There's a movement in farming toward collecting more and more information on almost every farm activity. That can be quite helpful to be able to quantify what's happening in your operation when it's time to make decisions, but it all hinges on an important point. You – or someone you hire – is spending time and effort to collect this information. If it only sits in a computer file, it's not doing you or your operation any good.
The whole point of measuring data is to get information that helps you make better decisions – so you can change what you're doing to get a different result. But if you aren't making changes based on what you discover from your data, why are you taking measurements in the first place?
One area where this becomes really clear is through ratios and benchmarks that measure the farm's financial performance and how it's trending.
Collecting and measuring your farm's financial information can make a big difference in an operation, but the time you're investing only becomes worthwhile if you analyze trends and patterns so you can make better decisions. The changes don't have to be major; they could be small tweaks in how you are doing something. But over time, they can make a big impact on an operation.
In one family's grain operation, the farm had a good level of equity but poor working capital. They had noticed they always seemed to end up in a financial 'squeeze' at the end of the year when their operating note was due.
After reviewing an analysis of their operation with a financial specialist, they decided to make building their farm's working capital a priority. They made the decision to stop paying extra on term loans and, instead, put the extra money toward paying their operating note.
As a result, the farm's working capital improved each year. This year, they were especially relieved they had made it a priority. Now they are viewing that working capital as a cushion that can help them weather what they're projecting to be a tough year.
They might not have taken the action to focus more on building their working capital if they hadn't analyzed the farm's numbers. They might not have made a decision that created a better result for their farm. And if they hadn't taken action based on what they found out from the data, the operation could be in a very different situation today.
How do you use your farm's financial data and information? What could you do to utilize it better – and more often?
The opinions of Darren Frye are not necessarily those of Farm Futures or the Penton Farm Progress Group.