3 Rituals to Optimize Your Farm's Profitability
Written on September 15, 2020 by Jayce Hafner, FarmRaise Co-Founder & CEO
I co-founded FarmRaise to help producers get the resources they need to achieve profitability. In addition to accessing farm grants and farm loans, producers must effectively manage their finances to be successful. After growing up on a livestock farm, I know there’s never enough time to deal with financial paperwork. Updating inventory records or capturing farm receipts may be the last thing you want to do at the end of an exhausting day, but these admin rituals can go a long way in helping you chart a path toward farm profitability.
Here are three key steps you can take to get there:
Make a game plan
Make a farm operating plan and back it up with a cash flow projection. Set time on your calendar to revisit this plan every month with real-time information. This operating plan can help you access better credit and anticipate risk. Be conservative in your cash flow estimates. Maximize your farm equity by applying for farm grants. Finally, consider de-risking your operation through improving your natural resource and infrastructure assets: your water systems, your soil health, and your energy efficiency (and check out grant opportunities for these value-additive investments).
Manage your finances
Pick a financial accounting system and stick to it. Learning the ropes of a new accounting system can feel like a pain at first, but once you understand it, the process becomes intuitive. If you can’t afford an accountant, try Quickbooks or use an Excel template. The most important thing is updating this system regularly (weekly at minimum). Schedule some time (ideally in the morning when you’re fresh) to input new information so you can track your costs and revenues and keep your system up-to-date. As you work within an accounting system, you should also know and measure your farm financial ratios as metrics of your operation’s financial health. We’ll go over these benchmarks in a later FarmRaise blog post, but for now, ensure that they’re on your radar!
Build your safety net
One of the biggest mistakes producers can make is spending surplus revenue on a shiny new tool (or toy!) rather than stashing it away in a savings account. It’s impossible to know how a global trade issue or a global pandemic will impact a commodity price tomorrow. We must craft our own safety net to weather these unforeseen shocks and move forward with confidence in an uncertain environment.