Usually, you can see the potential for a wreck well before it happens - whether you are driving your car or managing your farm finances. On the farm, keep an eye out for these signs of a potential financial wreck:

The checkbook doesn’t stretch enough to pay the bills.
If you can’t pay your bills and ongoing expenses, you’ve got trouble. This includes living expenses as well as ongoing farm expenses. And while it seems obvious, it’s easy to ignore and think that things are going to get better on their own.

Carrying open accounts past 60 days.
Carrying open accounts with vendors can be a smart way to manage cash flow, but if you have to stretch your payables too far, that’s a sign that something’s wrong with your cash flow.  Carrying open accounts for too long can make you an undesirable customer to important input suppliers, setting you up for future problems.

Forgoing necessary inputs.
This seems like a no-brainer, but too many farmers skimp on feed, water, fertilizer, and other necessary inputs because they don’t have the cash to pay for them. As a result, crops and livestock don’t perform as well as they should, so income goes down, and then, next year, you’ve got even less money to pay for the necessary inputs. And the cycle repeats itself, getting a little worse each time.

Selling inventories.
To create short-term cash, you might be tempted to sell input inventories that you will have to replace later. The same thing is true when it comes to selling CSA shares in the fall to generate fall cash-flow - you’ll likely find yourself in the same situation next year unless you make some changes to your operation. This is almost always a losing proposition.

Accepting lower-than-market prices.
If you have to sell your products at lower-than-market prices to generate short-term cash, that’s a sign that things aren’t going well. You should be selling products to make money, not just to plug cash-flow holes.


Avoiding the Wreck

If you identify hazards early enough, you can take actions to avoid them. But it’s important to act fast.

Talk to your lender immediately.
No, really, don’t wait! Most borrowers hide financial problems from their lenders until it’s too late, but hiding problems from partners – whether they’re business partners or personal partners – is never a good idea. Remember, in most cases, the bank simply does not want your farm – they will work with you to figure out how to avoid having a bad loan on their books. And it’s easier to make adjustments when the crisis point is further away, rather than waiting until you’ve washed up on the rocks.

Change the amortization on your loans.
Cash flow isn’t everything, but it is an important thing. Changing the term of a loan can be a win-win for you and the bank, since they don’t end up with a bad loan on their books and you can reduce your monthly payments. And, of course, if things get better, you can always increase your payments back to their original level.

Consider a line of credit.
A short-term infusion of cash with a payback plan is usually a much better option than having a dozen vendors banging on your door and ringing your phone wondering when they are going to get paid.


Increase Success

This is perhaps the most important way to avoid a wreck!

In agriculture, profitability has three components: scale, costs, and utilization.

You need to produce enough product to cover your overhead expenses. It costs the same amount of money and time to have a website or write a newsletter whether you sell $1,000 worth of carrots a week or $50,000. And many variable costs have a certain baseline to them - trucking and handling charges are often based on the pallet or the truckload, regardless of how much product is on the pallet or in the truck. The number of pallets is a variable cost, but each pallet costs the same whether it's carrying $300 or $3,000 worth of product.

You need to drive down your cash expenses as much as possible. Don't skimp on the water and fertilizer that make your crops grow, but don't pay more for them than you have to - unless paying more for them provides value in another way. (I try to buy my tools locally, and pay more for them than I would at the big box store, because my local hardware store provides tons of help and advice with smaller purchases; I buy seeds from a high-quality vendor rather than getting the sweepings from the seed room floor from a cheaper source.)

You need to maximize utilization of your assets - all of your assets. If you are in the crop production business, every acre needs to be working for you, whether it's growing a cash crop or next year's fertility. If you have employees, you need to maximize their productivity. If you are selling meat, you need to maximize your use of the entire carcass, getting the best price on every part of the animal. In the delivery business, your trucks need to run as many days a week as possible, and as full as possible whenever they are running.

Most often, the changes that growers need to make in order to avoid a wreck come from improved management, rather than significant investments. Focus on investments that increase your ability to monitor the critical elements of your operation – most of these can be had at very little cost.


Don’t Wait for the Warning Signs

Of course, if everything in your operation is going great, you probably won’t have anything to worry about. But just like your car can seem to be running just fine right up until your tire blows out, farm financial troubles have a way of sneaking up on you. The best way to avoid a financial wreck is to look out far in advance. And the best way to do that is to institute a regular pattern of financial planning and monitoring.

• Weekly - Are there bills to pay? Do I have money in my bank account? What’s my credit card balance?
• Monthly - Are there any outstanding receivables? Does the bank think I have as much money as I think I have? How is my financial plan working out?
• Quarterly - What do I owe the government for payroll and other applicable taxes?
• Yearly - What do I owe the government now? How have my assets, liabilities, and equity changed in the last year? Did I make progress last year?

Every year, farm businesses should complete a balance sheet, income statement, and statement of cash flows, and evaluate the resulting financial ratios. These reports provide invaluable feedback on business progress from year to year, as well as predicting issues that are coming down the pike.

In addition, creating an ongoing financial history of your farm with these statements will not only demonstrate business growth, it will also demonstrate to a lender/investor that you take your business seriously; one of the primary complaints I have heard from lenders is that they are being asked to finance lifestyle choices under the guise of a business investment.

I think it’s fair to say that most of the success factors in market farming can be described in a bell curve. As the bell curve implies, most of us have okay access to markets, and we farm ground that’s okay for market farming. We have okay business acumen, okay marketing skills, okay land-access arrangements. Our available labor is largely okay, we have okay innate organizational skills, and okay willpower to get out there and get the right work done on the right day.

Most of our models in farming, however, have something more than okay: they’ve got several factors located far out to the right on the bell curve. They’re located close to concentrations of wealth and enthusiasm for social righteousness and good food. They got into the market at just the right time. They inherited land or bought it on the cheap. They acquired business acumen in another line of work. They discovered what they wanted to do early in life and had a few dominoes tip in just the right way. They’ve inherited or developed the traits that help them stay organized, intuit what needs to be done, and relate well to people.

That’s not to say that our models don’t work hard, develop new skills, enhance value, innovate, and do a thousand other things right day in and day out. If you’re going to succeed in this business – any business! – you’ve got to do a lot more than get lucky. And “getting lucky” is almost always a function of hard work and smarts in addition to having life’s dice roll your way. “Making it” in market farming, especially over the long haul, is never handed to you on a silver platter. (If it is, I haven’t seen an example.)

But it does mean that many of our models in farming can get away with things that those of us without a stack of lucky breaks at our backs can’t. They can get away without a monthly cash-flow budget, or filling out financial statements, or getting a line of credit at the bank. They don’t need to understand financing because they don’t have to incur debt in order to reach their goals. They don’t require a system for employee management because it just comes naturally to them.

The rest of us need to stack the deck – and the best way to stack the deck is to increase the intentionality that we bring to the management of the farm. And that means increasing our use of the plan-monitor-control cycle.

And if there’s one area that drives everything else when it comes to management, it’s money. Because money is the bottom-line expression of value and ability to continue farming in our world. That’s not to say that money has to guide everything you do, but money provides the foundation that allows every other expression of our values to be present in the world. It allows us to farm another year.

And this time of year – right now, as a matter of fact! – is the best time to put together the three key tools you need to monitor your farm’s financial performance: a balance sheet, an accrual-adjusted income statement, and a statement of cash flows. As we move towards the start of the new year, it’s the perfect time to take inventories of our supplies, and set aside an hour on New Year’s Eve to check balances on our bank accounts, accounts receivable and payable, loans, and credit cards.

These three tools, conventional as they are, can provide insights into your farming operation, especially when compiled year after year, when plugged into various farm financial ratios, as described in resources such as this Farm Financial Scorecard. Tracking these year after year can provide not only important measurements of your farm’s performance, they can also help diagnose problems and provide an early warning of negative trends in your business.

(Please see the October and November issues of Growing for Market – available here if you don’t subscribe already – for my articles on assembling financial statements, as well as the book, Fearless Farm Finances, which I coauthored.)

Systems under stress degrade. Systems under more stress degrade faster. Degraded systems work less efficiently and are a lot less fun to be a part of.
​
Stress happens when systems operate beyond their normal capacity. The further beyond their capacity they operate, and the longer they operate there, the more stress is created on the system, and the less efficiently it functions.

On the freeway, traffic flows smoothly when there are less cars on the road. Add more cars, and the traffic flows less freely, although it still flows. However, there comes a tipping point where traffic starts to slow down for absolutely no reason. Normal function simply starts to break down when the system is pushed beyond what it can normally handle.

And worse, when some small thing does go wrong - when somebody has a fender bender and pulls to the side of the road - everything grinds to a dead halt.

We can reduce stress by increasing capacity or reducing pressure. On the freeway, that means building more lanes or reducing the number of cars. Either way, stress is reduced because the number of cars per unit of road goes down.

On the farm, keep in mind:

1. The cost of reducing stress is almost always less than the cost of the consequences of stress.
2. Planning is the best way to increase capacity at the lowest cost. Knowing what needs to be done on a daily, weekly, monthly, and yearly basis gives you the tools you need to deal with the variations that otherwise cause everything to blow up.
3. You almost always have to reduce pressure to increase capacity. On the freeway, you close lanes to build more lanes. In organic farming, you might grow cover crops to increase output in future years, or dedicate land to  hedgerows to provide habitat for beneficial insects and other creatures.
4. Filling things to capacity creates congestion. If you expand your acreage and immediately fill every square foot with crops, you haven’t changed the relationship between capacity and pressure - you’ve just put more cars on a bigger freeway.
5. Increased capacity - whether it’s soil fertility, staffing, irrigation, or cooler space - increases your ability to achieve high throughput without having to worry about the details.
6. You have to counteract stress. One car driving over the same freeway for enough time will eventually create the need for road repairs. You have to plan for time to reorganize, rebuild, and refresh, whether that’s in your shop, your crop rotation, or your family life.

I like farming toys as much as the next farmer, and when you ask me, “What should my next investment be for my farm?” I’m as tempted as anybody to provide a listing of various configurations of metal and grease that, if properly applied, would be the perfect tool to address the situation.

But more often than not, I’d be wrong.

​More often than not, you’d be better off investing your time and energy into…

Improving the information you have about your farm - How much does it cost you to grow a pound of carrots? What are your fixed costs per acre of field production? How long does it take your crew - average, high, and low - to harvest a hundred bunches of kale? What’s your average per-acre (or per-square foot) yield on carrots? What’s your current ratio, and how does that compare to last year? How much did you spend to grow the vegetables that went into your CSA share?

Improving the information you have about your craft - What don’t you know about growing vegetables, feeding chickens, or raising cows? If you don’t know the basics of your craft, figure out where you can go to learn it - and keep in mind that this might not be your normal round of conferences! State and regional producer associations often have workshops about improving the fundamentals by people who are focused on fundamentals over philosophy. Take a class. Attend field days.

Creating systems - You already have ways that you get things done. What can you do to make them better? If there are places where things consistently go wrong, spend time digging in there and figuring out what you need to make things right - more often than not, it’s going to be a minor investment or a change in procedures.

Cleaning and clarifying workspaces - It’s such a small thing, but working with even slightly chaotic workspaces and storage areas takes a huge toll on productivity and worker perspective. Clean, bright work areas with obvious storage spaces for tools can ease workloads - and perceived workloads - tremendously. If you’ve ever had a worker spend two hours during a rare dry spell looking for the right piece of metal to make the transplanter work (that was me), or torn your hair out with frustration while a crew tried to find a harvest knife for the last worker, you’ve seen the incredible toll this can take on a farm’s bottom line.

Close open loops - Farms tend to be filled with almost-finished projects. Wrap them up and get rid of the extra parts, drop them off the to-do list, and get them out of your head. You’ll free up mental energy to focus on the work that makes a difference, and the physical space that keeps your workers (and you) from having to work around, under, and over that undone thing and the junk that’s hanging around to get it done.

What can you do with the time you would have spent researching new toys? What if you spent the money you were going to spend on something new on refining what you’ve got?

When is the right time to learn Taekwondo?

Before three guys jump you in a dark alley.

When is the right time to invest in the hardware and operational systems for an irrigation system?

Before the drought sets in.

When is the right time to establish boundaries with your children?

Before they get to high school.

When is the right time to forge a good working relationship with your employees?

Before pea and strawberry harvest really kicks in.

When is the right time to upgrade your food safety practices?

Before the government or your customers demand them (and certainly before an outbreak is traced back to your operation!).

When is the right time to talk to the bank about a line of credit?

When you have so much money that you don’t need to borrow any.

Of course, it tends to be when you’re standing there staring at three guys with scowls and big sticks that we think to ourselves, “I wish…”

So much of farming and farm life is about preparation and anticipation - it’s actually something we’re pretty good at, as farmers. When’s the right time to plant lettuce seeds? About ten weeks before you want to pick it. The trick is transferring this understanding to the other important areas of the farm: the business, the infrastructure, and the family life.

This is why I encourage my clients, right from day one, to:

• Keep detailed financial records and create the three annual financial reports - a balance sheet, an income statement, and a monthly statement of cash flows;
  
  
• Keep detailed production records, even if you aren’t certified organic;
  
  
• Schedule time with children and spouses, even when, if time was measured in nickels, you wouldn’t have two to rub together;
  
  
• Write a business plan, even if you aren’t taking it to the  bank or investors;
  
  
• Put time into training employees - especially supervisors! - even if you are bringing people on during the spring rush.
  
  
• Invest in an irrigation system - including water capacity - that can keep your farm running during a generational drought (and make irrigation pretty easy the rest of the time!).
  

(It’s also interesting to note that practice is not just about managing the big scary things - it also has a way of making your business, and your life, better as you go through it.)

What are you doing to anticipate and avert potential crises on your farm?

Leadership and supervision come naturally to some people, but for many others, the act of inspecting and correcting feels foreign and klutzy - something that’s often exacerbated by the fact that young people interested in working on organic vegetable farms often come from one anti-authoritarian perspective or another. The very act of monitoring other people’s work is not something most people learn in school, and telling somebody that their bunches of beets are too small, that their hoeing is too imprecise, or that they simply need to pour the crates into the brush washer a little faster, strikes right at the core of our own insecurities.

It gets much more difficult when our farms grow to a size where we need other people to step into this role.

At a practical level, the leader of a crew - whether it’s the farmer or somebody she has designated - needs to understand their role. Often it’s two-fold: do the job, and supervise everybody else doing the job. With so much on their plate, crew leaders can benefit from having some protocols for facilitating the best possible outcomes from the people whose performance they are responsible for.

Be the Anchor - First, a crew leader should, as much as possible, position herself at the end of any production line, so that she can check quality and direct changes. For example, if you're working the brush washer with your crew, be in the position of closing the boxes, rather than pouring the cucumbers in. This allows you to monitor the cleanliness and the quality of the resulting product. Likewise, if your crew is bunching beets and setting them on the ground, be the person counting the beets into boxes.

Less Talk, More Do - When giving directions, remember that you don’t have long. Experiential educators - the folks that take teenagers hiking or do jobs training in the garden - know that you’ve got to get your message across quickly. Yes, it’s valuable to provide context, but it’s just as important to get things moving. Provide context and training as you go. One of the most dispiriting things for a new manager is talking to a crew and seeing the blank stares you often get in return. We learn best when our bodies are in motion, so hit the highlights and get going.

Fifteen Minutes - Once a job is started, come back fifteen minutes later to make sure that things are going well. Give your workers the best instructions you can, then let them have some time to work things out. The first five minutes of a new job are often spent getting into the rhythm, the next five are right on, then the five minutes after that some of the instructions are forgotten. By coming back after fifteen minutes, you are inserting yourself at the right time to make corrections: before things have gone off the rails, but after problems have had a chance to surface.

Thirty Minutes - If at all possible, check in every thirty minutes after that. If you have to seed carrots down the road while your crew is picking chard, you probably won’t be able to pull this off (but don’t leave before that fifteen-minute check-in!). If you’re working near your crew, take the time to make an inspection. If you’re working the line with your crew, that thirty minutes is a good reminder to get your head out of the doing the work and to take a moment to focus on how things are going as a team - are we moving at the right pace? Are we getting the turnips clean enough?

(By the way, you need a timepiece - and one that’s not your cell phone. Especially if you have a smart phone, it’s difficult to check the time without checking something else. Put one on your wrist or on your belt loop so that you can see it without having to dig in your pocket - it’s a good reminder that farming is all about timeliness, for you and your workers)

Monitor and Correct Course - Leaders have to be willing to monitor performance and correct course when necessary. If you aren’t willing to do that, you can’t function effectively as a manager. You absolutely have to be willing to state the standard (“At ABC Farm, we expect everybody to bunch at least 50 bunches of kale an hour.”), comment on deviations from the standard (“You’re bunching 30 bunches an hour.”), and provide leadership on how to achieve the standard (“If you put the tote next to your right hand, you won’t be reaching across your body to put the kale bunches in it. That will make a big difference.”). If you’re not willing to do that, you need a different role.

An important part of monitoring is to keep an eye on when you expect a job to be done, and whether you have the resources, such as twist ties and totes, to finish the job. For some people, this is second nature - they just always seem to have an idea of how long a job is going to take, and they’re usually pretty close. I’m not one of those people, so I recommend making this estimate thirty minutes into a job (“We’ve bunched 300 bunches of kale in thirty minutes… we need 750 bunches, so we should be done in about forty-five minutes”), and again when the job is halfway done (“We’re halfway through the bed of zucchini, and we’ve filled 25 crates. We only brought forty with us, so we need to figure out how to get more out to the field.”).

You can use these tools as guidelines to keep in mind, or as a checklist to make sure you’re on track. Sometimes it’s helpful to use a more rigid structure (“I must check in with the crew exactly fifteen minutes after I’ve finished providing the initial instructions.”) as a way to establish new patterns. Once you get the habit firmly entrenched, a more casual approach may be suitable.

In the North, June is the month of getting things done. Crops are flying into the field, weeds are growing, strawberries and peas are ripening. For us type-A farmer types, it’s time to get out there and Do, Do, Do.

But it’s not enough to just get things done. We have to get the right things done, and the things done right. More than at any time of the year, in June we need to take the time and set aside the mental energy to manage activities on the farm.

I don’t think anything is harder in the long days and fast pace of June. And I don’t think anything is more important.

Getting the Right Things Done – Now is the time to take the process of capturing, collecting, deciding, acting, and reviewing more seriously. When you’re standing in the firehose of reality, it’s the hardest and most necessary thing to do.

Pay attention to what has your attention. When you see something that may need a response, make sure you have a way to capture that information without having to solve the problem right that minute. Whether it’s a notepad or the camera on your phone, you need a way that the million distractions on the farm – I need to weed that field, what’s that bug, what if I had this tool – can get out of your head and into a place where it can actually do you some good.

Collect that stuff all in one place. Scraps of paper and pictures in the Gallery on your phone don’t do any good unless you get them into a place where you can focus your attention on decision-making. Email pictures to yourself, and put those notecards into an inbox on your desk so that you can…

Decide what to do. The time to decide what to do is not when you are standing there looking at bugs on your broccoli but need to be leading your crew. Set aside time each day to process through the items in your physical and email inbox and make decisions about what to do. Make decisions and write them down so that you can…

Do. Don’t let management turn into an excuse for inaction. (This is one my foibles.)

Review. Review. Review. You’ve got to stay on top of whether things are getting done right, and have a systematic way of gathering information about what’s going on with the things we’re managing. Review to-do lists at the end of the day to make sure things are getting done. Confirm with your employees that “we’re done weeding the carrots” means “the carrots have been weeded.”

Take time every week to walk every field on your farm to determine what needs to be done. You’ll notice things as you move throughout the farm every week, but taking time every week to intentionally observe what’s going on everywhere on your farm is a key success factor.

Then take time to allocate the time and labor you have available to get it all done, so that you can prioritize the things to do that will get you the biggest results, and head off potential problems at the pass.

Every growing farm has had to struggle with letting go of tasks and responsibilities. I haven't met many people for whom delegation comes easily. Farmers especially suffer from the understanding that they are the best person to do the job, and the conviction that nobody can do it as well as they can.

For effective delegation, remember that people thrive on two main things at work: knowing what's expected of them, and having what they need to do the job. If you can provide those two things, you've gone a long ways towards effective delegation.

When you really flesh out what's expected when you delegate a task, you give people an important tool for figuring out the variables on their own. To do this, focus on the objective of a task, rather than the method. Objectives are rarely one-dimensional, like, "wash the carrots." Instead, they usually have multiple variables that contribute to achieving a successful outcome: "wash the carrots so that that they look ready to eat without any further cleaning, keep the leaves in good condition, pack them 18 to a tote in alternating layers of three; you should be able to do these 120 bunches in one-and-a-half hours. When you are done, put them on the market pallet in the cooler."

How will I know when I'm done washing the carrots? When they are clean enough to eat and the bunches are packed into totes as described and put away. How will I know if I did a good job? If the carrots are ready to eat, the tops are clean and in good condition, and I finished in less than 90 minutes.

When you give people what they need to do their job well, you set them up for success. What do they need? They need resources: information, tools, and time.

Tools: Give people the tools they need to do their job right - and make sure you include how to use them in your instructions. The best tools, like this asparagus knife, almost tell the worker how to use it without any further instruction (see this video: https://youtu.be/EE-ng8wvdhU). Take the time when you are delegating a task to remind workers of the tools they will need - and be as specific as necessary - don't just tell them to "get a hoe" when you want the work done with a collineal hoe, and they should remember to carry a sharpener with them.

Time: Too often, we delegate tasks without sufficient time for the worker to get them done. Remember that what takes you fifteen minutes to get done may take a newbie thirty minutes or more. And it really helps to know what you can expect from your employees. Measure how long it takes this year to equip yourself better to provide guidance in the future - if you consistently underestimate how long it will take a worker to complete a task, you set them up for failure and disappointment.

Information: When you delegate a task, work hard to give the right amount of information about how to do the job, as well as the desired outcomes. A neophyte carrot washer will need a different level of instructions about the best way to get the job done than somebody who's been washing carrots all summer.

Think as well about the obstacles a worker might face in completing their job. "If you run the pressure washer at too much pressure, you'll rip up the carrots; if it's set too low, you won't be able to get them clean."

And remember to ask right up front: "Do you have any questions?" You're probably delegating tasks so that you can get on to other things, but taking time in the moment to provide all of the necessary information will save you time and money in the end.

On a similar note, make sure that you check back in on a delegated task in fifteen minutes. That's enough time for somebody to get started, but not enough time to do too much damage in most situations.

Here's an inherent contradiction that you won't be able to get around: new workers tend to come onto the farm when your work is tremendously time critical - precisely when you can't afford to give detailed instructions. But just like putting seeds in the ground, providing good information to new workers is an investment in the future. (Also, just like putting seeds in the ground, the more you've been able to think this through in the winter, the better you'll be able to execute a plan for transmitting information.)