As many of you know, I conduct many programs for young and beginning producers. Sometimes the “young” attribute does not really apply, as many people are starting in agriculture in their 40s and 50s. During an after-dinner speech at a recent Ruritan meeting, someone asked me what advice I would provide a young producer or any business person starting out. Here is my best shot.
First, a good record system is critical. Separate business and personal expenditures so that you can ascertain whether or not the business is making money. If you have multiple sources of income or multiple enterprises, developing enterprise budgets is important. Utilize Extension budgets as a guide, but tweak them to your business’ specific conditions. Once enterprise budgets are established, they are very easy to update. Enterprise budgets allow you to allocate your time and money to optimal use.
Next, use a good mentor or set of advisors. This will allow you to bounce ideas off of each other. It can also be a source of information, and in some cases, these may be individuals with which you can share resources.
When starting a business, be modest in living withdrawals or salary. No, you do not need to live like a pauper, but conservative living can be a quick way to gain a competitive edge. Recent data shows a difference of approximately $60,000 between the top one-third and low one-third of farm family living costs. That is a considerable amount of cash that could be used for debt service, capital expenditures and growth of the business. It is important to develop a personal living budget along with your farm budget to determine these costs, which can give you the competitive edge.
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Some people will utilize outside income to launch a business. “How much?” and “How long?” will be key questions, particularly if a spouse or business partner is involved. A large part of this equation is dependent on time and time management. Working outside of the business often involves multitasking and being able to juggle many balls at once.
Next is the importance of a relationship lender. Borrowing money involves more than choosing the lowest or cheapest interest rate or the best deal from a financial standpoint. Does your lender deal with other young producers in beginning businesses? Do they understand your industry or business enterprise? Do they have a track record of consistency?