Chris Barron of Carson and Barron Farms and a columnist with Top Farmer Magazine, introduces encourages a proactive approach to farm margin management in the recent article, Financial Fitness for Tomorrow.
"Bad decisions are usually made during good times, and good decisions are usually made during bad times. During good times we tend to lose our critical eye and the motivation to do the things necessary to maintain good financial fitness. When the margins are wide, the small improvements don’t seem as necessary as they do when the margins are tight."
This warning against "financial flabbiness" may easily be brushed off by the hard-chargers who have only farmed during the current agricultural "boom."
Here are some of his recommendations (along with our comments):
"Know where you've been. Are there specific enterprises in your operation that tend to be more profitable than others? Take the time and dig into the details. (Management accounting.) Focus on what you can control and make decisive changes when they’re needed." (Support activities--i.e. machinery and labor.)
"Know Where You Are. Understand your daily cost of production. Don’t just calculate cost of production at the beginning of the year and consider that to be close enough. Production costs are a moving target, the same as yield and market prices. Make sure your cash flow projections are reviewed on a regular basis and updated." (E.CLIPSE Management Accounting and LifeCycle Budget are designed with this in mind.)
"Know Where You’re Going." (LifeCycle Budget can perform multi-year, multi-scenario projections.)
What do you think?