Financial Analysis as a Tool on the Farm

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Farmers come to me asking about tools that will make their farms more profitable. Usually they’re thinking about some new tool for cultivating weeds quickly, or maybe for washing salad mix faster, or preparing perfect seed beds with speed. Those kinds of tool purchases are tempting because they hold the illusion that simply by putting down x hundred dollars, the farm will then be able to make x hundred¬†dollars more and thus will be more profitable. Usually it’s not that simple.

The tool I’ve always been most interested in using to make the farm more profitable is financial analysis. This may lead to the purchases of tools like the ones mentioned above, but it also helps to avoid putting down x hundred dollars on a tool only to realize that it’s costing more to use the tool than it’s bringing in. Further, it’s the best tool for figuring out where to target efforts for new tool purchases, or even just simple system improvements on the farm.

There are two books that came out in the last few years that I’ve been highly recommending: Fearless Farm Finances and The Organic Farmer’s Business Handbook. For farmers just starting out and working with small scale diverse vegetable operations The Organic Farmer’s Business Handbook is particularly suited to explaining the business side, and even a little of the production side, of just such an operation. Written from a single farmer’s perspective it describes the well thought out, and relatively simple but effective systems of a successful, diverse vegetable operation. Fearless Farm Finances gathers information and voices from a wide variety of farms, not just vegetable operations, and it takes a deeper look at financial management tools and approaches to managing the business side of farms. These are both great books, useful for both beginning and seasoned farmers and they approach the topic from different enough perspectives that they work well as companions.

For folks who are interested in learning more first hand, Chris Blanchard, based in the Midwest and one of the farmer authors of Fearless Farm Finances, is putting on a workshop in January in Illinois, Rutabagas to Riches. I’ve seen him speak at the MOSES conference and he definitely does a great job of presenting the information in a usable way.

Richard Wiswall, based in New England and the author of The Organic Farmer’s Business Handbook, also offers workshops and speaks at conferences. You can find out more about his upcoming talks at his website.

Here in the Northwest its been good to see this topic gaining traction as well. I’ve tried to work many of the tools talked about in these books into workshops I’ve been teaching. For years I felt like it was almost taboo with many farmers worrying that taking a business approach was tantamount to letting the economics drive the farm. Like any tool, the tool should not be driving the farm, it should be used where it is most effective and it has to be applied appropriately to be effective. There’s a learning curve with any tool, and no tool works in every situation. These books offer powerful, useful tools, but remember that they’re just that, tools.