André Piette | Journalist
All farmers give the best of themselves to their business, but sometimes this is not enough to make profits. And if you're not profitable, the debts will start slowly piling up. How can you get your business back on track--or simply prevent it from derailing in the first place?
"There are many causes of financial problems," notes agronomist Julien Guay, who has a background in financing and recovery of farm businesses.
Some causes are out of our control, such as bad weather, collapsing prices and an epidemic that devastates a livestock herd.
However, a bad cost evaluation of a project, poorly structured financing or over-optimistic yield forecasts are costly mistakes that can be avoided, provided you see the pitfalls coming.
Julien Guay lists 5 pitfalls to avoid when investing in a new project.
1. Never looking back
The first logical step is to get a clear assessment of the business. This involves analyzing the financial results and reviewing the reasons for past decisions. You also have to assess the balance of resources within the business. For example, calculating the number of piglets produced versus fattening capacity. Lastly, you should define future investments.
2. Going it alone
"Farming requires a very diversified set of skills in crops, livestock, management, marketing, mechanics and HR management," points out Guay. "It's in the interests of business managers to use the services of people whose strengths will compensate for their own shortcomings."
3. Seeing life through rose-coloured lenses
"Like most entrepreneurs, farmers tend to be overly optimistic," notes the specialist. "To have realistic budget forecasts, you have to base things on facts. For example, determining a practical way to increase the 1,000 kg average or to wean 2 additional piglets per sow."
4. Needlessly going into debt
"In a context of low interest rates, credit is more accessible and it's even more tempting to use it to hide a problem or to postpone a solution. Use credit wisely," says Guay.
5. Not having any financial leeway
Watch out for cost overruns! "A project can result in cash flow problems," warns the agronomist. "It's important to plan a project carefully and monitor it closely. You should also have some financial leeway in case of unexpected events, such as late equipment deliveries or delays to break in new equipment."
"When financial problems occur, it's essential that you ask the right questions before taking any action and, as needed, seek advice. In this context, keep in mind that you should try and do better rather than more," concludes Guay.