Farm business management fundamentals
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EmailAre you a farm manager? What is farm business management?
What is farm business management?
Management is about making decisions. Economics is about the allocation of limited resources. Farm management is the process of using management and economic principles to make decisions about the best possible allocation of limited resources to accomplish certain goals.
What are the functions of farm business management?
Planning
Planning involves establishing goals, ascertaining resources available and resources needed, and identifying alternative strategies to meet those goals. Planning includes a combination of long and short-run decisions. Long-run decisions are known as strategic management decisions. They chart the overall long-term course of your business. Short-run decisions are also known as tactical management decisions. They are the ones who ensure the business moves along the chosen course. Business plans and knowing how to set SMART goals are useful tools for the planning stage.
Implementation
Whatever decisions were made during the planning process, managers must then implement their plan and supervise the process. Implementation includes coordination and/or acquisition of resources needed, such as staff, materials, equipment and machinery, and land.
Control
The control function is monitoring the progress of your plan and measuring performance. This entails the collection of data in order to discern if the plan is on track or if there are needed adjustments. Some of this information will be internal, such as your production and financial records, while other information will be external, such as changes in weather, market prices or agricultural policy. A strength, weakness, opportunity, threats (SWOT) analysis is a tool that may help assess internal and external information.
Adjustment
If you determine during the control process that you are not meeting certain goals, then adjustments will be made. These adjustments can be small/tactical, such as fine-tuning equipment, or large/strategic, such as removing an enterprise.
Examples of strategic decisions
- What should I produce?
- What is my optimal mix of crops or livestock (known as enterprises)?
- What is the optimal relative size for my enterprises?
- What is the optimal size for my business?
- What kind and amount of resources do I need? (technology, machinery, labor, partners)
- Where and when should I buy my inputs and sell my output?
- How will I finance my operations?
- How will I absorb and manage risk?
Examples of tactical decisions
- Which fields to harvest on a given day
- How much fertilizer to apply
- Whether to market the asparagus as spears or as cuts and tips
- Whether to accept cash or card at the market
- Recordkeeping system
- Fixing something yourself vs having it fixed by someone else
View a presentation about farm business management
Listen to a podcast about farm business management
Michigan State University Extension has many resources available, including bookkeeping and financial analysis tools to help you with the important decisions you have to make as a farm manager. Many of these resources, including a listing of MSU Extension farm management educators, can be found at the MSU Extension Farm Management website.
You may also consider filling in this form to receive updated resources, answers to common questions, notices of future farm business management events, and other useful information from Florencia Colella.
