Life on the farm can be extremely rewarding when the planets align — perfect weather, a big crop and rising markets — but that alignment happens only once in a blue moon.
However, there are other alignments to keep in mind that are within your control: business direction, financial performance and management structure.
They have affected farms for decades, but what is new is the im-portance of more proactively understanding them and monitoring their alignment as the farm business moves through its life cycle.
This alignment consideration is really about strategic direction.
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Farms and farm families should have a written vision statement that provides longer-term direction of the farm and family. A vision is the foundation of your future: what you want your farm business to become.
A vision statement should be a little cloudy and grand and describe where you see your farm business five years from now. It is not set in stone. Your vision will evolve over time and as situations change.
It represents the direction of the business or where the business is headed. It becomes the road map, the “you can’t get there if you don’t know where you’re headed” reality.
The reality is that your farm is headed somewhere financially.
For most farmers, this is a reactive function, meaning that their financial position in the future, say five years from now, will be an outcome of what will happen over that time frame.
The preferred approach is to define what you want or need your financial position to be and then determine what can and needs to be done to achieve it.
Think of it as creating your financial vision. It should include financial targets and investment guidelines. There is a business adage that says you can’t manage what you can’t measure. How do you know if you are getting to where you want to be financially if you haven’t defined the goal?
There should be a significant degree of alignment between a business vision and a financial vision. I find myself in discussions with farm families where there sometimes is a disconnect between their ideas of where they want their farm to be in the future and their ability to get there financially.
It’s discouraging to have a dream and then realize you can’t afford it. It’s like setting out on a trip and part way along the journey realizing that you don’t have enough gas.
The importance of understanding a farm’s management structure has never been greater as they increase in size, become more complex and transition inter-generationally.
The basic management functions on a farm are the same, but what’s involved in attending to those functions has changed and is changing. This is a new and evolving reality for many farms.
Simply stated, what does the management structure of your farm need to look like five years from now so that it is appropriately aligned with your financial and business vision? Putting some structure around the management functions on a farm can be a powerful but not complex exercise.
Start by drawing an organizational chart that best represents how your business is being managed. Determine who has responsibility for operations, marketing, financial and human resource management?
Next, define what the tasks are in each of those management areas.
Then, repeat the process that best represents what you think will be required five years from now, both in terms of the tasks and the responsibilities.
Three activities are required: creating your business vision, putting definition around your farm’s financial future and developing a management structure that reflects the current reality and future requirements.
Once completed, you will be able to monitor their alignment and make adjustments that will be required to keep them aligned.
