Growing conditions and production practices present demanding challenges, but those are not the only skills today’s farmer must maintain. To thrive in changing markets, farmers must also operate with a high degree of business savvy.
Farm business health can be divided into eight different topics for purposes of identifying a farm operation’s strong points and weak areas, and to direct efforts for business health improvement. These topics are:
- Business Formation
- Labor and Contractors
- Production and Marketing
- Business Planning, Insurance, Energy and Miscellaneous
The legal form under which your farm business is organized has significant consequences regarding personal liability and debt collection. In many cases, the default business organization may not be the most advantageous to you, your farm and your family.
Farmers’ Guide to Business Structures, published by Sustainable Agriculture Research & Education (SARE), identifies the various ways your farm business can be formed or organized, offers insight regarding the relative advantages and drawbacks of each, and can help you take steps toward formalizing your desired business structure.
The relationship that you maintain with the land on which you farm sets parameters for decisions you may make with serious consequences for your business. Understanding the nature of your relationship to the land is critical to such decisions and should also inform your efforts searching for or acquiring access to land.
Finding Land to Farm: Six Ways to Secure Farmland, published by the National Center for Appropriate Technology (NCAT), briefly discusses different types of agreements that can secure a farmer’s access to land.
Land upon which different generations of farm families rely carries distinct values and risks to the farmers who are responsible for it. Succession planning is a critical and complex issue for intergenerational farm families. While every farm business, every family, and every farmland parcel will require careful and specific attention, Northwest Farm Credit Services offers a brief series of Succession Planning Videos to help farm families think about the succession planning process.
Farm business accounting presents the opportunity to measure the efficacy of your efforts, assist you in determining which ventures do or do not work for your farm business and help you accurately anticipate expenses. An effective accounting system should facilitate cash flow management and facilitate beneficial interactions with tax authorities and lenders.
Today, accounting methodology is typically tied very closely to your chosen software platform. However, Basic Accounting: Guidance for Beginning Farmers, published by the National Center for Appropriate Technology (NCAT) and Preparing Agricultural Financial Statements, published by Northwest Farm Credit Services, can help you become familiar with the concepts upon which popular accounting software platforms are built. Northwest Farm Credit Services also offers three e-Learning Courses, available on demand, on Balance Sheet Basics, Cash Flow Budget, and Time Value of Money that can help farmers enhance their understanding of these topics.
The tax code attempts to accommodate some of the key differences that distinguish farm operations from other family businesses. Farmers should become familiar with how the tax code treats their businesses differently. Many tax assistance products and services that are not steeped in agriculture, and perhaps more specifically farming that is similar to your farm, will likely gloss over nuances that are beneficial to your business.
The Land Grant University Tax Education Foundation, Inc. has produced an extensive Tax Guide For Owners Of Small And Medium Size Farms to assist farm managers in becoming effective tax managers. It is also critical that farmers stay abreast of recent changes to the tax code; Iowa State University Center for Agricultural Law and Taxation hosts an article documenting how these changes impact farm operations here.
Farming is a family business, and businesses invoke labor regulations. In addition to regular labor you may have intentionally secured, help on the farm from friends, family or customers may trigger rules regarding independent contractors and employees. In order to avoid unintended regulatory implications or liabilities, farmers should become familiar with labor laws that may apply to them.
California Farmlink has a Farm Labor fact sheet you can use to familiarize yourself with farm labor regulatory concepts. Another fact sheet published by the organization, Insurance Basics For Farmers And Ranchers, highlights resources available to farmer employers to help understand and mitigate risk related to employees and others on the farm. While these fact sheets cite to California-specific regulations and resources, the underlying concepts may be applicable to farmers across the US.
Care of living things makes farming distinct from other livelihoods. However, the exchange for value when the product of your efforts passes the farmgate will determine whether and how you are able to stay in business. Improving marketing practices may ultimately enhance your ability to produce in the manner and volume you would prefer.
Marketing practices vary widely; family farms sell grain globally, vegetables under contract, fruit at the farmers’ market, and everything in between. Many farmers achieve and maintain success by exploring innovative marketing strategies, as well. Farmers who want to evaluate how they market their products or consider changes to how and what they sell can consider Compeer Financials’ industry expertise, organized by commodity. Farmers involved or interested in local marketing can consult Cornell University’s Guide To Marketing Channel Selection: How To Sell Through Wholesale & Direct Marketing Channels.
Regardless of the size of your operation, products raised or services offered on your farm, credit is often a critical component of a successful farm operation. Farmers may need to seek loans when they first strike off to farm on their own, for annual operating costs, or to expand or update their operations. Further, farmers can enhance their likelihood of successful loan applications if they maintain good financial records throughout the course of all transactions, rather than producing records retroactively for the application process.
Northwest Farm Credit Services offers a number of documents to help farmers think constructively about access to credit, including How Lending Decisions Are Made and Financing Agriculture: The Business Borrower-Lender Relationship.
Farms are complicated businesses. Profitability and wealth-building are the end results of equations with many variables that can be maddening to track. A good business plan can help a busy farmer keep all the moving pieces in steady focus. Farm Credit East’s One Page Business Plan may be a good resource to help farmers track all the different, critical aspects of running a successful farm business.
Finally, every farm and every farmer are different, necessitating a widely varied “miscellaneous” group. Some important, or valuable, considerations that may help you and your farm succeed include:
- Managing Your Farming Legal Risks with Insurance: A Farm Commons Tutorial Farm Commons
- Clean Energy Farming: Cutting Costs, Improving Efficiencies, Harnessing Renewables SARE
- Find your USDA Local Service Center, the first stop to learn about potentially cost-saving programs with the Natural Resources Conservation Service (NRCS), here.