Comparing farming to other businesses
From Tina LeBrun and Wayne Schoper
South Central College
When defining farm management, most often the terms small business and increasing profits are included. Therefore, it’s safe to say that farm management is similar to business management in that there is always a shared goal of increasing profits, while the difference lies in the goods produced.
As a farm manager why don’t you run your farm business similarly to the way other non-farm producing businesses do? If in the eyes of the government you are considered a business, and we know there are thousands of profitable businesses amongst us, wouldn’t we gain some value in measuring and/or comparing notes? Most experts in agriculture economics would agree, so let’s take a look.
Farmers are incredibly self-reliant, which in general our public views as a positive attribute, but sometimes it can also be a downfall to the independent business manager. When thinking about other businesses in comparison to farm operations most people are amazed by the overall farmer attitude to fix problems on their own rather than call somebody in to take care of it. Call it intuitive, resourceful, or maybe just plain stubbornness, farmers often naturally find and take care of most obstacles’ their business faces on their own time and dollar.
At the same time, an unwillingness to seek outside help may be an industry “blind spot.” Have a sense for what the limit is. Don’t allow yourself to get caught up in situations where your time stuck into the project is taking away from more important tasks you need to stay on top of. This occurrence can end up costing you more money in the end than if you would have just outsourced the project.
Human resource management is another area of weakness. Farmers tend to be too focused on the things they love – their crops, their equipment and their family. Everything else is a necessary evil, including the hired man or other farm laborers who need to be treated and included as part of the team. Also, refrain from hiring the guy just down the road, because he has a commercial driver’s license. Instead, put together an exhaustive job description, and then publicize it near and far. Your goal should be to get 100 applicants, which increases the chance of getting one great employee. Remember that agriculture is an industry that’s very desirable to be in and not just because it’s profitable now, but because of the rewards that come from work put into any Ag producing business.
Most outside businesses are amazed by the “almost inhuman” number of hours some farmers work all year long. This practice not only takes its toll on families, but can lead to employee burnout. Farm producers need to work at getting smarter about how to treat people and how to delegate workloads. No matter how large or small the farm operation is, always appreciate your employees and reward them so they want to come back to work with a sense of pride and willingness to become a better employee.
Another area of concern is income tax management. Recently I heard Wayne Rivers, CEO from the Family Business Institute speak about being a CEO for your farm business. He said the industry could use an attitude adjustment when it comes to paying taxes as well. “You all will move heaven and earth to avoid paying a dollar of tax,” he said. “I’ve never seen anything like it. You may buy three years of fertilizer so you don’t have to pay tax. The idea that the tax tail should be wagging the farming dog doesn’t make any sense.”
Farm producers have an impressive ability to determine input costs and calculate profits before planting even begins, but a disappointing handle on financial accounting. Many farm producers fall short of inputting the final numbers into the management accounting system. You don’t track estimated versus actual costs. Along with that, many farm producers don’t know precise gross margins, costs of production or costs of equipment.
You’ve got to get out of the tractor seat or barn and into the office. You’ve got to look at the business as a chief executive officer. Most farmers don’t know their costs. If you are a farmer who does, you’re a step ahead of your competition, but you probably aren’t allocating things such as rent expense to the proper crop or livestock enterprise you are in business for.
What’s the biggest thing Ag producers can do to improve their farm business? You’ve got to know your numbers better. Often, you need to think like a manufacturer. You’ve got to get in touch with your numbers. Enrolling in a Farm Business Management Program will help you take the steps you need as a farm manager to connect all these components together to make your farm business more successful financially and emotionally.