Is my farm making money? This is a question farmers think about often. To stay in business, the farm must generate a profit, at least in the long run. One of several important management tasks for farmers, therefore, is assessing and improving farm profitability.
Generating profits and increasing profitability are underlying concepts that should influence your decisions as a farmer. Many things you do affect the level of profit. This in turn determines your standard of living and the growth potential of the farm business. A good farmer should ask himself or herself the following questions often:
- Am I making the most profitable use of my land and buildings resources with the livestock and crop enterprises I have chosen?
- Are my operating inputs at the optimal level, and purchased at the best price?
- Is my equipment the proper size for my farm?
- Do I get the most favourable terms on borrowed money?
- Does my borrowed money earn a rate of return greater than the interest rate I pay?
- Are my field operations timely?
- Do I make good use of my time and hired labour?
- Do I take advantage of new technologies?
- Are there custom field work or off-farm employment opportunities that could augment my farm income?
- Do I manage my taxes to increase after-tax income?
- Are my family living allowances reasonable?
- Am I allowing my farm operation to grow by putting back some of my profits into the business?
There is no one clear path to improving profits and profitability. Rather, profitability is a state of mind in which a farmer carefully controls every aspect of the operation to make the most profitable use of the resources available to the farm business.