Recently I attended the New York Corn and Soybean Producers Association annual expo in Syracuse. Dr. David Kohl, Professor Emeritus of Agriculture and Applied Economics from Virginia Tech, was a featured speaker. From his analysis of top agricultural producers across the nation he has developed a list of the top 12 practices observed of successful young farmers / ranchers. I list each practice here with a short explanation of each.
- “Know the cost of production via enterprise.” Each manager needs to know by profit center what their cost of production is so they may evaluate buy /sell decisions relative to their impact upon cash flows.
- “Invest in productive assets.” Farmers should focus upon what they can control and will add to the bottom line. The farm does not have to be pretty.
- “Low to modest family living withdrawals.” The family’s expenses need to be controlled and monitored.
- “Focus on managing the controllables and managing around the uncontrollables.” Your time is of the essence, minimize the amount of time spent on those things that are out of your control – such as grain prices and government regulation. However, you must plan for the impact of those items given various scenarios.
“Asset lite – collaborative”. Consider shared assets between neighboring farms. For example, Dr. Kohl mentioned the sharing of an accountant between several neighboring farm operations.
- “Manage taxes vs. minimize taxes – businesses don’t go broke paying taxes.” Rushed end of the year purchases could result in excess or unnecessary expenses. After tax income can be used to purchase or invest in non-farm assets that provide the family diversification to reduce the impact of ag industry cycles.
- “Strong character: most important of the five “C’s” of credit.” Young farmers must be prepared for hard work, pay attention to detail, and be able to weather adversity.
- “Profit plan 60-30-10 rule.” Spend 60% of profit resources growing your profitability through increased efficiencies; 30% of profit resources growing the business through working capital increase; and 10% for yourself.
- “Build and maintain working capital and cash.” This is a follow along from the above practice. Working capital is Income from production less the inputs used to generate that production – it provides the liquidity from which all other expenses will be paid. Additional cash savings can be generated through greater efficiencies and cost avoidance.
- “Strong group of mentors/people – net worth (financial and mental) equals network of people” Don’t be afraid to talk to others, listen to their stories about successes and challenges. Assemble a team of advisors for the farm and get your records together to determine performance now and forecast into the future.
- “Best crop you will ever raise is your children and grandchildren, aspiring youth.” Kohl used the analogy of the young pup giving the old dog new life. This happens on the farm too.
- “G.W.C. – “Get it”, “Want it” & “Capacity for it”: Understand your capabilities. Establish your goals. Figure out how to achieve them.
“Know how to manage data.” It is becoming increasingly important for farmers to understand the data that is being generated on their farming operation, to be able to critically think about what the data is telling them, to communicate that information to others and to understand how it impacts them and the operation.
Diann L. Andrews is an Estate and Succession Planning Specialist with NextStage Legacy Advisors, with Lincoln Financial Advisors in Amherst, N.Y. She may be contacted by email at <[email protected] and by phone 715.580.1123