From large investments to managing and paying employees, farming is a complicated business venture. Any non-farming enterprise—from Wall Street to Silicon Valley— with this level of complexity relies on a team to run it, not a single person. Many producers know they cannot be a true jack-of-all-trades and they often reach out to other experts for counsel, but some haven’t considered asking for help with financial planning.
One of the most common knowledge gaps farmers have is in finance. With measures like profit margins, liquidity and equity considerations, even the smallest operations have complex financial considerations to weigh. Tried-and-true spreadsheets may not be the most effective way to plan. The truth of the matter is this: No matter the size of your operation or other experts you reach out to, it’s probably time to consult with or hire a financial advisor.
The CFO role
Most farmers are excellent at running day-to-day operations. But from precision technology to animal welfare, it’s nearly impossible to truly master all the skills modern farming demands. Increasingly, producers turn to other professionals to help fill in any gaps in expertise, consulting an agronomist to understand the relationship between soil fertility and yield or a veterinarian for guidance on animal health. A financial advisor or chief financial officer (CFO) should be the next member of your extended team.
The primary role of the CFO is straightforward: Manage a business’s finances to ensure the business can meet its goals. In practice, however, the role involves intense attention to detail regarding past and current performance, plus projections for the future. Since an operation’s goals aren’t necessarily all financial, it takes finesse to understand how to plan appropriately.
One of our customers at Farm Credit Mid-America is an Indiana grain producer with more than 5,000 acres. Several years ago, he hired a part-time financial advisor and says it one of the best financial decision he’s made for his farm. “Using a financial advisor allows you to start planning and know what you have. Doing an overall review of your operation is really beneficial. We can tweak and do a lot of little improvements like marketing and machinery costs on our own, but I have to have a view of the big picture. And that’s where the financial advisor comes in.”
When it comes finances, many farmers look at their end-of-the-year balance sheets and simply ask, “Did I make money or lose money?” Most don’t have the time or background to dig in and develop a deep understanding on why they ended the year above or below breakeven. A CFO can take a neutral view of how your operation is performing and provide recommendations for investments and ways to cut back on expenditures. A good financial advisor can hone in on problem areas and help you plan for goals that are years down the road.
“We look at working capital really closely and understand exactly how much we have on hand,” our customer from Indiana elaborates. “We also do a ratio trend analysis that goes back about 10 years to show how we’re doing. That is incredibly valuable to determine if we should buy equipment or pay down debt. Working with a financial advisor shows us options we otherwise wouldn’t see because we get too caught up in the day-to-day nitty-gritty.”
Hiring a CFO
As you look for your CFO, pay as much attention to soft skills as you do to education and experience. Finding an individual you trust and who works well with your family and team is extremely important. Don’t assume you have to hire someone on a part-time basis. Our customer from Indiana began with a fee-based accountant and gradually transitioned to having a more permanent CFO role within his operation.
Running a modern farm takes a team of well-qualified consultants; be sure to consider working with a financial advisor. Whether you have five acres or 5,000, finding a true financial advisor is an important step toward effective financial management and planning for the future.
