(NC) Just like anything in life, it’s the little things that count when it comes to the farming business—where even small changes can have a big impact on output and revenue. By following the 5% rule, a philosophy of making small logistical or logical changes to an operation, farmers can add net profit to their bottom line and ensure business is sustainable in the long term.
“There’s an important mental shift for farmers to make, and that’s adopting more of a management role where they are really working on the business rather than in the business,” explains Gwen Paddock, national director of agriculture at RBC.
Adopting a holistic management strategy is a great way to start. This can be as simple as reframing the cost per acre to cost per bushel, considering input costs rather than just revenue, or incorporating new habits and ways of thinking. But farmers also need a solid financial management strategy, one that’s easy to develop and follow. Here are some practical tips:
1. Write it down: Put pen to paper and jot down the goals you need to achieve each quarter. For example, in the first quarter finalize your budget. In the second quarter, analyze your repairs and maintenance. Take a course on futures puts and calls for your marketing strategy. And in the fourth quarter consider meeting with your accountant to discuss ways to improve things next year.
2. Do the numbers: Ensure your internal accounting system is on an accrual basis. Compare your actual results to your budget quarterly.
3. Prioritize: Make a list of which tasks need to get done to achieve your goals each quarter and identify what’s really important versus what just makes you busy.
While it’s easy to hope for success, hope is not a plan. Even small changes can help ensure your business is sustainable for the long term.
Find more information at www.rbcroyalbank.com/commercial/agriculture.