This last winter, my banker was asking a lot more questions about our farm's situation. When he asked if I was tracking metrics, I told him no. I want to make sure I have that information in the future, and I'd like to start doing a better job on financial management in our operation. We're in a pretty solid position, but I think it's time to step up and do a better job at this. What should I be tracking? — T.M., Illinois
You've made a good decision by choosing to focus more on financial metrics and measurements. There are two steps to setting up metrics. First, be careful what you measure. Create metrics that make sense for your operation. Second, make sure to use what you learn in decisions.
You said your farm is "pretty solid." How do you know? Maybe you've already been looking at certain numbers, such as your working capital, equity-to-asset ratio, or debt repayment capacity. So chances are you're already using some metrics.
More detailed metrics to use are internal benchmarks for your farm operation. Rather than measure your farm against other farms, these numbers measure your farm's performance this year against previous years. Then you can tweak your plans using that historical knowledge.
Frye is president and CEO of Water Street Solutions. The company helps Midwest farmers achieve success through financial analysis, insurance, commodity marketing, legacy planning, human resources consulting and farm strategic planning. Send questions to [email protected].
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