By: Brenda Stefanson, PAg, Regional Farm Business Management Specialist, Watrous
Do you ever wonder how you, as a farm manager can ensure that your farm is financially successful over the long term? A recent study shows how adopting seven practices can move your farm from low financial performance into the top 25 per cent. In 2015, Farm Management Canada, Agri-Food Management Institute and Ipsos Ag and Animal Health conducted a study to determine whether adoption of beneficial farm management practices pays off for farmers. “The purpose of the project was to measure the degree to which farm business practices are direct drivers of farm financial success” (Dollar$ and Sense, AMI, 2015).
This study identified seven farm business management practices that can improve the farm’s financial position. In other words, farm managers employing these practices are found in the top 25 per cent in terms of their farm’s financial performance. The project compared Canadian farms in the top 25 per cent in financial performance to the bottom 25 per cent. The differences are significant and reveal that the top managers realize financial benefits including:
- 525 per cent increase in Return on Assets
- 155 per cent increase in Gross Margin ratio
- 100 per cent increase in Return on Equity
- 100 per cent increase in Asset Turnover
So, what are these top managers doing that others aren’t? No magic bullets here, just some habits that can be adopted by anyone. The seven farm business management practices that are employed by the top 25 per cent are:
- Propensity to continually learn
- Business decisions made with accurate financial data
- Use of professional business advisors
- Use of a formal business plan
- Cost of production monitoring and use
- Risk assessment and management
- Use of a financial plan with budget objectives
We will explore each of these in more detail over the next few articles. If you are interested in learning more about this study the full report, Dollar$ and Sense: Measuring the Tangible Impacts of Beneficial Business Practices on Canadian Farms, July 2015, can be found at www.fmc-gac.com/publications.
If you want to get started on developing these beneficial management practices call your local Regional Farm Business Management Specialist to access resources that can help you move up into that top quartile. We can help you get started on your habit of continually learning with financial help from FBDI to cover some of the costs of training in farm business management.