Seven Strategies to Become a Successful Farmer

Strategies to Become a Successful Farmer

farm income
Strategies to Become a Successful Farmer

 Here's new evidence that business skills increase farm income, no matter the size of the farm.

 With their crops finally in the trash, farmers across the country will have to re-evaluate their agricultural management practices, and make management decisions for the future.

 Business management skills are becoming more important than ever as farmers face ever greater challenges, including unpredictable weather, volatile markets, labor shortages, succession and more.

 In this environment, the question is: What business management practices can help agriculture survive and then thrive?

 That's the question posed by the Dollars and Sense Study, which has analyzed financial data and business management practices from farmers across Canada.

 This is groundbreaking research, says Heather Watson, executive director of Farm Management Canada which launched the research with the help of consulting firm Ipsos Agriculture and Animal Health (now Kynetec).

 Farm Management Canada is a national organization dedicated to providing Canadian farmers with a learning resource for making sound management decisions.

 "This is the first study to establish a measurable link between business practices and financial success that is nationally and cross-commodity-representative," Watson said.

 A Financial Success Score was calculated for each farm and then aggregated, allowing researchers to compare the top 25 percent of financial performance segments with the bottom 25 percent.

 The magnitude of the difference in financial performance between the top 25 percent and the bottom 25 percent is staggering, notes Guelph agricultural business consultant Rob Hannam, who is project advisor.  Individual farm financial success is based on return on assets (ROA), gross margin ratio (GMR), and asset turnover ratio (ATR).

 The asset turnover ratio is gross farm sales divided by total assets.  It measures how efficiently business assets are used.  The gross margin ratio is gross farm sales minus the cost of goods and services divided by gross farm sales and is an indication of how profitable the business is.

 Return on assets is the gross sale of agricultural products less the cost of goods and services divided by the total assets and is an indicator of the return on agricultural assets.

 The top 25 percent (or quartile) had an asset turnover of 20 percent versus just under 10 percent for the bottom quartile, a difference of 100 percent.

 The gross margin ratio is 50 percent for the top quartile compared to just under 20 percent for the bottom quartile by a difference of 155 percent.  And return on assets is 10 percent for the top 25 percent but only 1.6 percent for the bottom 25 percent for a difference of more than sixfold.

 To put a dollar value on this difference, if the return on assets for the top 25 percent was $ 100,000, for example, it would only be $ 16,000 for the bottom 25 percent, Watson explained.

 The quality and quantity of data makes it possible to see clear patterns in the behavior of the most successful farmers, said Hannam.  The study shows that "the success of any agricultural venture, regardless of size, geography or commodity, is directly related to agricultural business management skills and practices," Watson said.

 In order of importance, the seven habits of the most successful farmers are:

 1. Keep Learning

 The most important practice is having a lifelong commitment to learning and skills development.  These farmers make a commitment to attend courses, field days, conferences, farm shows and webinars, says Hannam.  "It's about keeping your mind fresh and up to date, staying abreast of new ideas and new ways of doing things, and having an open, outward-looking mindset."

 Watson agrees and recommends conducting an assessment of how your and your team's skills meet current and future agricultural needs.  With this information, you can create a skills development plan as part of your business plan.

 2. Business decisions are made using accurate financial data

 On this farm, the financial records used for decision making are updated daily or weekly using the software, Hannam said.  Data can be accessed and can be easily manipulated to view various financial scenarios to determine the impact on the business.  "The shoebox days are past," he said.

 3. Seek Help from Business Advisers and Consultants

 "It's hard to be an expert at everything," said Hannam.  The best performing farms seek the help of agronomists, nutritionists, lawyers, accountants and others.

 There's a saying, adds Watson.  "Do your best and hire the rest."

 One area where farmers may ignore the importance of hiring a professional is with agricultural transition planning, continues Watson.  Psychologists or other consultants with communication skills can facilitate the conversations that need to occur between generations for a smoother transition.

 4. Have a Written, Follow, and Review Business Plan Every Year

 Farmers will often say that they have a plan, and point to their heads.  Writing a business plan will facilitate important conversations about the future of agriculture and the role of everyone in it, providing a solid understanding of the direction of agriculture, Watson said.  This is your road map to success.

 5. Understand and Monitor Production Costs and Their Impact for Profits

 Accurate and up-to-date manufacturing costs are essential, says Hannam.  "If you did it (calculating production costs) three years ago, that's not good enough," he said.

 Watson emphasized that production costs must be calculated for each agricultural product or business line.  "While you probably know if you make money, do you know what makes money and what doesn't?"

 6. Assess Risks and Have a Plan to Manage and Mitigate Risks

 Risk management means identifying risks that exist and are not under your control, and establishing actions that minimize possible threats.  "It's more than just insurance and government support programs," Watson said.

 How ready are you?  Do you look at the risks comprehensively (people, finance, markets, production, policies, strategies) and the relationships between them?  What actions can you take to manage risk?

 7. Use Budget and Financial Plans to Monitor Financial Position and Options

 “Have you prepared a budget for your farm, and the different business entities in it?  Do you review your budget and financial plan when making business decisions?  "Asked Watson.

 In terms of following the seven business management practices used by the most successful farmers, the research suggests that there is room for improvement in most farms.

 Just under 60 percent of farmers surveyed said they had accurate financial data, about half of farmers said they were committed to lifelong learning, about half had the latest production cost figures, but only a third of farmers used agricultural advisors.  , have a risk management plan or follow a financial plan / budget.

 Having a written business plan is the practice with the lowest adoption rate.  Only a little more than a quarter of farmers said they had such a plan.

 Rather than trying to tackle the seven habits, Hannam recommends doing a self-assessment and then focusing on the few areas where improvement is most needed, adding, “Remember you are looking for progress, not perfection.


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