In today’s farming economy, understanding your operation by the numbers is crucial. Managing your operation this way removes guesswork from decision-making. Farming, a complex and ever-changing business, requires an annual plan. While adjustments may be necessary throughout the year, understanding how you expect your farming operation to perform each year helps take the emotion out of your decisions.
Cash Flow Statements: What are They and Why Do They Matter?
Completing a cash flow projection annually helps grasp your operation’s cash flow demands and provides a clear view of funds in and out on a monthly, quarterly and yearly basis. Evaluating cash flow and profitability separately is essential for a sustainable business across generations.
Cash flow projections should ideally be created in late fall or early winter for the next growing season. When creating a cash flow projection, estimate cash expenses and income on a monthly basis. This will help anticipate months with cash shortfalls and months with cash surpluses so you can plan ahead. Updating your cash flow monthly ensures accuracy and adaptability to changing cash flow demands.
Understanding your cash flow stabilizes your business model, aiding in decisions like when to sell grain, expansion, labor hiring, equipment purchases and even retirement. It also lowers interest expenses by better managing borrowed funds.
Cost of Production: Surprising Insights
Knowing if you’re making the right marketing and input-buying decisions hinges on calculating your cost of production. Understanding your costs on a bushel or acre basis helps to make key management choices and helps to ensure long-term profitability.
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Farming is a risky business that deals with forces outside of a producer’s control every day. Managing the decisions that are within your control will help lead to a more profitable business model for your operation. Be sure to include all costs into your cost of production calculations, such as family living, equipment and real estate payments, along with all crop input costs.
Grain Marketing Plans: Why are They Important?
Overanalyzing and delayed decisions can often lead to missed profitable opportunities, a phenomenon known as “analysis paralysis.” With vast information available, having a written grain marketing plan is crucial. Develop a plan based on your cost of production, setting target prices and timelines for grain sales. Stick to your plan to avoid missing opportunities or selling below profitable prices. Make sure you also consider the cost to carry grain when making marketing decisions.
Knowing your numbers is paramount for success in today’s farming landscape. From cash flow management to cost evaluation and strategic marketing, a data-driven approach lays the foundation for informed decision-making and long-term sustainability. By understanding and harnessing the power of numbers, farmers can navigate the complexities of their operations with confidence, ensuring profitability and resilience in an ever-evolving industry.
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