Small Changes that Can Make a Big Difference on Your Bottom Line

A closeup view of Holstein replacement heifers. ( Maureen Hanson )

In a farm economy in which every penny counts, sometimes seemingly small changes can yield fairly high financial rewards, according to Carmen Michels, Financial Officer with Mankato, Minn.-based Compeer Financial.

“What may seem like just cents can make an impact in the long run and really add up to increase the longevity of your operation,” said Michels. “It’s important to ask yourself what small adjustments you can make or habits you can change, in both the short- and long-term.”

Michels advises focusing on four key elements of your operation as you evaluate what you might change:

  1. Maintain a current balance sheet and income statement. While the reality of these two documents may be disheartening -- especially in stretches of prolonged, low milk prices -- they are a fundamental business necessity. “One of the most crucial metrics to know is your cost of production year over year,” said Michels. “Having hard numbers to evaluate helps keep some of the emotion out of decision-making.”
  2. Maximize the return on your hard work. “The hard work you put into your operation shouldn’t be held back by costs that rob you of profits,” she advised. Changes like negotiating input costs with suppliers; repairing instead of replacing equipment; and even letting go of high-rent land parcels, all can add up to cost savings in the long run. Michel also suggests liquidating assets, such as equipment or land, that aren’t paying their way and working as hard as you are.  
  3. Market your product. Simply accepting whatever price you can get for the products you produce isn’t working for most operations these days. “Ask your elevator if you can place a sell order for your grain; learn more about how you can lock in a floor with the new dairy revenue protection program; or discover ways you can lock in prices at the slaughter plant,” suggested Michels.
  4. Structure your operation. “Sit down with your lender, consultant or advisory team and discuss how to use your debt to provide working capital needed in both today’s environment, and the long run,” said Michels. “There may be ways to fix in long-term rates to minimize future business risk.”

Compeer provides a free balance sheet file to help organize your farm’s finances and get an unbiased picture of where changes might be possible or even necessary. “It’s more comfortable to run your operation the same year after year, but growth and comfort often do not coexist,” advised Michels.