Farm Progress

Knowing and managing expenses is the key to business viability.

Mike Wilson, Senior Executive Editor

January 20, 2017

2 Min Read
Gary Book, Farm Credit Mid-America assistant vice president, says farmers need to learn break evens to make sure their business is viable.

Young farmers may be facing an uphill battle, with a fourth year of projected tight margins coming in 2017. No matter how many years you’ve been farming, this checklist can help your business weather any economic storm.

  1. Start monitoring your working capital. It’s that one number that enables you to learn your short-term risk-bearing ability, if a worst-case scenario happens on your operation. “Working capital liquidity ratio is your first line of defense to any adversity your farm may see over the next 12 months,” says Gary Book, Farm Credit Mid-America assistant vice president.

  2. Have a strong marketing plan and have the discipline to stick to it. For young farmers, a lack of marketing knowledge may be a weakness, “but a vast majority do want to improve it,” says Book. “They ask a lot of questions. If they need outside advice that’s fine, but producers need to have a solid marketing plan and be disciplined to act on it.”

  3. Really know your cash flow and breakevens. Knowing your expenses and managing them is critical to your marketing and your business’s viability. That’s an issue no matter how old you are. “We see it young and old — they don’t know their breakeven number,” says Book. “Given the current state of commodity markets, this is going to grow ever more important for all operations.”

  4. Start doing some business planning. Know your goals, short and long term, for the business. Make them realistic and SMART (specific, measurable, attainable, relevant and time-bound). Put a date on each goal. A business plan helps you avoid emotional decisions. It helps you expand without growing too rapidly. It’s a way to switch from a day-to-day mindset to long-term growth. It’s a way to check your gut instinct against actual ratios and numbers.

  5. Take a look at your family-living budget. Many farmers do not see family-living withdraws as an expense in their breakeven. Family living is the one expense farmers have some control over. That’s important, especially in a downcycle that shows no signs of ending soon.

  6. Do what-if scenarios and financial forecasting. How do your purchases impact the operation, positive or negative, going forward? Financial forecasting — whether it is on a cash-flow or working-capital burn-build rate — allows producers to see the overall impact of management decisions before they make them.

  7. Set up an advisory board or peer group. If you think you lack good decision-making skills based on a lack of experience, surround yourself by folks who have been there, done that. Having peers, mentors, lenders, accountants, lawyers and agronomists whom you can call on for advice will help you make better business decisions. It can make you a better manager.

About the Author(s)

Mike Wilson

Senior Executive Editor, Farm Progress

Mike Wilson is the senior executive editor for Farm Progress. He grew up on a grain and livestock farm in Ogle County, Ill., and earned a bachelor's degree in agricultural journalism from the University of Illinois. He was twice named Writer of the Year by the American Agricultural Editors’ Association and is a past president of the organization. He is also past president of the International Federation of Agricultural Journalists, a global association of communicators specializing in agriculture. He has covered agriculture in 35 countries.

Subscribe to receive top agriculture news
Be informed daily with these free e-newsletters

You May Also Like