checkbox facebook google-plus hamburger help linkedIn search twitter YouTube

Optimize Profitability With Crop Insurance

Learn More
Email Newsletter Signup
  • I want notifications on ...

Thank You!

Also stay in-the-know by signing up for our Crop Insurance Text Alerts.
Newsletter Signup

Why and How to Leverage Farm Management Tools

Ahnna Compart
Educational Opportunities: 
Grain, Dairy, Swine, Beef, Young, Beginning Farmers
Home > Education & Events > June 2017 > Why and How to Leverage Farm Management Tools

As a business analyst, I work with a wide array of farm clients. Some are younger and less experienced. Others have been in the business for decades. Many top producers, regardless of size or experience, seem to have a few things in common. They have established operational goals, surround themselves with a trusted circle of advisors, leverage the expertise and skills of those around them, and work hard to document their objectives, progress and financial information. 

Financial Reporting
Typically, year-end is the time to think about putting a balance sheet together and preparing an income statement and projected cash flow for the coming year. But what if we looked at our financial reporting as an ongoing process? Think of it as a fluid tool to help guide decision making and adjust course when confronted with something unexpected. This would bring fewer surprises come year-end and empower producers to level-set goals, inputs and relationships at any time and steer operational success sooner rather than later.

Many successful producers don’t consider financial reporting an annual task. They constantly monitor their numbers and use the data to pressure test and re-route their plan accordingly. Of course, to be in good standing with your lender, an accurate balance sheet, income statement and projection are a must. But top producers see it as more than just something they need to have to appease their lender. They use it as a tool to help them assess and reach their business goals. 

Projections and Cost of Production 
A cash flow projection is one of the best decision making tools available to you. It outlines expected cash income and cash expense for a certain period of time and helps you determine peak operating loan needs as well as understand your cash needs. Your cash flow can be used as the starting point for your cost of production calculation, which tells you the price at which you need to sell in order to be profitable. Successful producers have a projection and understand what their cost of production is. 

If you’re not 100% certain of your breakeven point, figure it out! It’s a simple matter of understanding the price necessary to cover all operational costs and inputs. Calculating your cost of production starts with estimating production: how many acres, at what yield and what price. Then we look at all expenses, fixed and variable, as well as non-cash expenses. There are easy-to-use tools online, including Compeer Financial’s Margin Manager Tool, that can help with this task. Remember, your projection — and therefore cost of production — is unique to you and your operation. Nobody else's is the same. When you're putting together a projection it's time to be realistic, not overly optimistic. Whether its bushels per acre, pounds of milk produced, your death loss or what have you, it's vital to be accurate with expenses, especially family living expenses. 

Family Living Expenses
If you're wondering what family living costs have to do with your operation, ask the most successful farmers you know about how they feel and you might be surprised by their answers. Top producers typically believe operational success and family living expenses go hand in hand and their financial information reflects that belief. Think about it: If your farming operation pays any of your family living bills, then those costs need to be documented into your projection. 

From simple spread sheets, to sophisticated software, there are different farm management tools that meet the needs of different operations and operators. Choose the method that you are comfortable with and create a system you can stick with. Consistency and diligent attention to inputs, margins and marketing are the key factors in positioning yourself for success during compressed prices. Adopting a tool you can manage and will use can help make the difference between operational survival and success. 
There are no comments.
 Security code