Looking at Farm Finances? Put On the Business Hat

Finance First

Time for a new perspective if what worked in the past isn't working now

Published on: January 21, 2014

Have you ever felt stuck in a routine? Maybe it's the routine you go through each morning at the start of your workday. Or maybe you eat the same thing for lunch every day. If there isn't any pressing reason to change, you might keep that routine.

It can be like that in farming, too. If you start to become used to a certain level of success, you might just keep doing things the way you did them last year – and the year before – and the year before that.

But when the environment changes, what created success for you in the past might not be the same actions that are required to win today's game. A farmer we recently met comes to mind. His farm has been very successful the past four years. He has what it takes – he's a very smart, self-aware farmer.

Time for a new perspective if what worked in the past isnt working now
Time for a new perspective if what worked in the past isn't working now

Over the past four years, he invested into his operation heavily. He upgraded his equipment line every year. He grew the size of his operation by buying land and cash renting more ground. Doing the same thing that he'd been doing each year was working for him – so he stuck with it.

But this past year, we saw a very different cycle happen – and what he'd done for the past four years didn't work out like it had before. He said he realized he's looking for a different lens – a new perspective – on what he will need to do now to be successful in his farm business.

The farmer said that even though he knows his farm's financials and knows where his breakevens are at, he wants someone else's eyes on them too. Like I told you, this is a very self-aware farmer. He knows a lot about his operation, not only from a production but also a business and financial standpoint.

But he wants a closer look. He wants to make sure he's including everything that he needs to calculate his true breakeven. He wants to know and understand his machinery costs and how they're spread over his operation right now. He plans to partner with an ag finance specialist for regular, forward-looking financial reviews of his operation.

Also key in this is the fact that his son is transitioning into the operation. The farmer told us that he thinks having a third party helping with the financial side of the farm will set his son up for success. His son will have the chance to understand – in a very transparent way – the finances of the farm. He can start participating in decision-making and prepare to lead the business.

It could be easy to just stick our heads in the sand, cling to our routines and ignore the changing world around us. But the reality is that the Ag world is changing. What worked in the past to create success isn't necessarily what will work today.

The farmer I told you about said he has to remind himself more and more to take off his 'farmer hat' and put on his 'business hat'. With potentially shrinking margins and volatility on the horizon, wearing the 'business hat' in all of your decision-making will be a must for farm success today.