Our banker says we’re doing pretty well with our books and recordkeeping, but he’d like to see us be more forward-looking in running the farm by the numbers. What are some things we can do to improve? — G.S., Ohio

When leading the farm, we need a financial dashboard so we can always see whether things are still on track. If you’re mainly using your books for financial management right now, you’re looking at what’s already happened — your financial outcomes.

Those measurements of what’s already happened are what’s known as lagging indicators. They’re the easiest type of measurement to generate, but they’re not very effective to help make adjustments “on the go” in our farm business.

The alternative is leading indicators, which basically tell the farm’s leaders whether they’re on course toward the right destination.

For example, when you enter where you want to go into your vehicle’s navigation system, it immediately tells you how long it will take to get there.

That information becomes a leading indicator — letting you know, in real-time, whether you’ll be on time throughout your drive. The trip timer gives you the information that allows you to make adjustments on the go, rather than waiting for the end result — getting to your destination on time or not — to know whether you’ve succeeded.

It works in a similar way for the farm business. Start by considering your financial objectives for your operation. Ask yourself what outcome you want. Then begin to reverse-engineer it. What are a couple financial leading indicators that will let you know early on whether you’re on the right track, or need to make some adjustments?

You might start using an expense plan with a budget to review each month or quarter. Having a monthly budget in key areas and being diligent about managing those expenses can be very effective.

It’s much better than getting to the end of the year and discovering too much was spent on supplies. At that point, the only option is thinking, “Hope we do a better job next year!”

Start actively using leading indicators to keep yourself on track throughout the year. You may find you end up with better outcomes — closer to what you originally envisioned. Plus, I think you’ll have a happier banker.

Frye is president and CEO of Water Street Solutions. [email protected]

The opinions of the author are not necessarily those of Farm Futures or Penton Agriculture.