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Why and How to Leverage Farm Management Tools (Article)
By: Ahnna Compart, Sr. Financial Analyst
TAGS: Grain, Risk Management Planning, Young, Beginning Farmers, Dairy, Swine
 
March 27, 2017 -

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, they 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, 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 you 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 AgStar’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 expense.

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 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 that you will use can help make the difference between operational survival and success.

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Ahnna Compart
Sr. Financial Analyst
Growing up on a swine/crop farm and marrying into a swine/crop farm in Lake Crystal, MN, Ahnna will be able to share some hands on experience to the blogging world. She started blogging in March 2013 by sharing her perspectives on agriculture and also hopes to share advocating messages to the Women in Agriculture blog. Ahnna has been at AgStar for 4 years as a Sr. Financial Analyst which also adds to her great knowledge in agriculture. Check out her personal blog at ahnnaonaboutanything.wordpress.com.
Contact Ahnna Compart
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