3 solid ways to build your farm financial know-how
It doesn’t matter if you’re running the family farm or starting from scratch – knowing how to manage the business of farming is critical.
Whether you’re taking over the family farm or starting a new enterprise, it’s critical to understand all aspects of the operation. Fundamentals like the farm structure and cost of production are essential, as are overall business management skills.
Lance Stockbrugger, accountant and one of the partners of LDS Farms in Saskatchewan, says it doesn’t matter if you’re taking over the family farm or starting from scratch, knowing how to manage the business of farming is critical.
He offers these three tips to get going:
1. Start small
Begin by running a smaller part of the farm – like renting a portion of cropland from a parent. If you manage the financial books, starting small will give you a much clearer cost of the larger production picture.
“Develop an understanding with the minimal number of transactions,” says Stockbrugger, suggesting those early in the farm ownership process aim to limit transactions to 50 or 200, rather than thousands, to avoid being overwhelmed.
“In most cases, it seems to progress over time. It’s learning the ropes and understanding what’s involved before sinking or swimming. You’re getting into the water but only going in up to your knees first.”
2. Develop good business management skills
Make clear and active communication a standard practice with both who you’re working for and who’s working for you. It helps develop good business management skills and is key to financial management acumen.
If you’re a part of the younger generation and don’t know your responsibilities, find out. And be prepared to discover the implications if you don’t. If the younger generation is responsible for marketing grain and fails to do so, there won’t be cash flow when it’s needed, Stockbrugger points out.
Conversely, employers — and the older generation — must be open to sharing financial information and involve the junior party in decision-making.
“Start with smaller decisions. A $10,000 decision is easier than $500,000. If they screw up on a $10,000 cost, it’s likely not going to break the farm.”
3. Move incrementally
Take baby steps and calculated risks when sharpening financial management skills. Both behaviours underlie what Stockbrugger says has proven to be the most effective method of building a farm business.
His own experience starting a farm benefited from this strategy. By beginning with an $8,300 equipment bill in his early days, Stockbrugger improved the financial literacy and management skills required to take on larger investments that come with a big farm.
“I learned about interest, how payments are made, fixed and floating interest, all these things,” says Stockbrugger. “Take baby steps in all cases. To think you’re going to be one of the largest farms in two years, you’re likely setting up for failure. Take calculated risks.”
Though particularly difficult during periods of high commodity prices, he adds it’s important to remember the business benefits every time a profit is made – regardless of whether potential profit could have been a little higher.
Top skills to polish up your financial know-how
- Gain a clear understanding of farm costs
- Know your role in the farm business and understand the consequences if you drop the ball
- Practice slow and steady growth
Article by: Matt McIntosh