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Where Agriculture Means Business

Positioning for Financial Success

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. Nonetheless, every successful producer shares a few key management and financial practices. Farm Credit East provides opportunites for members to learn about best management practices through meetings, publications, benchmarking, webinars and more. Here are some practices recommended by Dr. David Kohl, an agricultural economist specializing in farm business management.

Strive for Five Percent

Becoming a leading producer in your industry starts with being only five percent better than average. Ask yourself: 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 records, 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. For more information on the importance of records to keep an eye on your bottom line, view this previous blog post by Farm Credit East tax associate Angela Barsuglia: Keeping an Eye on the Bottom Line

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 on 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.

Special thanks to Farm Credit Services of America for their contribution to this post.

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