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Small Changes That Can Make a Big Difference on Your Farm Operation

Carmen Michels
Educational Opportunities: 
Grain, Dairy, Swine, Beef, Young, Beginning Farmers
Home > Education & Events > January 2019 > Small Changes That Can Make a Big Difference on Your Farm Operation

It’s important to take the time to analyze habits of our operation and refresh those goals.  Take the time to reflect on past successes, and areas of opportunity.  It’s important to ask yourself what small changes or habits you can make on your farm operation to capitalize on. What may seem like just cents, can make an impact in the long run and really add up to increase the longevity of your operation.  When looking at ways to make your change add up, consider these four key steps as you begin a new year. 

Decision Making Driver. Routinely updating financial records is crucial for your operation’s financial health.  A balance sheet and income statement allow you to reflect on your operations strengths and opportunities of the past year.  Hone in on these areas.  It can be helpful to discuss your balance sheet and income statement with your lender to have another viewpoint on how the year went. Keeping records each year can allow you to reflect on where the operation has been and where it is headed.  

One of the most crucial metrics to know is your cost of production year over year.  Knowing your operations’ cost of production will help in the decision making process by allowing your break-even to drive the decision. This keeps emotion out of the decision and allows your quarters, dimes, and pennies to stack up more effectively. I recommend getting started on honing in on your numbers with Compeer’s margin manager.

Maximize the Return on Your Hard Work. The hard work you put into your operation shouldn’t be held back by costs that are stealing your quarters, dimes, and pennies.  While cutting necessary costs can negatively impact your return, it’s crucial to analyze the impact of every dollar spent on your operation.  When doing so, keep your cost of production numbers handy to aid in the decision making process.  

Your ‘change’ can add up by negotiating your input costs (feed, fertilizer, chemical, seed, etc.) with dealers. Another key area to evaluate is your land base costs.  Although it can be tough to give up rented ground,  you need to analyze your break-even against your rental price agreements to ensure it’s a healthy relationship. Does your break-even price support what you are paying for rented ground? Negotiating rent or forgoing a piece of ground allows your quarters, dimes, and pennies to add up. 

Another way to stockpile your cents is to scrutinize your repairs and replacements.  While sometimes it may seem easier to get a new piece of equipment when a piece breaks. Will a repair work as a solution, or will additional required repairs down the road be more costly than replacing it now? Make sure to evaluate that decision on whether to replace or repair

Lastly, it is important to liquidate assets that aren’t working as hard as you are.  Review your balance sheet and analyze whether an asset, such as equipment or land, is generating enough revenue to hold its place. Consider ways to change how you have typically performed a task with that asset if you are working harder than it is. Liquidating these assets will not only provide a one-time pile of change, but can increase the return on your hard work in the future. 

Market your Product. The hard work you put into production should be awarded by investing time and analysis into how you are selling your product.  Whether you are selling grain, milk, meat, or another product, you should be mindful of how you are selling your product and who the intended buyer is.  Now more than ever, it’s important to be proactive about the sale of your product.  Make a resolution to be proactive in the marketing of your product.  Ask your elevator if you can place a sell order for your grain, or learn more about how you can lock in a floor with the new dairy revenue protection program; or discover ways you can lock in prices at the slaughter plant.  Marketing changes can save you quarters, dimes, and pennies.

Structure Your Operation. I always encourage the clients I work with  to scrutinize the  debt structure of their operation.  I urge you to discuss this with your lender, consultant, or advisory team to look for ways to best use your debt to provide working capital needed in today’s environment and in the long run. Ask your trusted advisor to review if there are ways to fix in long term rates to minimalize future business risk. Be sure to know your interest costs to help drive decisions and ensure your debt structure meets your operation’s cash flow. 

Knowing your break-even to aid in decision making can allow you to maximize the return on your hard work and market your product effectively.  Discussing your structure of your operation can aid in saving you money. While it’s much more comfortable to continue to run your operation the same year after year, growth and comfort often do not coexist.  Challenge yourself to make a New Year’s resolution for your operation, and use your break-even to exploit ways to save and add up those quarters, dimes, and pennies in both savings and profit
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