We review the "Top 10" list created by Small Farm Nation. 11 rules of running a successful farm business with our high lights to help relate it to your farm.
Small Farm Nation – Get Growing
They have a podcast and this list is from their 11 Farm Business Rules episode
So, it seems that more and more people share the dream of running a sustainable family farm.
Now, these guidelines, which they call 11 Business Rules for Starting/Running a Family Farm,
Farm Rule #1 – Your Farm is a Business, Not a Hobby
Most likely farming is in your DNA and you know it’s a farming business, not a weekend hobby. But, remember if you aren’t farming for profit you won’t be farming for long.
If you want a hobby, that’s fine. That’s called a homestead, if anything, and you can look elsewhere for whatever income you want.
But here’s the thing. If you want the farm to produce your income, it’s a business.
Rule #2 – Nail Down Your Competitive Advantage
If the business is easy to get into for you, it’s easy for someone else to do the same.
There are a number of ways you can gain an advantage regardless of what specific farming strategy you choose. Then, have a strategic reason for every farm enterprise you operate, and every farm decision you make.
If your motive is profit, and it should be because this is a business, right, then you have to assess what the most profitable farm enterprise is for you and your market.
If it did nothing positive for our bottom line, think about removing the enterprise
Just make sure you can answer this simple question. Are you ready?. Here it comes: my farm’s defensible competitive advantage is ___________________________
Rule #3 – Select the Best “Go to Market” Strategy Before You Start
If you have something to sell, there’s a lot of ways to sell it, right?
who are you going to sell to and how are you going to reach them?
You have to define your go to market plan
Rule #4 – Avoid Debt at (Almost) All Costs
So, I say almost, because debt can be used intelligently to gain leverage. But that doesn’t mean most people use debt intelligently.
Balance sheets are divided into assets and liabilities. Assets-good, liabilities-bad, right? Because that’s something you owe
But would I use debt to buy a tractor to make my farm life easier?
Because I can’t quantify the income I’ll generate as a result of that purchase to service that debt. So no way. I’ll get that tractor when I can afford to buy it. With cash.
There’s enough to worry about in farming. Design your farm business to run without debt so you don’t add that level of stress.
Rule #5 – Bridge the Gap Between What the Land Needs and What the Market Needs
This is both a business and an ecological rule
Rule #6 – Balance Profit With Passion
Okay, so we’re talking about a business, right? Not a hobby.
So the point is, measure everything that affects profit.
You absolutely need to know your cost of production, down to the nickel. What does it cost you, ALL IN, to produce that product
Rule #7 – Understand the Full Impact a Farm Business Does Have on Your Family
Employees need direction which means someone’s in charge. That means there will inevitably be disputes and disagreements.
The point I’m making is that there is no separation between work and home life on the farm. It is ALL farm life. All the time.
Rule #8 – Know the Difference Between Profit Margins and Cash Flow
If running a business is new to you, this next statement may sound strange. But there are lots of ways a profitable business can go out of business. Or file for bankruptcy.
There have been plenty of businesses that had attractive profit MARGINS but poor cash flow management. And they went bankrupt, because they couldn’t come up with the cash to service the debt.
And, there have been even more companies that grew too fast, so they went under.
CASH IS KING
Rule #9 – Protect Your Ass-ets
I’m not a CPA or lawyer so I’m not giving legal advice. See your experts for that. But, in any business, you gotta protect your personal assets, especially in this litigious society.
And, beyond legal structure, get the right insurance to protect you.
Rule #10 – Quit Your Day Job
Close the door behind you, burn the bridge and quit your day job. If you want to have a successful farm business—or any business—get rid of your crutches.
Go out and do it.
Rule #11 – Start Marketing Before You Start Farming
I mean, how can you start marketing before you start farming?
Start selling part of your (insured) crop before you grow it. Giving yourself 2-3 marketing seasons to catch great sales prices.