Long gone are the days when an agricultural producer can be successful and not run the operation as a business. The economic and production risks faced by producers are too numerous to let the business run itself. The producer has to run the business. Here are suggestions to help producers have a better chance at being successful.
Write a Business Plan
Very few seasoned travelers set off on a lengthy trip without first consulting a road map to determine how to get from point A to point B. A business plan is essentially a road map for the business. Many long established producers would argue a business plan is not needed since they’ve been in business for a while. I’d suggest that writing a business plan for an established farm/ranch is easier because many of the detours and bumps in the road, to keep with the road map analogy, have been experienced.
Writing a plan to help secure capital is frequently the first time a business owner will consider it, and having one in hand may make the process smoother because many lenders are requiring them. Even if an established producer is looking to expand the operation, a business plan is a useful tool that can assist with the decision-making process. Try visiting the Center for Farm Financial Management (cffm.umn.edu) to check out AgPlan, a free online business plan software.
Keep Records, Work the Numbers
Even before the formal beginning of the Cooperative Extension system in the early 1900s, agriculture outreach faculty has encouraged farmers to keep records of their production operations. Times have not changed much in that respect.
It is just as important to know the physical efficiency of the operation as the financial efficiency and that can only be achieved when good records are kept. The University of Missouri Farm Accounting Resources website provides several tools producers can consider. With a good set of records in hand, be they on paper or on a computer, a producer can “work the numbers” and develop the enterprise budgets and financial statements necessary to make wise business decisions.
For each enterprise in the operation, the producer should develop a budget. For example, if a producer is running a cow/calf operation and a backgrounding operation, the expenses and revenues for each should be budgeted accordingly to evaluate the efficiency of each resource in the enterprises. For the entire operation, the basic financial statements every producer should develop each year are a balance sheet, a cash flow, at a minimum and an income (profit/loss) statement. Developing and evaluating financial measures of liquidity, solvency and profitability from each of these three financial statements is essential for long-term success.
Be the CEO
The producer should decide to be the chief executive officer of the operation. Being the CEO entails not only evaluating the business but also making the hard decisions. If an employee isn’t working as hard as the CEO wants, that employee is fired; if a cow isn’t earning her keep, fire her; let her become someone else’s problem, not yours. It is sometimes difficult for producers to make decisions like those, but for long-term success, they must be made.
Dr. Gordon Carriker is a University of Missouri Extension regional agriculture business specialist for SW Missouri, headquartered in Ozark, Mo., in Christian County.
