once exposed to management instruction, they began “to understand what they don’t know” and make changes.
Many graduates take the next step and join peer groups, which not only helps you learn by networking with similar operators, but also helps push you to implement change.
“If you find that your peers are doing it and it’s changing their culture to a more professional climate, there’s a huge incentive to try to emulate that,” he says. “A high percentage of farmers in peer groups are TEPAP alumni.”
Several years ago, Wittman gave the same proficiency test to farmers who had “graduated” from TEPAP at least 10 years previously.
“What was amazing was there was an incredible shift from “don’t have it and don’t need it” to “have it in place now,’ ” he says.
Survey participants acknowledged that continuous commitment to implementing professional business governance and financial practices was a key factor in their long-term business viability and sustainability.
What are you waiting for?
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