Producers today face higher economic peaks and lower economic valleys than their predecessors. If you want to be in agriculture for the long haul, you need to adhere to philosophies and practices that have been proven over time, says David Kohl, professor emeritus of applied and agricultural economics at Virginia Tech. He recommends the following rules:
1. Know your cost of production. To make wise business decisions, you must know your cost of production. However, if you don’t, then you must manage your finances differently, such as keeping your debt-to-asset ratio below 40 percent.
2. Utilize an asset-lite strategy. Make sure that you are getting the most out of your human and capital assets before investing in more.
3. Manage for the extremes. To do that, you must have good cash and working capital reserves to weather the valleys.
4. Invest in enterprise analysis. Research now shows that those who do use enterprise analysis increase profits by 2 percent.
5. Grow earned net worth by 6 percent annually.
6. Use accountants and advisory boards to increase your profits.
7. Focus on efficiency first, then growth. Failure to grow your business in this order often leads to “burying yourself sooner.”
8. Do strategic planning. Businesses that follow a strategic plan double their rates of return.
9. Look for new ideas. Early adopters and trend setters earn 1.5 times greater profit than their counterparts.
10. Invest in good management. Invest in supervisors who, like sports greats Wayne Gretsky and Larry Bird, elevate the level of play of those around them.