Pitfalls to Avoid in Your Farm Business


Operating without a Business Plan

For beginning farmers, having a business plan will give you a clear road map to success and keep you on track while you develop your farm business. Tackling a plan will also require you to do the difficult thinking about what your vision for your farm will be, not to mention the particulars on how, day by day, you’ll get there. You’ll take a hard look at your own financial capacity and consider what additional financing will be needed to get you started, as well as what income your farm will need to generate to stay afloat. These are not easy questions, and new farmers should take full advantage of all resources available to them.

Most farmers, however, are not new to the game, and many family farms in Zimbabwe have been around for generations. If your farm is one of them, you’ve likely internalized how your business functions, and don’t feel it’s necessary to run it according to a written business plan. But in changing economies, the benefits of a flexible business plan that is revisited often—not just once a year, but during any major challenges your farm faces—cannot be overstated.

A business plan contains many standard components, from a clear description of your farm’s goals to its routine operations. However, the key elements of a resilient plan for your established farm are the market and financial analyses, where you will think seriously about differences in markets, funding, and other financial considerations, as well as potential changes in what your farm produces to meet shifts in consumer demand. For example, if you want to explore organic farming to meet the growing demand, a business plan that includes this new venture will help you manage your transition successfully. 

Impulsive Decision Making

Most decisions farmers make are based on years of experience, advice from trusted resources, and hours of consideration. But there are a few key decisions farmers make—ones that often have huge financial repercussions—that don’t always get the care or attention they deserve. When big expenditures are on the line, it’s easy for the fallout of quick decision-making to wreak havoc on tight budgets, especially under the pressures of modern farming. 

Because farming is inherently community-based, farmers often rely on what deals and opportunities can be found locally for everything from equipment to land. You may find that an opportunity arises, even one from a trusted business or friend, that seems like a good choice for your farm. Before you jump on it, take time to consider whether it really is the best choice for your farm.


Long-Term Leases


Before signing a lease for land or equipment, be sure to ask yourself two questions: Are these terms fair? and Will this lease work for me for its whole duration? Reach out to your local financial institution, legal office, or extension agent to help understand terms and look for hidden fees or other catches. Consider whether or not the payments will work for you in leaner times of the year. Lastly, think long term: Could potential changes to your farming plans or income in the next few years render the need for a specific piece of equipment or land obsolete or unaffordable?

Just as with leases, before making any major purchases, always consider if it will grow with you and if the money you are putting upfront would go farther or make a bigger impact if used for another expenditure.

Land purchase decisions (as well as land leases!) require a visit to the county extension office for soil testing, as well as a water table and flood plain maps to ensure you won’t be underwater in the next storm. Written records of chemical treatments also prove helpful, as some crops will not grow in soil treated with certain herbicides. Also, keep in mind that sometimes it can be more affordable or can provide better tax benefits or greater flexibility to lease land instead of taking out a real estate loan to purchase it.

Additionally, be sure to always find the best price for quality equipment. Because of the high cost of farm equipment and repair, simply going for the lowest-priced option is not always advisable. Tax write-offs for new equipment depreciation and interest payments, lower repair costs, and the option for monthly payments sometimes mean that new equipment makes more sense than buying used. Still, purchasing quality used equipment at an auction or liquidation sale can save you thousands or even hundreds of thousands of dollars over the years if you can afford it without excessive financing costs. Doing thorough research before making a decision will help you avoid costly mistakes.

Avoiding Change

Perhaps the least obvious “impulsive” behavior is the continuous operation of your farm business without considering how to improve it. Farming is a career of continuity—each season folds into the next in a seemingly endless chain. Making any major change requires careful thought and long transition periods, and it is often easiest to follow the most traveled path. Historically, however, every so often farmers must face periods of drastic change, from the dust bowl to the shift to large-scale agriculture. Today, we are again facing times of great change for farmers. Challenge your routine decision-making and consider if your standard practices will continue to serve you well in a changing agricultural climate.

Mixing Personal and Business Accounts

Because small farms are often sole proprietorships or family partnerships, many farmers simply use their own bank accounts and credit for farm purchases. However, maintaining separate banking accounts for your personal and farm business finances can help you avoid letting your money matters get out of control. There are three major reasons why you should keep those accounts separate:

It’s easier to stay on top of your finances. Keeping personal and business finances separate will make everything easier when it comes to taxes, accounting, payroll, and budgeting. Not having to weed through your personal purchases to find business expenditures will save hours of time, and seeing the bottom lines separately can also help you have a better understanding of how much both your farm and your personal life actually cost to maintain. It can help protect your personal assets. Keeping your accounts separate will help you avoid spending your personal wealth on business matters while protecting your credit score. Going a step beyond and establishing your farm as a corporation, a business entity for which the owners are not necessarily personally liable for financial fallout, can further protect your personal assets in times of hardship.

Explore online guides like this one offered by the Farmhut Umdhumeni, a WhatsApp-based chatbot that allows you to access information on crops, livestock, environmental issues, or the latest news and articles on the go, right on your phone. https://wa.me/263736312503?text=Start
 

 

Agribusiness Business Services
How To Reduce Water Loss From Soil

With some crops, evaporation pans can be used to determine when to irrigate. However, this method applies only to large ...

January 24, 2022
How To Reduce Water Loss From Soil
Valuable Parasitoids and Predators

It is vital for sustainable crop production that farmers realize that unsprayed or untreated fields are full of benefici...

January 23, 2022
Valuable Parasitoids and Predators

Download our App