Whether you’ve been dairy farming for fifty years or five, there are challenges and risks that cannot be avoided. Even though they face many of the same risks, beginning farmers can be much more susceptible to industry downturns. Without the years to build their balance sheets, beginning farmers typically have a smaller net worth and working capital position. In addition, they typically have a smaller land base and more variable costs. They may not have all the options as a veteran farmer when cash flow shortages arise.
The items below are good reminders for all, but especially important for beginning farmers:
Keep Good Records
Detailed and accurate financial and production records are crucial to understanding and managing your business. Complete a monthly cash flow and monitor your operation on a budget to actual basis. Understand your cost of production and use that knowledge to make decisions.
Have a Risk Management Plan
Once you know your break-even costs you can make educated decisions on how to manage risk on your operation. Evaluate your insurance and MPP Levels. Develop a marketing plan with a focus on margins. If you are not strong in this area find an expert in the field to help you. Lock in your interest rates.
Build Working Capital
Working capital is your best defense against cash flow shortfalls. A good management target is at a minimum $500 of working capital per cow. If you have other enterprises besides dairy you will need more.
Monitor Capital Expenditures
Analyze each purchase to determine if it will add enough to your bottom line to justify the cost. With limited capital it is important you spend it on needs instead of wants.
Source : Agstar