As a farmer and business owner, sometimes it can feel like your banker speaks another language. Whether you're applying for a loan, buying the farm next door or upgrading your equipment fleet, focusing on these key aspects can help you improve your business and your lending rates.
Management skills and financial health are two vital aspects of any successful business. We touched on both topics in volume #3 of Intelligent Farmer, and delved deeper into managing risk in volume #4. In this issue, we focus on something that many business owners dread: record keeping.
Keeping useful records
If you’ve ever attended any business seminar or training, you’ve probably heard the Peter Drucker quote: “You can’t manage what you don’t measure.” The reason this gets repeated often by business gurus and public speakers is simply because it is so significant. It is easy to let record keeping slide as you work in the day-to-day responsibilities of your business and sometimes forget to take the time to work on the "housekeeping" of your business. Without the ability to track performance, you won’t know if you are truly achieving success. The old assumption, “Well, we are lower on the operating line this year, so we must have made some money” just doesn’t cut it anymore. Frankly, without being matched with inventory and accounts receivable & payable, the operating loan balance won't tell the full story.
In the age of technology, it is getting easier and easier to keep good records. Whether it is a program to manage agronomy and production costs down to the acre, or bookkeeping software that automatically imports transactions, the main reason to keep proper records is to leverage them to make decisions that lead to a successful and sustainable business. Harnessing your records to make management decisions is crucial to maintaining or growing a business that provides for your family and your employees. However, information management is something that the bank often takes into consideration when assessing your abilities as a manager.
What does the bank look for in regards to information management on your farm?
The bank wants to know that you keep good records that are organized, accessible and accurate, but also that you review them regularly to help make informed decisions. This not only shows that you aren’t making decisions on a whim, but makes it much easier when it’s time to ask for money from the bank. The ability to produce year-to-date financial statements or return-on-investment information upon request can improve turnaround times and speaks to your overall management skill. Good financial and production information can help get you to “yes” sooner, and may even help achieve a better lending rate.
4 key recording keeping questions to ask yourself
1 Would I be confident printing out a monthly or quarterly income statement and making accrual adjustments for inventory, accounts payable and accounts receivable?
2 Are my records thorough enough to allow me to confidently understand the impact my production decisions? For example, can I determine whether that extra pass of fungicide paid for itself by evaluating the improvements to average daily gains in the feedlot vs. feed costs?
3 Could I narrow down my cost of production to the acre / animal for each commodity I produce, using my historical records? When was the last time I did this? E.g. Do I know my costs per piglet weaned, or per pound of gain for each turn through the barn
4 At any given point in the year, do I know if I am on track to net more or less than the previous year? What changes drive these results?
There are all sorts of programs available to help you manage your records, and every farm will have different preferences help you what works for their operation. Whether they are in a journal, an Excel spreadsheet or a fancy software program, accurate records, are critical to making good business decisions — it also takes a conscious effort to review these results on a regular basis in order to succeed. Not only will keeping better records help you to make better decisions, but your banker will thank you, as well!