For nearly a decade I’ve worked for AgriSolutions, Inc., helping producers set up, implement, and utilize a sophisticated managerial accounting system for their farm operation. Since day one, I have learned a lot about farm financial management from the producers I work with, as they strive to improve their profit margins. Success comes with focus on the following crucial areas.
Success Through Farm Financial Management
1. Commit to Financial Data Gathering and Analysis as the Basis for Strategic Managerial Decisions
Accounting is really a three-step process:
- Enter information (data) accurately into your accounting system.
- Interoperate the information in our AgManager systems.
- Utilize that information to plan, control and manage your business.
Using an accounting system effectively takes more than just entering data. It requires a trained individual, whether on your farm our outsourced, to produce the reports you need, explain the information provided, and help you see how to apply your data.
As a multi-million-dollar business, you must understand and utilize financial information to truly know where to invest in the operation. Have monthly meetings with your financial expert to analyze your financials, assemble annual budgets, monitor those budgets quarterly, and review historical trends. There are a variety of reasons people farm, but regardless of those reasons, a farm is a business and has to remain profitable. Your farm can’t remain profitable if you don’t commit to its financial health. Get your financials and learn to use them to guide your managerial decisions!
2. Collect on Accounts Receivable
It doesn’t matter if it is custom work, grain sales, or hay bales. You provide a service, and as business owners, you expect to get paid. It’s pretty simple, right? Throughout the years I have seen so many farm operations caught up in putting out the day-to-day fires that their collections process gets neglected. Want to quickly improve your bottom line? Spend some time in the office looking for leaks in your collection process; that’s how great farm financial management begins.
3. Implement Work Flows
Look, we’ve all had it happen. You have a project, and you can’t find the tools you need because they are at another site or in the truck of one of your employees who didn’t come in that day. You’re planting, and/or harvesting and no one seems to be on the same page. You think to yourself, “Why isn’t my crew in sync? We do this every year.” Communication is lacking in businesses and organizations of all types, but it’s especially lacking when it comes to work flow management. Lack of communication impedes work flow and decreases efficiency, and that’s no way to try and run your farm.
Inconsistency in work procedures is hurting your efficiency, and ultimately that means a loss of dollars. One simple solution to boost profits is improving work flow by implementing Standard Operating Procedures (SOPs) on your farm.
4. Invest in the Right Employees
Most farms have employees who are worth their weight in gold. Take care of these individuals because their performance is almost always linked to your bottom line, and it almost always directly affects agricultural management overall. However, if an employee isn’t performing as expected or reaching his or her potential, you may want to invest in additional training. Most operations admit they need to do a better job in this area. Or, perhaps that employee needs to be given a different role on the farm. In time you will know each individual’s strengths and where they will excel. If you’ve exhausted all other possibilities, maybe you both need to realize this is not a good fit for them or the operation. Invest your time and resources in the right employees and if you have employees who aren’t pulling their weight, don’t be afraid to let them go.
It’s easy to get caught up in doing the same repetitive action over and over again. We get stuck in what I call, “autopilot syndrome.” Of course, we have to keep doing these same actions over and over again, right? Sure, if you never want to advance. But most producers I talk to want to grow and build a solid farm financial management foundation for generations to come. However, to accomplish this, it usually requires a change in some fashion.
I often encourage producers I talk with to look at diversification in a different light. When I was growing up, diversification meant having a grain operation, and probably some hogs and cattle. Today the hog and beef cattle operations have consolidated so much that you’d better have solid capital and an innovative idea to make it work.
Ask yourself questions like these:
- What are the needs of operations in my area?
- What can I do to provide something beneficial for my neighbors or community?
- What do I have the ability to provide without going too far outside the scope of my operation?
Shift your focus, looking at areas that will lead to enhanced revenue and profit over the long haul, rather than scurrying to make a buck today. Start small, see how you can refine your business, try new strategies and if one idea doesn’t work, don’t get discouraged. You never know when your next idea will provide the next stream of revenue!
6. Define Your Game Plan
The key to self-discipline in your farm financial management plan is having a goal in mind and understanding the steps it takes to hit that goal. There are several steps in preparing a game plan; starting out there are five vital aspects you should consider:
- What is my goal?
- What steps need to be taken?
- Who will help implement (and how do I communicate with each one)?
- What are the short-term goals of each individual involved?
- How will we hold everyone accountable?
Remember, a game plan is a long-term investment. Your changes in your farm’s finances may not pay out immediately, but you’re in it for the long haul. Defining your goals and steps to reach them, communicating with all those involved, then implementing those steps and holding one another accountable will pay off big in the long run.
If you want to improve profits for your operation, define your game plan for long-term success (your farm financial management agenda, if you will). Make the most of your financial information through analysis and application in your strategic managerial decisions. Don’t overlook your Accounts Receivable; collect on those in a timely manner. Implement sound SOPs (Standard Operating Procedures). Ensure you have the right employees in the right roles and invest in their success by training them thoroughly. Seek diversification to establish new revenue streams. Develop your game plan and enlist your team to work with you, step by step, to reach your mutual goals for long-term success.
Unsure on what crucial areas of the operation you know need to improve? Call Chris Whited, and request a free needs assessment to learn how you can qualify to access the resources that could help.