Farming Success Depends on Farm Business Planning
It’s hard to be successful at farming or any other enterprise without a plan. Many hail the romanticism of farming, but in reality, farming is a business, in most cases, a multimillion dollar business, and one that often involves multiple generations or partners.
Managing a farm business goes beyond the annual profit/loss. It’s more than controlling costs or even knowing how to get the most benefit from tax laws.
Here you will find insight into some of the key issues about the business end of farming, from marketing strategies to personnel management and passing the operation to the next generation.
Beyond the Basic Business Plan
Farming is fraught with challenges. Weather, market fluctuations, family, and production issues all have the potential to put a kink in even the best-laid plans. That’s where having a whole farm plan that outlines the farm’s mission and objectives comes in.
A bird’s eye view of the operation can help you address all components and how they connect, from the strengths and weaknesses of family members, to taking stock of assets and investments, to creating a retirement and succession plan. Having a comprehensive plan in place will help guide the farm when the unexpected occurs.
Some find that a SWOT analysis can help facilitate the process. The SWOT approach outlines Strengths, Weaknesses, Opportunities and Threats to the farming operation, as it increases communication amongst family and other members of the business team.
Managing Labor Resources
Managing agricultural workers can be one of the biggest challenges for today’s farm operators. Near-record low unemployment in many areas of the country increases labor costs, while labor and immigration laws can inhibit the flexibility a farm needs to operate efficiently. As farms grow larger, more hired labor – often skilled labor – is needed, adding attention to recruitment and retention to the mix.
Meeting a farm’s labor needs begins with hiring the right person. The process starts with assessing where the business is headed and the best path to get there. Survey your needs, and what employee traits will be beneficial, then look at what you are willing to pay. While farm workers are looking for a paycheck, the number one reason they stay, according to the experts, is job satisfaction. Periodic assessments that involve healthy discussions about job expectations and challenges will help to reduce turnover and keep the operation running smoothly.
It May be Beneficial to Diversify
Diversification can be key to the survival of today’s farming operation. Existing farms can have an advantage in niche markets. Often it’s a matter of making a small change in production or marketing strategies. Sometimes it involves identifying a creative local market or adapting agriculture business ideas picked up from other farmers.
Like any farming operation, having a successful agriculture side business is dependent on producing a consistent quality product.
Launching an ag side business requires research. There are any number of crops that can fit into an existing operation, it’s a matter of determining which one is right for you. Options range from non-GMO and heirloom varieties of traditional crops, to vegetables and crops like cereal rye that can also serve as a cover crop to prevent erosion during winter months.
What is the Cost of Farming?
Farming takes money. Lots of money. For new farmers obtaining adequate working capital can be one of their greatest obstacles. Experts estimate entering into a Midwest grain farming business with no family backing could require upwards of $5 million. If that beginning farmer chooses to get a four-year college degree, add another $20,000 to $120,000.
There’s equipment, buildings, and planting inputs. And don’t forget land. Even a combination of owned and rented land at today’s prices quickly reaches an astronomical number.
Maintaining Sufficient Working Capital
Farm capital needs go beyond start-up expenses. Farmers must be able to weather drought and market fluctuations as they work through day-to-day and year-to-year operations.
Available credit is tightening, with ag lenders increasing scrutiny of farm balance sheets and their own lending policies.
Once capital is exhausted, farmers can quickly find themselves in a tight spot with their banker.
Sometimes an outside source is needed to take a fresh look at the farm’s situation. Using expertise, financial software, and face-to-face consultation, creative solutions can be found to ease the crisis.
The most important aspect can often be identifying problems early, and in all farming enterprises, from the traditional to the experimental, farmers need to know the costs of production, overhead, and family living expenses, and plan accordingly.
With a solid business plan and an open mind to new opportunity and problem solving, farm operators can weather the storms of a volatile ag industry, allowing multiple generations to enjoy rural life and the satisfaction that comes from feeding the world and a job well done.