“Managing Organic Dairy Farm Businesses” was a topic for the January 2010 meeting of New York Certified Organic, Inc. (NYCO). NYCO is a group of New York farmers formed to meet the educational needs of non chemical crop and dairy farmers. Speakers and discussion focused on financial management practices as they relate to successfully managing a farm business.

A common theme among the organic dairy producers that spoke, and other speakers was that lifestyle (for example, how much time and effort the business demands from the owner and the owner’s family), and non-financial objectives provide direction for the farm business. Farm families and their businesses vary with regards to the priority placed on different objectives. The relative importance is unique to the family and their business. Some place great priority on financial objectives, while others emphasize lifestyle over financial considerations.

The two organic dairy producers who served as primary presenters commented that lifestyle considerations played a major role in guiding their business decisions. However, they acknowledged that financial considerations were not ignored, and that financial management played an important role in successfully managing their businesses.

Financial management can be defined as the use of financial information to answer the following questions:

• Where is the business now?

• Where do you want it to be?

• How will you get the business to where you want it to be?

Financial management comes full circle when the questions are asked and answered again as you implement changes to the farm business. In managing your farm business, you could ask the same three questions above relative to lifestyle considerations.

Financial management involves establishing financial objectives and goals, record keeping, income tax reporting, and financial summary and analysis using financial statements (cash flow statement, income statement, and balance sheet), budgets and other tools.

Regardless of the priority placed on financial considerations, it is important that farm business owners not ignore the financial realities of operating a farm business.

• Vendors expect timely payment for the inputs or services provided. The ability to meet cash obligations in a timely manner is a focus of sound farm financial management.

• The long term viability of a farm business is linked to the business’ ability to generate income in sufficient quantities to cover the costs of the resources used in the business. The business’ ability to generate a profit is also a focus of sound farm financial management. Profit objectives vary among businesses; the need to generate profit over time does not necessarily mean unconstrained maximization of profit – non-financial, lifestyle considerations play a major role in determining what is desirable.

• The markets and environment in which the business operates are subject to change, which can force the business to adjust. Speakers noted that the organic milk environment is changing in ways that place emphasis on sound financial management- lower prices received by dairy farmers, quotas to control milk supply, and others.

Do you want to risk your business’ ability to deliver on lifestyle aspects by ignoring financial realities and by not practicing sound financial management? Ignoring the financial realities of operating a farm business threatens the business’ ability to provide for lifestyle considerations.

If you are an organic or grazing dairy producer, please consider this special invitation to complete a farm business summary and analysis -- a valuable and important financial management practice. See the press release in this issue for information on a project designed for organic dairy producers. Please contact John Hanchar to learn more, or to participate.
If you own another type of farm business and this article has triggered an interest in farm business summary and analysis, then please contact me. This time of the year the NWNY Dairy, Livestock, and Field Crops Program focuses a considerable amount of its farm business management efforts on farm business summaries and analyses.
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