It may be time to audit your agricultural enterprise

I often wax poetic about living and working in agriculture. If I take the rose-colored glasses off too often, I would see only the mountain of feed bills, equipment breakdowns, hours of labor spent, and capital risk taken.

So I keep those rose-colored glasses firmly in place, and I try to look on the bright side of things. However, in my travels to speak at agricultural events, it’s quite evident that farm and ranch families are struggling.

Food and fuel prices are at an all-time high. Input costs continue to escalate. Outside investors continue to move land prices upward. And the kids are looking to find a better life somewhere else, leaving many operations without the man-power to continue to operate.

Add in the factors that are well outside of our control — an ongoing drought across the country that is leaving many high and dry for much-needed feedstuffs and acres to graze, as well as geo-political movements across the pond that could derail even the best efforts of the most savvy businessmen and women.

As I consider these challenges, I often think these are the times that separate the men from the boys.

This week, I’m headed to speak at an agricultural women in business meeting, where I’ll be addressing some of the financial challenges of farm operations, as well as tackling the issue of navigating the family dynamics during times of stress or transition.

These are heavy topics, but they are necessary to address head-on. If our operations are continually in the red or if our families can’t get along, it’s a recipe for failure in any multi-generation operation.

So we’ll tackle the elephant in the room, and together, we will figure out action items to move our operations forward while continuing to grow in our familial relationships.

Given that we are in the final month of 2022, now is a great time to evaluate the family business and figure out what went well during the year and what needs improving.

An easy way to get the ball rolling is with an audit of the agricultural enterprise. Here are five easy steps to begin your own personal audit, and if you’re stumped by these questions, it might be a good time to bring in a professional.

First, consider your costs. Which costs are absolute, and where would cuts be made? We may have a tendency to go for the low-hanging fruit, but we must analyze the pros and cons of making these certain cuts and how it might impact the family business.

As an example, don’t consider labor as a $15-20 per hour expense. Ask yourself, for that extra $20 per hour, could I make $100 back? Or consider this, does the labor expense improve efficiencies and allow you to do more, invest more, and expand the operation even further?

Moving onto step two, analyze your cash flow to truly identify trends and pinpoint trouble spots throughout the year. Compare month-to-month, as well as quarterly figures, and plan accordingly for leaner times of the year.

The third step is looking at service contracts, pre-orders, volume and bulk purchases, and determining ways to save on your inputs, supplies and services. This can be a win-win situation as larger orders allow for great efficiencies and cost savings. Plus, by planning ahead, you’ll never run into issues of supply chain shortages. You’ll be good to go with your upcoming needs locked in place.

Step four is eliminating waste, cutting back where needed, and investing your time and energy in the niches of your operation. A savvy business owner told me once, “There are riches in the niches,” which means if your operation runs as a commodity farm, and you’re not able to be profitable with commodity prices, determine ways you can add value in the operation and earn a premium for the things you do really well. This added diversification can serve as a safety net that can help the operation weather through tough times.

Finally, step five is the most important — carve out time for what matters most. This is a tricky one because in order to say “yes” to more family time and more time doing what you love, you have to say “no” to other opportunities. Yet, if you neglect this category, it results in unhappy marriages, disconnected kids, and a weakened family unit. Make the necessary cuts and get enough labor around to give you the margin and freedom to focus on this category.

Consider this checklist for an agricultural enterprise audit to get your 2023 off to a strong start! These are challenging times, but with a little planning and foresight, we can better handle whatever is thrown our way.

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Amanda Radke