4 Business Goals that Pay

March 28, 2018 01:28 PM

Your time and resources are limited. In tough financial times, you cannot afford to spend your restricted assets on low-return efforts.

“Many producers get caught up in tasks and miss out on opportunities, as they spend too much time on the 80% of activities that only make up 20% of profitability,” says Bret Oelke, president and business consultant with Innovus Agra. “Farmers instead need to identify and focus their efforts on areas that will offer a greater return to their farm businesses.”

Here are four management areas you should focus on this growing season. Doing so will help you maintain, or even improve, profitability for your operation in light of the current farm economy.  —Anna-Lisa Laca

1. Financial Management

Producers are facing the fourth year of an economic downturn, and while many had cash built up, financial burdens are piling up in farm country. David Kohl, professor emeritus of agricultural finance at Virginia Tech University, says over half of grain farms were not able to pay off last year’s operating loan, and the problem is only perpetuating.

“We’re at the ‘extend and pretend’ stage,” Kohl says. “We’re extending debt and your banker is pretending it fixes the problem.”

Farmers need to avoid stretching a short-term inability to pay their bills over a 20-year lien on assets, Oelke explains.

“Once you’ve already maxed out intermediate credit, the only option is dirt,” he explains. “If you’re 60 or 70 years of age, are you going to borrow against your land a second time? Probably not. That’s going to create an opportunity for somebody.”

Also, having your financial house in order pays. “My clients were able to knock 15¢ off their cost of production because they had access to capital when we needed it to purchase discounted inputs,” Oelke adds.

2. Production Proficiency and Efficiency

“You need to be an outstanding producer of whatever it is you grow,” Oelke says. “Be toward the top end of output per unit of input.” Not only does a producer’s ability to maximize their land directly impact their revenue, Oelke says, it can also lead to new opportunities. “Are you prepared to farm another 2,000 acres? You need to be an elite producer to make that happen,” he shares.

To maximize your return on investment for your operation, Oelke recommends right sizing your labor and machinery. Ensure your people and equipment adequately meet your needs but are not excessive. Additionally, look at delegating and outsourcing low-value tasks when at all possible. One example Oelke gives is driving grain to the elevator. “If you can hire somebody else to reliably do it, outsource it,” he says.

3. Grain Marketing

This year, farmers need to have a robust marketing plan. “You can create incredible competitive advantage if you understand how you can use all the tools that are available, including futures and options,” Oelke says. “If you don’t have a brokerage account or a marketing line of credit, you don’t get to do this because it requires so much capital.” Explore your options with your lender.

4. Growth Opportunities

Oelke says he’s starting to see a wave of organized exits hit the industry. Are you prepared to take advantage of that? Many producers are uncomfortable with growth, Oelke acknowledges. “Innovation doesn’t come out of a place of comfort,” he says. “It’s not the big fish that eat the small fish. It’s the fast fish that eats the slow fish. If you have a decision-making process in place before we have to make a decision to grow, you’re the fast fish.”

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