Financial management of dairy farms is one of the biggest challenges of today’s managers.
Like raising heifers and spreading manure on the far-away fields, financial management often gets relegated to the bottom of the to-do list.
To put it another way, it takes a conscious effort and commitment to move financial management to a higher priority.
Helping out. The OSU Extension Dairy Excel Team’s Profitability and Expansion Initiative Team has helped numerous farm families assess their future in dairy farming.
We take a look at financial management, labor management, the organizational structure of the business, among other things, and try to help clients better prepare for a profitable future.
Sometimes we suggest expansion, sometimes not, but we almost always suggest improved record-keeping and in-depth analysis of the business that cannot be done with just the information from the tax return.
Needing details. We (your management team, your lender and we extension educators) need more detail than is required on the tax return.
If your farm’s bookkeeping usually gets done just in time for the tax preparer, there is lots of room for improvement in your financial management.
You can do a lot to even out your income tax liability from year to year by keeping up-to-date books and calculating an income tax estimate before the end of the year.
Once the year has ended, you no longer have the opportunity to shift income or expense from one year to the next, or to make other sales or purchase decisions that can dramatically reduce taxes.
True profitability. We have found that many farm operators do not know the true profitability of their businesses.
Often when they find out, the hopes and dreams for the future disappear.
If you don’t know, or don’t want to know the true profitability of your farm, you need to put somebody in charge of financial management – a chief financial officer.
The ‘officers.’ All large and medium-sized companies have a chief financial officer.
This person prepares the financial statements for the business, including the balance sheets, net worth statements or statements of assets and liabilities (all different terms for the same thing), the income or profit /loss statements, statements of cash flows, enterprise budgets, enterprise analyses, overall profitability analyses, etc.
More importantly, the chief financial officer is responsible to present and explain these statements to the owners, operators and sometimes, the workers of the business.
People can’t make financial decisions without financial information. The check book balance is not enough information.
Speaker says. Don Rogers, vice president of Farm Credit Banks of Springfield, N.Y., is a popular speaker on farm-related financial management.
Rogers says, “Every business that has a profit has a talented, dedicated chief financial officer, someone who is in charge of saying ‘no.'”
Rogers goes on to say, “The problem is, some of the family members would rather have fun farming than to look at the dollars and sense of farming.”
They don’t want to do their own analyses prior to spending money, so they just spend when there is money to spend without assessing the impact on cash flow or overall profitability.
Converting. “Keeping the books” is work, just like milking cows or hauling manure.
Everybody concerned needs to understand and appreciate what the bookkeeper/ chief financial officer does while sitting in the office working on the computer or talking on the phone.
It’s more than bookkeeping.
Bookkeepers make sure everything is accounted for. Chief financial officers find answers to the question: “Are we making money?”
Too often, Rogers says, the person in charge of paying the bills is not given the authority to answer that question.
And the owner of the farm doesn’t want to do it or doesn’t know how to do it, so it doesn’t get done.
More responsibility. Being responsible for the financial management of the business means a lot more responsibility than just keeping the books.
Chief financial officers have the authority to make financial decisions and to communicate the financial situation to the rest of the management team.
They negotiate purchases and sales, verify invoices, perform budgeting, and find answers to questions like, “Where will we get the money for this?”
Chief financial officers understand the tools of financial management and track financial progress or lack of progress. They compare the performance of their farm to others, in order to find areas for improvement.
Power. Interested in improving the financial management of your farm?
Please consider participating in a workshop designed to help you become a more powerful financial manager.
The workshop series, called From Bookkeeper to Chief Financial Officer, is scheduled to begin Nov. 15 and consists of three two-hour sessions at six locations across northeast Ohio.
For more information and registration materials, contact me at the Columbiana County Extension Office, 330-424-7291, or contact your extension educator in Ashtabula, Stark, Tuscarawas, Wayne or Richland counties, or contact Dianne Shoemaker, extension dairy industry specialist, North Region Extension Center at Wooster.
Deadline for registration is Nov. 5.
(The author is an agricultural extension educator in Columbiana County. Questions or comments can be sent in care of Farm and Dairy, P.O. Box 38, Salem, OH 44460.)