Take control of your profit potential
Finances can be the most challenging aspect of owning and operating a farm for a young producer. While the word "habit" often has a negative undertone, the following seven habits are keys to financial success:
- avidly seek information
- carefully analyze that information
- think competitively
- partner with others
- finance the right way
- constantly improve in all aspects
- collaborate through other human relationships
Put Info to Use. "Being an information junkie goes beyond following the weather and markets," says Greg Wolf of Kennedy and Coe LLC, an accounting and consulting firm. Successful producers are focused on new and intriguing information, including the right kind of accounting information, he says. In his view, producers need both accrual-based information and management centers, which show how costs are broken down on a sector-by-sector basis.
But it takes more than information to be successful; it must also be translated into something producers can act on, Wolf says.
Five types of information analysis are important to financial success: trend analysis, cost analysis, DuPont analysis, shock analysis and ratio analysis. "This requires having a CFO mindset," Wolf says. Most significant are three years of financial history compared with three years of projections.
The third habit, thinking competitively, does not mean going to the field earlier than your neighbor or selling grain for a higher price. It means "how to compete strategically, learning what you’re good at and not so good at," Wolf says.
For example, one of Wolf’s clients grew wheat, milo and cattle, but his strengths were management and creating equipment for specific needs. Thinking strategically, he shifted to irrigation and added profit centers with higher returns: watermelon, potatoes, collard greens and spinach.
Partnering with vendors and service providers and creating advisory boards can be very useful, Wolf says. One client asked a retired CEO of an implement business to join his advisory board, which boosted management and profits phenomenally.
Continually push the envelope to improve everything you do. "Always come back and sharpen the saw," Wolf says. While you embrace new ways of managing, let go of older and less useful systems, he adds.
Lastly, Wolf stresses the benefit of collaborating, cultivating relationships and placing equal value on ownership, management and family.