Farm Horizons • Feb. 6, 2017 • Page 16
What are your strengths? Where are your weaknesses? What can you do to take advantage of those strengths, and what can you do to minimize the weaknesses?
For many of the farms that I work with, the ethanol shares have been very favorable, partly due to the fact that it is close. It is cheaper to deliver corn to Winthrop than it is to deliver corn to Savage. Can you produce corn, soybeans, milk, or pork cheaper than your competition?
One of those costs of production on any farm is the cost of family living. The biggest issue in my mind with the cost of family living for a farm family is that they don’ t separate these costs from the farm expenses. The household electricity and other utilities are paid by the farm. Vehicle expenses are paid by the farm.
One of the biggest challenges to farm transition is to identify how much income the retiring generation needs for family living. The easiest way to manage this expense is to have separate accounts for the farm and for family living. Take a monthly draw from the farm, and transfer this to the family account. If you are truly operating your farm as a business, then you need to treat yourself as an employee by drawing a salary and then living within that salary.
Be reasonable with that salary. What can the farm support, and is there any off-farm income to help cover family living expenses? If you butcher a steer, the family account should pay the farm account for that steer and the processing. If you are going to help your kid with fuel and car expenses while they are in college, this is a family expense, not a farm expense.
I would urge you to go through your balance sheet and identify any assets that are not being used, or are under-used. Are you holding on to a piece of equipment because it was the first tractor that you purchased, or because you have so much equipment parked in front of it that it would take you all day to get it out of the machine shed?
I remember a conversation with a farmer many years ago about it being a good idea if he could use a rotary hoe on a field. The response was that he owned one, but didn’ t have the time to move everything out of the way so that he could use it. At that point, the rotary hoe had zero value, because he wasn’ t willing to move machinery so that it could be used.
Look at what filters, belts, etc. you have on hand before buying more. I am an advocate for having critical parts on hand, but do you need six filters for one tractor? Reduce parts inventories to what is needed to keep the critical machines running for your operation. Go through your parts and identify what machine they are for. You may have six different sets of belts on hand, but could you grab the correct one when needed?
In review, the difference between surviving 2017 or thriving amounts to doing a lot of small things correct. There is not a magic pill to swallow that will make the difference.
Know your numbers; this includes financial ratios and costs of production. Have a plan; both cash flow and marketing plan. Plans need to be written, we commit to something that is written better than if it is just a thought process. Separate business and family living expenses, and keep them reasonable. Be lean and mean with equipment assets; remove un-used or under-used equipment. Monitor hours, especially on critical machines; can you run that skid loader that you use every day 3,000, 5,000, or 7,000 hours before major expenses would be an issue? Use existing parts and supply inventories before purchasing more. Avoid unnecessary expenses; how many tools have you purchased because you may need it someday?
Set two or three goals for the year, write them down and post them somewhere that you will see them every day. A Harvard study shows that the 3 percent of Harvard graduates who had written goals at graduation earned more after 30 years than the other 97 percent combined. How would your farm operation fare if you outperformed 97 percent of your competition?
Be profitable. •
Lano Equipment of Norwood, Inc.
( 952) 467-2181
1015 W. Hwy 212, Norwood Young America 55368