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Positioning your Beef Operation: Three Pieces of Financial Information to Complete Annually

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Jessica Ziegler
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Home > Education & Events > October 2019 > Positioning your Beef Operation: Three Pieces of Financial Information to Complete Annually
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For those in the agricultural industry, 2019 has certainly had its challenges. Chief among them was the record amount of moisture -- be it snow or rain -- that caused many production issues, such as calving in the mud and cold, late or prevented planting of crops and forages and, now, a delayed start to harvest.

In addition to production related challenges, market prices experienced a significant amount of volatility for beef operations in 2019. Specifically for the cattle industry, the Tyson plant fire in Holcomb, Kansas was the biggest black swan event in recent memory with 5% of fed cattle harvest capacity temporarily lost. While producers cannot control the weather or anticipate black swan events; they can understand their farm’s financial health and competitive advantages to make educated decisions to navigate through the volatility and help communicate with their lender so that they have access to capital when they need it.

There are three common pieces of financial information that should be completed annually and reviewed with your lender as part of your financial records.
  1. A statement of net worth (sometimes referred to as a balance sheet) that lists out what is owned and owed for both business and personal,
  2. Tax return or cash based statement of income and expense and
  3. Business plan for the upcoming year that includes things like cows and heifers on hand, expected calves, acres of crop production and expected expenses and sale prices
After compiling this information the next steps to improve financial records are:
  • tracking earned net worth and owner’s equity ratio change from year to year,
  • tracking working capital change and measuring it against gross revenue or total expenses,
  • making accrual adjustments to cash income and expense statement that capture changes in inventory, receivables and payables, this gives a more accurate picture of profitability
To further analyze your business it is helpful to break down the income and expense statement by enterprise which leads to a better understanding of cost of production and profitability for each facet of the business. This is especially important if the corn marketing plan for the business consists of walking the corn off the yard with a cattle finishing enterprise. Understanding cost of production for the corn is vital to determine if cattle finishing is truly adding value to the bushels fed compared, to selling as a cash crop.

Another helpful exercise is breaking your business plan down into a monthly or quarterly projected cash flow. This allows you to see the timing and seasonality of the revenues and expenses for your business.
For example, when will your peak operating loan need be, and, for what amount? This is helpful when planning your capital needs with your lender as well as when you are making some changes to your production model, like pre-conditioning calves before they are sold. How will a 45-60 day delay in getting paid for your calves affect your cash flow?

With an accurate picture of your farm’s financial health, you’ll be prepared to discuss with your lender what went well for your business in the past year, what areas need improvement, and your business plans for 2020 and projected capital needs. These foundational elements will help you position yourself for long-term viability and success.
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