When I have the opportunity to work with young or beginning farmers, I am always impressed by their enthusiasm, passion and commitment to agriculture. Such qualities can sustain those starting out — especially when the industry is facing challenges. Young or beginning producers can give themselves an additional edge by focusing on a few key aspects as part of their overall business strategy.
Land purchases — Buying acreage is often a first step to establishing an operation. However, emerging farmers can’t always afford high-quality ground when it comes up for sale. One alternative strategy to consider is purchasing farm land which may have lower productivity index levels, which is typically available at a lower cost. Then, over the course of several years, the producer can put in some sweat equity to improve the land’s quality and build equity. The goal is to ultimately sell it for profit down the road and use those funds toward the purchase of a larger tract or higher-quality farm. Through this approach, the producer can demonstrate they are good stewards to the land while leaving an impression on those around them.
Equipment — Equipment is a necessity when running land, but it can be expensive and could be a drain on available capital. Creative thinking can be helpful in gaining access to machinery without a huge investment. Examples include borrowing from family or a business partner in exchange for labor.
Equipment decisions should also take into account short-term and long-term business strategies. Is the goal to own a certain number of acres? Is the emerging farmer working alongside multiple generations to increase land volume to be more sustainable? Regardless, it’s difficult to buy land and machinery at the same time, so creating a plan to overcome those challenges is essential.
Practicing good financial habits — Start good bookkeeping practices early, and track numbers and key metrics regularly. Knowing the numbers makes a huge difference in understanding the success of the operation and is useful in driving decisions. Having a detailed and accurate balance sheet, in particular, can provide a picture of the operation’s year-over-year performance. It can also help a producer isolate and gain insight into certain areas of their business so they can adjust appropriately. Keeping tabs on the cost of production and break-even numbers is important as well.
Be flexible — The saying, “you have to walk before you run” comes to mind here. Patience is just as important to success as enthusiasm, passion and commitment. Start slow. Take time to learn the industry and know your operation. Pause to brainstorm ideas and approaches that are outside of the norm. Doing so could allow for greater flexibility when it’s needed and ultimately, a greater chance of being rewarded down the road.
Remember, producers can’t take every project on at once. It’s important to avoid creating a situation for which there isn’t a backstop or the ability to pivot and take a different course of action. Being a young or beginning farmer likely means owner equity is still being built. As it’s established, owner equity acts as a cushion when the unexpected happens. Without having equity, options may be limited and it’s important to have flexible plans and strategies to be able to adjust to any scenario.
Diversifying — The early phase of an operation is a good time to seek tools and opportunities to help the farm be more successful. Some producers look for custom input jobs which help to cover equipment costs and debt payments. Others might seek additional avenues for steady income, like a contract finishing barn which may have a higher return on investment than a traditional real estate purchase.
Seek input — Ultimately, the producer is in the driver’s seat. But seeking advice from trusted partners and peers is an important step in learning and growing in the industry. Producers don’t have to create their business plans and strategies all on their own. Start by putting goals down on paper, along with action steps on how to achieve them. Consider developing short-term goals to be accomplished over the next one to three years and create objectives or measurable steps on how to get there. Also, look further into the future and determine goals which might take 10 to 15 years to achieve, and start thinking about the steps and strategies it’s going take to get there.
Once you’ve drafted your goals, it’s time to discuss them with business partners and trusted advisors. Although the advice received may not always be put into action, it will still be beneficial. Different points of view can bring to light options or potential obstacles that may have not been considered otherwise. This provides reassurance on the decisions made, helps with accountability and ensures the big picture for your business isn’t lost along the way.
Corey Bull is a Financial Officer with Compeer Financial out of the Aledo, Ill. office. For additional insights from Corey and the rest of the Compeer team, visit Compeer.com