Starting any new business is an exciting, yet challenging, journey. This is especially true for new or beginning farmers. Like all businesses, managing your finances effectively can make all the difference in your long-term success. From budgeting and financial planning, to making smart investments, here are some money tips to help you build a profitable and sustainable farm operation.
New farmers should determine whether they want to be:
This decision will help you choose the right approach to defining your competitive edge and financial goals.
Although the term “business plan” can be intimidating, a well-thought-out plan is essential for all business owners, including farmers. A good business plan will help you set clear goals, estimate costs, project income, and identify both threats and opportunities. Your business plan should include:
Having a solid marketing plan allows you to take a more targeted approach to sales, helping you sell your products more efficiently and maximizing your profits.
Understanding all farm-related expenses is crucial to managing your operation. Factor in both fixed costs (land payments, equipment, insurance) and variable costs (seed, feed, labor). Don't forget to include personal living expenses and depreciation when assessing your overall financial situation. A local banker can help provide insights into financial ratios and benchmarks to monitor your operation’s financial health in relation to competitors.
The key to good financial management is keeping a detailed, accurate record of income and expenses. Tracking both will help you:
In addition, keeping clear records of income and expenses can bring you peace of mind, help you monitor your progress toward reaching your goals, and give you the confidence to make good financial decisions.
You must carefully analyze large capital investments—such as buying land, machinery, or livestock—for profitability and payback period. Before making a big purchase, ask yourself:
Tip: Renting farm equipment or custom hiring for specific tasks can be a cost-effective alternative to purchasing expensive machinery.
Until your farm reaches full profitability, having an off-farm source of income can provide financial stability. Many new farmers work part-time or engage in a side business like agritourism, consulting, or custom farming services to generate additional income.
Smart purchasing decisions can save you thousands each year. Compare prices on your essentials to find the best deals. Sometimes, negotiating with a local supplier can lead to discounts or better service options. However, quality matters—the cheapest option isn’t always the best in the long run.
Many state and federal programs offer financial support to beginning farmers, like:
Accessing these programs to help reduce your financial burden and improve cash flow.
You don’t have to navigate the farming business alone. We strongly recommend surrounding yourself with a team of experts, like experienced farmers, mentors, and financial advisors. Your local banker, ag extension office, or farm organizations can help provide valuable resources and insights.
Managing farm finances as a new or beginning farmer can be overwhelming, but with smart financial planning, strategic decision-making, and access to the right resources, you can set yourself up for long-term success.
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The views, information, or opinions expressed in this article are solely those of the author and do not necessarily represent the views of Citizens State Bank and its affiliates, and Citizens State Bank is not responsible for and does not verify the accuracy of any information contained in this article or items hyperlinked within. This is for informational purposes and is no way intended to provide legal advice.