What makes a farm profitable?
“Recently, farm management expert Professor Eric A. DuVuyst of Oklahoma State University shared three traits common to all successful producers, drawing on observations and experience gained from working within five U.S. land grant universities,” said provincial farm management specialist Rick Dehod.
“We definitely see these same three common traits in our successful Alberta producers.”
The first trait is that these successful producers can identify costs and strengths.
“They know where they make money and what is costing them money. If asked about it, they can tell you immediately. Why? It’s because they have good production and financial records. These records provide these producers with timely information so that they make good decisions.”
The second trait is that these producers spend money to make money.
“Financially successful producers know their cost of production and break-evens. They understand the past expenditures on a crop or livestock enterprise, and how those expenditures affect the profitability of that enterprise.”
Dehod points to the example of a producer considering spraying a fungicide who can quickly determine if there’s room in the budget and if the application will produce a reasonable return.
“A financially successful producer will understand the economic threshold of their management decision,” he said.
The third trait is having a plan for repaying loans.
“I once worked with a producer who made a purchase decision strictly on emotion,” said Dehod. “Although he couldn’t afford the additional land purchase, when one of his neighbours died, he went to a number of banks until he could borrow the money he needed to buy the land. Due to the increased cash demands on his cash resources, his creditors were constantly calling him. He just didn’t have the cash to manage his farm in the most profitable manner, and things ended badly.”
Financially successful producers have a plan for capital purchases and loan payments and ensure they will have enough working capital, he added.
The bottom line is good record-keeping, and using those records wisely, said Dehod.
“While keeping and utilizing production and financial records won’t guarantee financial success, there are few financially successful producers who don’t keep and use good records.”