With nearly 50,000 family-owned farms in Arkansas and 90,000 in Missouri, most local farms are run as a family affair. Unfortunately, smaller farms tend to have the lowest profit margins, making their operations more perilous than larger, corporate enterprises. Because profit today often relies on slim margins with little room for error, strict and conscientious farm management is all the more important.
For smaller family farms who can devote less time to business management, maximizing efficiency is key to ongoing success. Whether you’re just starting out, just inherited or took over a farm, or are looking for tips for better farm management, CS Bank is here to help. In this post we’ll explore ways in which you can increase efficiency through proper planning, organization, and financial strategizing, to keep your farm resilient today, and for years to come.
Keep reading to learn our best farm management tips for improving your farm’s efficiency—and bottom line!
Keep Track of Your Farm Expenses and Understand Your Financials
Farm finances are an exceptionally complex accounting task. From managing vast shifts in seasonal cash flow to huge expenses like equipment and infrastructure—all while navigating uncertain profits—it is not for the inexperienced or faint of heart.
However, keeping a careful track of farm expenses is essential to know where you are overspending, where you can increase profits, and how you can increase overall profit margins.
Most farms should keep several key accounting records, including balance sheets, income statements, and cash flow statements, to facilitate their financial management. Each of these offers specific and unique insights for gaining a thorough understanding of your business. Let’s take a look at each to see how they can play a role in increasing your farm’s operational efficiency.
Balance Sheets
Balance sheets provide a snapshot of a farm’s financial position at a specific point in time. They include:
- Assets (what you or your family business owns)
- Liabilities (what you owe)
The difference between the two is your farm’s net worth. Balance sheets are great for highlighting and examining your liabilities and can help you find ways to reduce spending on borrowing.
Income Statements
Income statements summarize your farm’s revenue streams, expenses, and profits over a specific period—usually annually for farms. When expenses are subtracted from revenue, you get your net income.
Income statements are useful in that they give a better understanding of how much money your farm generated from its operations and how much it spent to generate that revenue. For instance, you can see which specific revenue streams are the most profitable (both in terms of total income they bring in and what they net), which can help you expand on profitable lines of income, while cutting back or making adjustments to revenue streams which are less profitable.
Cash Flow Statements
Cash flow statements, detail the cash inflows and outflows from your operations, providing insights into your farm’s ability to generate cash over the course of the year—as well as your available cash throughout the year.
Cash flow statements include cash flow from:
- Operational expenses (out)
- Debt payments (out)
- Loan disbursements (in)
- Income from sales (in)
- Other income streams (in)
Like income statements, cash flow statements can help you better understand your income and strategize ways to increase it. Additionally, with all of your expenses at your fingertips, you can also see where you are overspending on certain items, like fertilizer, fuel, and seed, and consider ways to minimize these costs.
Perhaps the most useful part of cash flow management is having a better understanding of your cash needs throughout the year. Lines of credit are especially useful for smoothing irregular farm cash flow. However, borrowing money when you don’t need it can lead to excessive interest payments, reducing your profits and available future cash. We’ll talk more about this later.
Working with a professional account can help you develop and maintain these records. However, every farm manager needs to have a firm knowledge of their farm’s money management to run the most efficiently.
Proactively Manage Your Farm’s Debt
As we mentioned above, unnecessary interest payments on debt can create an additional impediment for profits. However, having some farm debt is a reality for most farmers, and can provide the capital you need to finance improvements and growth—which can lead to increased profits. The key is to use debt to your advantage, taking measures to reduce debt-related costs.
Here are some things you can do to ensure the most cost-effective debt management:
- Understand your loan terms - This will help you compare products and make informed decisions about refinancing.
- Don’t miss payments—bad credit will make future debt more expensive. If you are struggling to make a payment, reach out to your lender for options.
- Know the tax benefits of different loans. Speak to your accountant to maximize debt-related deductions.
- Be opportunistic with refinancing. Refinance higher interest loans when rates are lower, consolidating loans when you can to simplify accounting.
- Utilize collateral to lower interest rates. Secure loans with cash reserves or property to get the best rates for financing.
- Consult the professionals. Speak to your local ag lender, as well as your county extension office in Missouri or Arkansas, to find the most affordable financing options available, uncovering grants and special loan programs that can reduce your out-of-pocket costs.
At CS Bank, our experienced agricultural lending team will take the time to understand your farm’s financial picture, offering appropriate financing options for equipment purchase, infrastructure improvements, and ongoing costs—keeping your financing costs affordable and manageable.
Plan Out Your Ag Projects
Whether you are planning a major improvement project or purchase, or are looking to expand your enterprises with additional revenue streams, financing the infrastructure and allotting the necessary manpower and management time to see plans can be a massive undertaking.
That’s why, when choosing which projects to pursue—and in what order—it’s important to first take stock of your options and evaluate how to proceed. To start, examine your annual budget to see what available cash you have for completing projects or making loan payments. Once you have an understanding of your potential budget, it’s time to prioritize projects.
First—prioritize undertakings that are necessary to keep up your regular operations and keep the income flowing. This can include replacing nonfunctional equipment, making crucial repairs, and making regular and expected improvements.
Then, focus on less urgent projects that will save you money down the line. These include repairing aging buildings, replacing older equipment, and improving land or soil conditions.
Finally, consider projects that will either reduce costs or increase income—evaluating the potential net profits of each change both near-term (as you pay it off) and long-term (once you attain the full benefit of the project, after it has been completed and paid for).
Establish Relationships with Trusted Ag Vendors and Professional Partners
With the scale of purchases most commercial farmers make—and so much riding on timely delivery and quality product—it’s essential to build relationships with reliable and trustworthy vendors.
If you are having issues with a current vendor, there are steps you can take. First, speak directly with your vendor about any issues and give them a chance to address them in a timely manner.
If issues are ongoing, consider looking for a new vending partner:
- Reach out to your extension office for recommendations.
- Speak to other area farmers for tips and insights.
- Complete preliminary research and ask key questions of your sales representative before signing contracts.
Dependable and quality professional partners, including lenders, banks, legal, and accounting services, are also crucial for running an efficient ag business. Insightful and experienced partners can save you time, stress, and money, and offer advice on how to manage various components of your business more effectively.
When it comes to banking and lending consider an experienced ag bank that offers specialized ag loans for your needs, such as farm equipment loans, livestock loans, poultry loans and other farm loans. Learn more about the many agriculture financial services we can offer your farm at CS Bank.
Maintain Sufficient Cash Reserves
Farming is built upon life cycles, and as such the predictability of the seasons is a basis for all kinds of agriculture, from raising cattle to growing crops. But, within the regularity of these cycles there is a level of unpredictability that you must contend with, whether it’s market upheavals, policy changes, severe weather, or crop failures due to disease. Additionally, if your farm has a limited number of workers, an illness or other issue can cause delays in proper crop management, like timely planting, harvesting, or appropriate input applications.
Maintaining both personal and farm cash reserves can enhance the efficiency of your farm, boost your profits, and leave you less reliant upon debt. Benefits of maintaining cash reserves include:
- Having funds to cover an unexpected and temporary loss of income.
- Leveraging cash reserves to unlock more affordable loan rates.
- Covering emergency and unexpected expenses—without turning to financing.
- Earning interest on your balance.
- Creating a financial buffer between periods of high and low income.
In farm management lingo, these funds are often referred to as “cash reserves.” For individuals, they may be called “rainy day funds” or “emergency funds.” Regardless of what you call them, it’s good practice to have a separate fund for both you and your farm business.
When you do have to utilize your fund for unplanned or occasional expenses—its purpose!—you’ll also need to create a plan to replenish your fund in a timely manner.
One important aspect of a cash reserve is that it’s liquid—accessible when you need it. While some guaranteed investment products, including CDs and bonds, could be used as collateral for a loan, they won’t be available in the case of an emergency. Instead, consider a high interest ag savings account, which combines earned interest with easy access, when you need it.
Keep Up with Equipment Repairs and Maintenance
As we wrote in our recent post, Money Savings Tips for Your Madison County Farm, “you can cut or add years of life from your equipment depending on how well you maintain it.”
Your operator’s manual will provide intervals for routine maintenance intervals—stick to the schedule and you can extend the life of your equipment, including seasonal tasks in the spring and winter, and save money on repair costs, too.
However, there is a balance between well-maintained, useful older equipment, and inefficient, older equipment. If a piece of equipment requires frequent repairs, or significantly more fuel and labor hours to achieve the same result, and it has been fully depreciated for tax purposes, consider upgrading to a newer, more efficient machine. In addition to savings associated with increased efficiency, loan interest and depreciation may provide tax deductions.
Develop a Farm Succession Plan
A well-considered farm succession plan ensures a smooth transition of ownership and management responsibilities from one generation or one owner to the next. How can this improve your efficiency?
- Minimizes Conflict: By clarifying roles and responsibilities in advance, it minimizes conflicts and disruptions within the farm's operations.
- Brings in Fresh Ideas: Succession plans can help integrate new ideas and technologies, as incoming generations will bring a fresh perspective—while benefiting from the experience and wisdom of their predecessors.
- Reduces Disruption: A succession plan can help ensure your farm business operations aren’t disrupted during the transition—especially if a transition happens suddenly and unexpectedly during a busy time of year.
Ultimately, a solid succession plan provides continuity and stability, supporting efficient ongoing operations.
Improve Your Financial Management with Online Ag Banking
If you don’t already use online banking—or only use it for basic services—know that there is a lot that digital banking services can offer your farm business.
Whether reducing trips to your branch, simplifying accounting, getting access to your funds faster, or keeping better tabs on your spending, online banking through CS Bank can offer:
- Business Remote Deposit Capture: Deposit checks anytime from the convenience of your home or office, skipping trips to the bank.
- eStatements and Transaction History: View your transactions and statements 24/7 from home or on the go, and always know your balance.
- Fund transfers and bill payment: Move funds between accounts to maximize interest, pay bills will free bill pay services, and more.
- Cash Management: Receive and make payments and pay employees efficiently and affordably with cash management services including ACH and Merchant Services.
Partner With CS Bank for Your Ag Banking Needs
CS Bank offers a number of products and services to help you run your ag business more efficiently, including Farm Lending including Ag Land, Equipment, and Operating Loans, as well as Ag Checking and Savings Accounts, and Ag Cash Management Services.
When you partner with a bank that understands your ag business needs, you can unlock access to tools, services, and expertise to maximize your farm’s efficiency. Contact an Ag Lender today or visit a convenient location in Northwest Arkansas or Southwest Missouri to learn more.