Your farming business is incredibly important to you – not just because of your connection to the land and your passion for your community, but because it’s how you support yourself and your family. There are so many elements of business you’re considering, and a very important one is your finances. By being aware of your costs and seeking new ways to drive profitability, you’ll help your farming business achieve its full potential.
Have a detailed and flexible business plan
Running a profitable farming business requires a level of big-picture thinking. The best way to get a clear vision of your business as it is now and where you intend for it to go is writing out a business plan. You might’ve taken this step when you first started, but if not, you’ll learn quickly how helpful it is to have this roadmap at hand to guide you through decision making and problem solving.
Put simply, a business plan is an overview of your goals and how you intend to reach them, including:
- An Executive Summary – your mission statement as well as information on the company’s leadership, employees, operations, etc.
- Market research – this includes your desired customers as well as your competition
- Description of your Products and Services – what do you sell? How much does it cost? What value does your products or services provide for your customers?
- Financial Planning
This last bullet point is what we’ll be focusing on when discussing managing costs and driving profitability. You’ll have a profit goal as well as an outline of your cash flow, or the money leaving and entering your business. As a farming business, your cash flow can vary often – it’s impacted by seasonal dips in production, changing tax legislation, price fluctuations and more. The best part about a business plan is that it allows you to foresee and plan for these fluctuations so you’re never left without a plan of action.
If you’re not sure where to start when writing a business plan, or would like more guidance, this is just one of the many services a quality accountant can provide you with.
Understand your costs and expenditures
The first step to both managing costs and driving profitability is getting a complete picture of where your money is going. Month to month, or even year to year, you’ll have a series of fixed costs such as loan payments, employment salaries, and rental costs. You might consider these expenses as non-negotiable, or just a fact of business, but with some creative thinking there are always ways to cut down on costs and increase your profitability.
For example, one of the first things we recommend to clients is taking a look at your current contracts and seeing where you can save. This could be as simple as switching from a line rental to a mobile with unlimited minutes, or doing a price comparison online to ensure you’re getting the best rates for your gas, electricity, equipment rentals, and more.
Focus on your ROI
Your ROI is your return on investment, and it can help you decide where to cut costs and where maintaining, or even increasing, certain expenses is worth it.
Your seed purchases are an example of where you could save money or increase profitability by considering ROI. Part of your business plan we discussed earlier can be an updated analysis of your seed performances, with a breakdown of which seeds yielded the greatest harvests and profits for you. You can then continuously update and alter your purchases to focus on seeds with higher ROIs rather than spending money on seeds with lower profitability.
Another example of when it’s important to consider your ROI is when it comes to your machinery. It’s a fact of the farming business that machinery will break down, either needing to be replaced or repaired. If you’re looking to cut costs, you might be tempted to rent or purchase the cheapest machinery on the market. However, the money you save in the present could be lost many times over if you buy cheap machinery that breaks down often, and that you’re constantly needing to repair or replace. A piece of equipment that’s double the cost but lasts an average of five years is a better ROI than equipment half the cost that will need to be replaced every year.
Have a network of feedback and support
Farming is a complex industry. You’re working hard to ensure you’re doing the best you can for yourself, your business, and your employees. But things aren’t always simple, and they certainly aren’t always easy, which is why it’s so helpful to have a support system behind you.
At Saint & Co, farming is in our blood. We specialize in understanding changing tax regulations and legislation, how to plan for variations in your farming revenue, and putting actionable steps into place so you can watch your business grow through diversification projects and expansion plans . Learn more about the feedback and support we can provide you here.