For young farmers today, risks are endless—but also are rewards. To carve a niche, secure a foothold and pave the way to farming success, financial skills are a must. You have to be able to convince your family, partners and lender that you are worth the risk.
Are you willing to be an exceptional farmer?
“If you think about the loan officer sitting with you, that’s what he or she wants to know,” says Gary Matteson, vice president of young, beginning, small farmer programs and outreach for the Farm Credit Council. “They want to know, what’s so different about you? Are you capable of running the business?”
How do you prove that you are exceptional? Be able to describe your operation in a 45-second elevator speech. You need to be able to tell your story in a business plan, Matteson says.
Compile a monthly cash flow budget. Explain your business in terms of:
Sales - Cost of Goods Sold (Variable Costs) = Gross Margin – Overhead (Fixed Costs) = Profit (Net Margin)
“That’s the equation for business,” Matteson says. “If beginning farmer can use those five terms—total sales, costs of goods sold, gross margin, overhead, net margin—that loan officer’s jaw will drop. After the intro speech, if a young farmer can hand over a monthly cash flow budget, the loan officer may have to be revived with smelling salts.”
Financial management is one of the biggest challenges farmers face, regardless of age or experience. Make it a priority to study, analyze and improve your financial knowledge.
“As farm managers, you cannot avoid difficult tasks, subjects or problems,” Matteson says. “Getting fluent in the language of monthly cash-flow budget is the single greatest skill a beginning farmer can have in convincing someone else that they are competent, committed, and have clear expectations of the future.”
Use your monthly cash flow and balance sheet to guide your business decisions. Should you rent more ground? Should you add a livestock enterprise? Is it time to add a new piece of equipment?
“If every business decision you make in your whole life you ask yourself, ‘What will this do to my balance sheet?’ You’ll make good decisions,” Matteson says.
Want more insights on how to develop effective financial habits? Farm Credit Mid-America’s Jonathan Carter shares advice to help young farmers better prepare their financials.
Here are some more resources on cash flow budgets and analysis:
Twelve Steps to Cash Flow Budgeting, Iowa State University
Cash Flow Budgeting for Farms and Ranches, University of Nebraska
Cash-flow Budgeting: About Amount and Timing, Farm Credit Services of America