June 16, 2020
Even with a poor farm economy, many farms are doing more than just okay. There is a big profitability spread between farms even if on the outside they look the same.
The most profitable farms are taking advantage of the current economic weakness to strengthen their business in a couple key areas.
Agriculture in the USA and Canada has been tough for several years and it is still unclear how the current recessions from the COVID virus will play out. Let’s face it. Life and business are often unclear and sometimes a true crisis erupts, like COVID, that changes everything. At least for a time.
Keep reading below for the most some common tactics that you can apply to your farm.
Know more than your banker
Farms poised for growth are not relying on their banker to explain their financial position. They intimately know their position and can explain it to their banker --not the other way around. They have a solid grasp of their true financials with a focus on cash flow and return on investment (ROI).
Bankers may like a balance sheet but understanding the hidden expenses and where the value is added to the bottom line is more important. Acquaint yourself with the DuPont model to see if debt is helping or hurting you. Also learn how money flows through the business by scrutinizing every item of your cash flow. You will understand your farm’s strong and weak areas. Your banker will be more willing to give you the benefit of the doubt if they are confident you know your numbers better than he does.
Pick up the right employees and cut poor performers
Rural labor markets are always tight, but today there are more employees available than at any time in recent memory. Farms that already have a process in place of finding, hiring, and retaining employees have a leg up. They have spent time identifying potential prospects in the community. They have already had conversations with these prospects such as, “If you are ever thinking of doing something else, give me a call and we will grab a cup of coffee.”
Those seeds that were planted several years ago are now bearing fruit as good employees are being furloughed. If you haven’t started looking it still isn’t too late to create a short list of prospects and start a conversation.
Multi-year strategic execution
Profitable farms don’t know the future any more than anyone else. Very few farms have multi-year written strategic plans, but the most profitable farms all have them. They are that powerful.
But where to find the extra time? An overlooked benefit of great employees are fewer interruptions. That means more time to work ON the business and not just participate in the daily whirlwind.
Succession planning, farm growth, and off-farm business ventures all take time to plan. Farms with these supporting elements move faster toward their goals. This gives the farms a competitive advantage over those who don’t make time to plan. And don’t have time to execute.
What profitable farms have in common
Specific tactics change over time, yet profitable farms believe in several well-worn philosophies.
A successful farm isn’t created solely on luck, weather, or the markets. It’s about how well farmers manage their farms as a business in good times, so that when tough times come they are ready. They are not afraid to challenge their own beliefs or have others challenge their thinking. They have an open mind to the business of farming and are often stronger because of it.
Do you want to take your farm to the next level? You can and you don’t have reinvent the wheel. None of these philosophies and tactics are difficult or hard to learn. They can be copied by everyone.
Tim Schaefer is an executive management coach and succession planner for farms and agribusinesses. If you have a management or succession planning question, contact [email protected]
The opinions of the author are not necessarily those of Farm Futures or Farm Progress.
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