Whole Farm > Financial > Industry Analysis

What is in your control, and what isn’t?

pdf fileAgDM Newsletter
October 2017

A successful business manager typically understands and adequately performs 5-6 key functions. Depending upon the guru (e.g. Covey, Blanchard, Maxwell, etc.) you are following, one of these functions many times is "leading," and this might be leading, formally or informally. The late-Steven Covey wrote an award-winning, top- selling book titled "The 7 Habits of Highly Effective People." Whether a small or large business, with one or many employees, a single enterprise or complex, these seven leadership habits, when done well, may contribute to the operation’s overall success:

  1. Be proactive
  2. Begin with the end in mind
  3. Put first things, first
  4. Think win-win
  5. Seek first to understand, then to be understood
  6. Synergize
  7. Sharpen the saw

Iowa farmers are very efficient. Remember, efficiency means "doing things right," while effectiveness measures "doing the right things." It sometimes is easy to dismiss lists like this, as impractical; great for theorists, but mean little to hands-on decision making. However, take the work tasks associated with the current season. When making decisions, think about the important managerial alternatives, and try an effective leadership approach to each by applying the seven habits. In any event, be safe!

The "big-picture" concepts listed above lead into day-to-day decisions on a farm operation. We know neither weather (moisture or lack thereof) nor markets are controllable. But, some decisions are within our control. This "top 10" offers suggestions when dealing with continued tight margins:

  1. Farmincome/ two-sided equation – a balanced enterprise analysis looks at both revenues and expenses; for revenues, this means a careful analysis of both your production and marketing plan.
  2. Reliable records – it is critically important to have accurate, timely, legible, and understandable farm records; Can you describe your results to someone, e.g. family, landlord, lender, etc.?
  3. Know your breakevens – contribution margins (covering the variable costs) are key to the short- run decisions.
  4. Cost of capital – even taking into consideration recent increases, the cost of borrowed capital continues to be at historic lows.
  5. Manage the cash flow – new businesses mostly fail due to a lack of cash; how is your working capital?; are presently-lower, long-term interest rates an opportunity to "right-size" your balance sheet.
  6. Return on investments – are there on-farm work activities that can be used to generate additional cash flows, e.g. custom farming, over-capacity, or unused buildings/machinery/equipment.
  7. Precision farming – "one size doesn’t fit all" when analyzing fertility and weed/insect control decisions on how to achieve more (or the same) output from equal (or less) inputs; our ISU Extension and Outreach agronomists are a proven resource.
  8. Insurance to mitigate operating risks – marketing and production risks can adversely impact net worth and balance sheet solvency, especially in an environment of declining land values; ask your trusted insurance agent about where that next dollar of coverage doesn’t present a return on investment.
  9. Supplemental income – much like the enterprise analysis of #1, can the family/living budget be complemented from off-farm opportunities, i.e. special/marketable skills.
  10. Communication – getting help from objective, third-party experts, listening to your own genuine assessment and that of trusted partners, and/or not "going it alone" can support final, best decisions.

Further resources to aid in these concepts can be found on the Ag Decision Maker website, or connect with your ISU Extension and Outreach farm management specialist.


 

Gary Wright, extension farm management specialist, 712-223-1574, gdwright@iastate.edu