Positioning for Financial Success

Every farmer or rancher defines success differently. But every successful farmer or rancher shares key management and financial practices. Frontier Farm Credit has been providing opportunities for customers to learn about important best management practices through meetings, conferences, and other resources. Here are some practices that come recommended by Dr. David Kohl, an ag economist specializing in business management, as he has visited with groups during these events.

Strive to be 5 percent better: The best producers are only 5 percent better than average. Ask yourself: What are three ways I can become better in my production, marketing, cost management and risk management? Talk to your lender and advisory team to identify changes that can make your operation better in the coming year. There is no silver bullet. It takes small, executable improvements, year after year, to keep your operation moving forward.

Know your cost of production: Profitable farmers 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 benefits producers in many other areas.

Have a sound financial system: Link your financial records to a financial dashboard that allows you to monitor and manage your operation on a regular basis. Monitor your financial performance at least every couple of weeks. Put a time on the calendar to update financials and plan for the future at least once per year. Look for warning signs and trends to make the adjustments necessary to keep your operation moving in the direction you desire.

Conduct an accrual analysis to gauge profitability: Embrace accrual accounting. It will give you an accurate accounting of your earnings. Managing financials only on the Schedule F will postpone issues in your operation – and your ability to identify and make necessary changes — by two to three years.

Make working capital work for your operation: A secondary line of defense when profits suffer, working capital is critical for a number of reason, including marketing flexibility, investing in capital expenditures at optimal times and risk management.

As a general rule, Frontier Farm Credit looks for working capital of $200 an acre for a typical corn or soybean rotation, although that number can differ depending on the area and intensity of production. Cattle and hog feeding operations, in general, should aim for working capital of at least 25 to 30 percent of livestock value.

Your local Frontier Farm Credit financial officer can discuss each of these strategies in greater depth. Call today to learn more and position your operation for success.