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Become a better manager of the farm’s financials

Small wins can lead to bigger results for the operation.

One thing many farmers are asking and wondering right now is: How can I do better at managing the financials of my farm? What are the steps I can take to start managing our money more closely – to move toward the results and outcomes we want?

Our advisors work with many farmers who have found that using forward-looking accrual projections to manage the farm’s finances can be a way to move toward becoming a better financial manager. Often, it’s the act of working to manage the financials to get a particular result that actually helps to make you a better manager.

It all starts with learning and practicing the basics of business management. Project your future results, and then check each month or quarter to see how you did. If you find you are off from what you had projected – perhaps you’ve overspent – a good manager will then start seeking alternatives to cut the budget accordingly.

Management sense

Practicing this over time – creating projections and then regularly checking in on how you’re doing, and adjusting if necessary – can lead to developing more management ‘gut experience.’ This means knowing when something is ‘off’, how ‘off’ it is and most importantly, the options you have to do something about it.

You can consistently use this process to make small changes and adjustments. Then, if something bigger comes up, you’re better able to manage through it. The smaller management wins you’ve had can help to inform you.

Here’s an example of what this might look like in practice. Let’s say a farmer budgeted $300,000 for seed for the next crop year, but ends up spending $400,000. Using the budget, there are two options to stay on track: either cut the budget in some other area by $100,000, or make $100,000 more in revenue.

Something must be done – or he’s not going to get the result he projected. It’s not a great situation to be in, but at least he has the chance to take action based on seeing the shortfall ahead of time. He can still make decisions to manage toward the result he projected and wants.

Proactivity in action

Here’s another way to look at that same scenario – before the $400,000 is spent on seed. When a farmer knows that he’s budgeted $300,000 for seed that year, he has the opportunity to let his seed salesperson know that his budget will be $300,000. Then he can ask what they might be able to work out based on that number.

You also might explain that you want to keep doing business with them, but that you also want to give a heads-up that they’ll need to be as competitive as possible. Let the sales rep know that though you hope to continue your relationship, you’ll be getting bids from several different companies this year.

Consider getting several different bids for your inputs. It’s another way to practice and build your competency as a manager. This can sometimes feel difficult to do – we may have long-standing relationships with a particular salesperson or company, or fear appearing ‘cheap.’ But getting three or four different bids isn’t just smart practice – it’s being a good steward and manager of your operation’s resources.

How will you make sure your vendors and suppliers are competitive for your farm’s business this year? Do you have forward-looking accrual projections and a budget that you’re using to manage toward the results you want to achieve in 2018? To work on ways to up your financial management game, you can get in touch with our advisors.

The opinions of the author are not necessarily those of Farm Futures or Farm Progress.

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