Proper Planning and Financial Management Help Farmers Navigate Potential Risks


 

By Walt Moore

UGA SBDC at Valdosta State University
[email protected]

www.valdosta.edu/sbdc

 

“One of the most common mistakes made today by experienced farmers is becoming complacent and not properly planning out their ventures.”

 

Farming operations have changed dramatically over the past few decades. Decreasing margins and increasing supplies from a global level leaves the farmer facing difficult decisions relating to their operation.

One of the most common mistakes made today by experienced farmers is becoming complacent and not properly planning out their ventures. A farmer today simply cannot guesstimate on projects and expect a successful and profitable season. Proper planning and financial management are imperative to helping farmers avoid the many risks they face.

With any business, having a business plan is essential in creating a direction for the business. This process holds true with a farm and helps the farmer walk through the process before the plan is put in place. The business plan is a work in progress and will change as new opportunities or challenges are exposed through the construction of the plan. Diving into a project without a well thought out plan puts the farm at an unnecessary risk that could be avoided. It is crucial to consider the startup costs, projected crop expense, potential yield/revenue, and examine these figures thoroughly. Today, many farmers are exploring new opportunities for their operation because of the challenges faced by the current markets, but they do not invest enough time to walk through the crucial part of detailed planning.

Financial management is also imperative, and lack of it is usually is the dagger that destroys any business. Farming operations are faced with many uncontrollable variables and having an emergency fund for the bad years is essential. A rule of thumb for farmers is one out of every three years will be a good year. So the obvious question: How will the farm operate during the bad years?

Using your own retained earnings instead of borrowing will help avoid putting your assets at risk, and the best way to retain earnings is to avoid impulse purchases with both the business and personal life.

Today’s society is constantly bombarded with advertisements convincing people to spend their money. The sad fact is that most of us fall victim to this and find ourselves in a financial disaster when bad times come.

Buying what you need and saving for your wants is a great first step to avoid this from happening. Before purchasing anything, it is important to ask yourself: Is the item a want or need? Create a personal and farm budget to help guide spending throughout the year, and saving what you can to operate with for the next year is the best strategy. Focus on your operation and do not compare yourself to the neighboring farms.

Keeping up with the Joneses is a problem in farming lives also. To help avoid this, you must be disciplined in your spending and stay on track with your budgets.

There are many tools and software out there today to help make this process simpler and to help you manage your finances accurately. From financial and accounting software to Excel spreadsheets, all are great tools and help you save time by providing easy record keeping. Take the time to research the different methods, read reviews and talk to others who use these tools to find the best fit for your farm. If technology is not your thing, a piece of paper and simple arithmetic will work just as well. The key is doing it and managing it throughout the year.

 

 

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