The Balance of Passion and Economics in Farming

In a world where the agriculture industry is constantly evolving what is required of today's producer to be successful? In short, the answer is balance.

The agriculture industry is being transformed at an accelerated rate by global and domestic economics. Coupled with major megatrends such as consumer taste, demographic and generational shifts, technology, and a widening disconnect between farm and city, the landscape is definitely evolving.  So, what is required of today’s producer to be successful?  In short, the answer is balance. 

 

While facilitating a young farmer conference, I asked participants to name some topics that they would consider industry opportunities, even if some may view the same topics as industry challenges.  Their list included: the local, fresh, and organic movements; farm transitioning, whether generational or retirement; multi-complex businesses; entrepreneurial endeavors inside and outside of agriculture; and a younger group that often multitasks. 

 

This same session included a group of military veterans looking for ways to reconnect with agriculture and the land.  This group struck me as special, in part because along with alumni from my high school, I recently celebrated the  50th anniversary of the 104 game winning streak of the boys basketball team; a modern-day record. One teammate was critically injured on the front lines in Vietnam.  After returning home, he served as an inspiration to all the players during the streak. 

 

For the veteran group, we asked how military experience and training could be advantageous in operating a farm business.   Clearly energized by the question, the responses included critical thinking skills, strategic planning and execution, contingency planning, global awareness, attention to detail, coping with adversity, strong work ethic, good communication, and the ability to develop solutions and teamwork.   Interestingly, each of these skills has a direct connection in business. 

 

One of the keys to being a viable and sustainable agricultural business is balancing the passion and desire of farming with the logic of economics.  In other words, how does one translate passion into an actual and viable business?  That is where the logic of economics comes in, and a basic business plan. 

 

Recently, Farm Credit University kicked off a pilot program called Ag Biz Basics.  This program was designed to provide introductory educational training on the development of goals and financial statements .  Whether for a veteran or entrepreneur, the Ag Biz Basics program allows anyone with agricultural aspirations to make a game plan before going into the field.   Let’s examine the necessary elements.     

 

Setting Goals

 

Before embarking on any business adventure, one should articulate one’s goals in writing.  In other words, a working document that can be reviewed is necessary.  This process should include goals that are one to five years out, and separated by business, family and personal aspirations.   In order to maintain focus and balance in your goals, use the S.M.A.R.T. principle (specific, measurable, attainable, reasonable and rewarding, and timely). This goal setting process establishes the mission and vision of the business.

 

The other initial step in this process is developing and collecting all your financial documentation such as credit scores,  tax forms, wills, insurances, etc.  This information will be required in any meeting with a lender or advisors, and needs to be updated and accurate.   Of course, one’s financial documentation should include the next three steps. 

 

Cash Flow

 

The next step is a cash flow statement, or the business side of production planning.  This step exercises one’s critical thinking skills.   In essence, the cash flow is simply an outline of your production plan and timetable with numbers.  Specifically, use different scenarios of price and cost. For example, conservatively estimate different levels (low, average, and high) of bushels per acre and price per bushel, or production and price per pound of meat or milk, to develop a cash flow for the farm.   For the military, this is similar to contingency planning, or planning for the unknown.     

 

Balance Sheet

 

The development of a balance sheet, both business and personal, allows one to determine  net worth, examine debt levels, and identify the assets and resources available to generate earnings. Often, the processes of developing cash flow and the balance sheet require one to work side-by-side with a lender, spouse, partner, mentor or team of advisors.  In other words, this step helps you determine what you are worth financially.

 

Projected Income Statement

 

Finally, a projected income statement is a useful tool because it shows whether or not you made a profit.  Specifically, this step allows for monitoring results, which reveals the tweaks needed along the way.  This attention to detail in production, marketing, finance, and risk management increases the probability of long term success. 

 

The four steps to a simple business plan in Ag Biz Basics:

 

  1. Written goals for the business, family, and personal life – one to five years out. 
  2. Projected cash flow
  3. Business and personal balance sheets
  4. Income statement

 

Whether it is on the basketball court, in a military operation, or in business, viability and sustainability require a balance between one’s passion and the logic of economics.  Undoubtedly, farming is a passion; and those in the industry, young or older, share a love and respect for producing.   However, in a rapidly evolving industry, the economics must be present to turn passion into profit; and specifically, the elements of setting goals, projecting cash flow, and developing balance sheets and income statements.  The critical thinking and planning on the economic side of the scale balance the passion, but remember that neither passion nor economics are as strong without the other.  

 

 

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