As a dad, I am an expert at dad jokes. You know, the jokes that are so cheesy they are followed by the kids groaning and then giggling; because let’s face it, they’re funny. My favorite one recently, “What did the farmer say when he was frustrated that all his grain disappeared?” “Migraines!”
2019 brought plenty of headaches and uncertainty. In my years of working with farmers, I’ve seen many ways of handling the farm management process. In many cases, making enhancements to current practices can yield more strategic decision-making throughout the year and keep financial plans on course. These enhancements help farms weather the economic storm as they can forecast and adjust their annual plan as the year progresses.
The first step is to know where you are financially. In prepping for tax season, it is typical to compile your revenues and expenses and update your balance sheet. An additional enhancement is to have a process in place to track year-over-year results. Benchmark your progress with peers via online resources such as FinBin. For those of you with a competitive edge, consider this your scorecard. What can you do this year to improve over last year?
Next, know your cost of your production. It’s the beginning of 2020 and the first priority is to know your cost of production for the upcoming year. Whether you do it yourself or work with your banker, prepare a budget to be your starting point for the year. You now know what price to sell your commodity at in order to reach your projected net return. Enhanced budget planning includes preparing a monthly cash flow projection for the year, a quick reference throughout the year, even when things get busy. Are you on track and can the new capital project can be built this summer; or, are you behind and maybe need to put the new project on hold? Knowing monthly projections at the beginning of the year gives farmers options for decisions later in the year.
Revenues and expenses have been documented, the balance sheet has been developed, and a budget is put in place. Now, take the time to review your results. How did your results compare to your budget? How about a year-over-year trend for the past five years? Enhanced planning is to do an enterprise analysis and separate your enterprises.
Set goals for your operation. Based on Harvard Business Review data, 83 percent of people do not have predetermined goals; 14 percent of us have unwritten goals and are 10 times more successful than those with no goals; and 3 percent of us have written goals and are three times more successful than those with unwritten goals. Even if the goal is out in the shop on the white board next to the to-do list; enhanced planning turns that goal into a SMART goal. Make the goal simple, measureable, attainable, relevant and time-based. Time-based is crucial to enhanced planning as that helps to hold you accountable in getting that goal accomplished. Even better, is to share the goal with your stakeholders.
This brings me to my last tip of taking your farm management to the next level. You have teammates in key areas of your operation such as your agronomist, marketing advisor, crop insurance rep, CPA, banker, attorney, family members, or others. Meet with your team on a periodic basis throughout the year. It’s another excellent way to help keep SMART goals in check and give your team time to adjust operations based on monthly cash flow results vs. projections. This is a very important step — especially for those transitioning the farm to the next generation. Keeping everyone on the same page with what is happening with the farm will yield stronger and more successful transitions.
One of my favorite aspects of being an ag banker is to be able to have the conversation with a farm family and show them the implementation of their enhanced farm management is paying off as they stay the course toward their financial goals.
Then, of course, I tell them a dad joke.
David Thamert is a Senior Vice President of Ag Banking at Profinium. To learn more about how Profinium is a full financial health solutions center offering banking, mortgage, insurance, trust, and wealth planning services in Southern Minnesota visit Profinium.com. v