Today, agriculture is slowly but surely becoming a separate science with numerous doors that open up roads leading in different directions. To be successful, a modern farmer still has to have experience, love for the land, and lots of courage and determination for this business. Besides, growers have to have a thorough grounding in the science of agriculture and know a great deal about their own land and the crops they plan to cultivate.
No matter crop growing or cattle breeding, plants and animals both are complicated organisms. When cultivating crops, for example, farmers must be thoroughly familiar with its characteristics, growth stages, required weather conditions, and much more. If it’s livestock production, the farmer has to know the characteristics of the cattle including their feed requirements, breeding habits, and most common illnesses. Luckily, there is modern tech and software that leverage the power of IoT, AI, and satellites in farming to help agronomists make reliable and smart decisions.
Apart from knowing all this, a farmer should have business acumen to successfully operate the farm and sell products. In this piece, we will break down one of the most useful business and financial tips for farmers to help them beef up their venture.
There are three key attributes to managing your farm’s capital:
- Cash flow generation. When making capital purchases, it’s critical to thoroughly analyze every purchase that will lead to additional debt. When buying equipment, livestock building, or a storehouse, ask yourself if it will be able to generate the cash flow to cover its cost. Evaluate the financial impact of the item you want to acquire: how it would affect the overall debt and cash flow of the business.
It’s also critical to take a global view since making the capital purchase doesn’t mean the business as a whole will have the cash flow it needs. For instance, if the storehouse you want to purchase will make money, but the rest of the business operations will lose money, the overall cash flow will decrease.
Ultimately, if the new purchase is not able to generate enough cash flow to cover its own cost over a reasonable time period, it is not beneficial to the overall financial well-being of your business.
- Budget creation. A thoroughly planned budget will guide you through every purchase you make, making sure you are never lost financially. The key to creating a budget is to be realistic and rely on past performance. If it’s crop production, cover everything from seeds and fertilizers to fuel and rent.
For the budget to be relevant, don’t forget to review and update it depending on the complexity of your farm operations.
- Farm’s performance evaluation. Analyze your ROI. Is it high? Are your non-farm assets able to generate a maximum return? If not, consider selling them. If you witness low return on your investments, it’s best to know sooner rather than later to determine if the changes need to be made.
Tax planning is closely associated with the knowledge and application of tax law, which is currently ambiguous, unstable and contradictory, and the practice of its application is accompanied by numerous legal issues. When describing the tax planning process, various approaches are applied to determine its structural elements. So, it can be divided into four interconnected elements:
- Knowledge of taxes
- Compliance with tax laws
- Relationships with tax authorities
- Tax deduction
Tax deduction (optimization) is a legal way to reduce tax liabilities based on the use of legislative possibilities. How do you deduct taxes? First, you need to know which expenses you can and can’t deduct.
Let’s start with the ones you can’t deduct:
- Inventory losses
- Personal expenses that don’t produce farm income
- Expenses of raising or growing anything for your family rather than for selling
- Expenses in raising animals that died
And here are the expenses you can deduct:
- Seeds and plants
- Storage and warehousing
- Equipment depreciation
- Livestock feed
- Veterinary costs
- Mortgage interest
- Insurance (except for health)
Wrapping it up, here is the list of some general tips that could be beneficial to your farming business:
Increase asset utilization (asset turnover). Consider leasing instead of buying since short-term operating leases increase asset turnover. Use shared machinery and joint ventures to intensify production. Use autonomous field equipment.
Increase margins. Manage your costs and use only best practices and tech. Market instead of pricing. Use time efficiently by using workflow planners and scheduling. Hire skilled labor.
Grow volume. Use modern technology to increase your productivity by generating more volume with less investments and resources used.
Create value for customers. Focus on knowing and understanding your customers and their needs. Define how you can create value for them through your products. Prioritize quality, service, storage, and convenient in-time delivery.