Every farmer, fisherman or forest product producer defines success differently. For some, success is measured strictly in dollars and cents: the “bottom line.” Others make non-financial goals a priority. These non-financial goals may be very important, but even so, positive earnings are a requirement to achieving them.
Every successful producer shares a few key management and financial practices. Farm Credit East provides opportunities for members to learn about best management practices through meetings, publications, webinars, consulting services and more. For example, young producers who will be assuming greater management responsibilities within a farming, fishing or forest product business, may be interested in Farm Credit East’s GenerationNext management seminars. Following are some practices recommended by Dr. David Kohl, an agricultural economist specializing in farm business management:
Strive for 5%
Becoming a leading producer in your industry starts with pushing yourself to be just 5% better than average.
What are three ways I can become better in my production, marketing, cost management and risk management?
Talk with your lender and advisors to identify changes that can improve your operation, even just a little, in the coming year. There is rarely a “silver bullet” of progress. Success generally takes small, executable, incremental improvements, day after day, year after year. Remember, one small improvement, implemented, is worth more than a “big idea” that sits on the shelf.
Know Your Costs
Successful producers know their cost of production on a per-unit basis and apply this knowledge to their daily decisions. Arriving at an accurate cost of production requires good financial recordkeeping, which can benefit you in other areas as well.
Have a Sound Financial System
Link your financial records to a dashboard or some way of measurement that allows you to monitor and manage your operation on a regular basis. Put time on your calendar to update financials. Monitor your financial performance at least every couple of weeks. Look for warning signs and trends to make the adjustments necessary to keep your operation moving in the right direction. Plan for the future at least twice per year.
Solid financial records can mean the difference between financial struggles and success.
Use Accrual Analysis to Gauge Profitability
There are basically two ways to account for your revenue and expenses: cash accounting and accrual accounting. Learn to embrace accrual accounting. Cash accounting may have certain tax advantages but managing your business with it can be a mistake. Accrual accounting allows you to see issues in your operation far in advance of cash accounting and will give a true picture of your operation’s profitability.
Make Working Capital “Work” for You
As a line of defense when earnings suffer, working capital is critical for a number of reasons, including operational flexibility, investing in capital improvements and risk management. Adequate working capital, whether in the form of savings or a line of credit, provides you with options in managing your business, and frees you from having to make poor long-term moves for the sake of short-term cash flow.
Your local Farm Credit East relationship manager can discuss these management practices in greater depth. Talk with us about how to position your operation for success and achieve both your financial and non-financial goals. Young producers who will be assuming greater management responsibilities within a farming, fishing or forest product business, may also be interested in Farm Credit East’s GenerationNext management seminars.