By Ryan Bristle
What if, to make a living, you had to bid your farm work like an earthmoving company? Do you know your costs well enough to accurately do this? Do you have a consistent method of analyzing capital expenditures? Are you using technology to its full potential?
If finding the answers to these questions is difficult, you’re not alone. For years, decades and even centuries, successful farms have been built on core values such as hard work, agronomic management, good timing and even luck. But as the current landscape shifts, it’s becoming more necessary to bring a business mindset to your operation.
There’s no question most farms are more complex. Every decision we make becomes more important, and the mistakes more costly. With the amount of money we put on the line to run our business, we need to do just that—run it like a business.
After college, I spent a dozen years working in sales and marketing for a Fortune 100 construction equipment company and then as sales manager at an ag dealership, before returning to our family farm in Iowa. I’ve worked and negotiated with many private companies, from small owner/operators to those worth hundreds of millions of dollars. In the process, I learned several invaluable lessons on what it takes to run a successful business, and how to apply those lessons to the farm. In many cases you have to operate efficiently and think strategically at the same time, and that requires wearing both your work boots and your business suit, so to speak.
There are many similarities between earthmoving companies and farms. Both are dependent on weather and the efficient use of equipment and labor. Most are family-owned businesses. However, I think we as farmers could learn from how contractors bid their work and manage operations. They have to bid an entire project up front, with their expected margins built in. In many cases, the project is awarded to the lowest cost bidder. Let’s take a look at three ways successful companies do this, along with a few ideas you can apply to managing your farm’s business.
1. Thorough understanding of cost structure. Earthmoving contractors know how much every machine and operator costs per hour, and how many yards of dirt they can move per hour with their current equipment fleet. To be competitive, cost analysis needs to be very precise. I find many farmers don’t have a good understanding of their input costs. At current price levels, how can you market profitably if you don’t know your true costs and/or gross dollar-per-acre revenue target?
2. Asset discipline. Equipment isn’t cheap, and it becomes more expensive when poorly used. Having the right equipment for the job maximizes productivity and, more importantly, efficiency. In our world, sure you can always be more productive, but what will those extra bushels cost? At some point the law of diminishing returns comes into play. It is hard to “maximize” efficiency of farm equipment given our seasonality of work, but you should try to right-size equipment to the operation. Then, set a replacement plan to get the lowest cost per acre, and follow it. Don’t get caught buying equipment only for tax purposes.
3. Technology. In the early 2000s, technology in the construction world was just gaining popularity with forward-thinking contractors, and it was mostly a non-factor in the farming world. After a five- to 10-year adoption period, not only was it commonplace, but contractors trying to operate without machine-integrated technology were at a serious disadvantage.
I think agriculture is still in this adoption phase, if not near the end of it. It’s real, it saves us money, and it’s here to stay. The key is buying technology that makes you money, such as section control and precision planting.
With today’s razor-thin margins, improving your business acumen is critical. These three areas are a good place to start.