Annual Assessment and Strategic Planning to Improve Profitability
‘Profit = Revenue – Expenses… it’s that simple.’
“Being profitable is not just about how much you make, it’s also about how much you can hold on to, and having a budget and financial plan in place to monitor the farm’s financial position, trends and options is key to being prepared and ensuring the “ dollars” are there when you need them.
We are in a trend where production costs have gone up and commodity returns have moved downward. Having a firm grasp on your farm’s cost of production, cash flow and working capital is vital to creating a marketing strategy that is designed to take advantage of favorable marketing opportunities, increase profitability and meet financial obligations and should be included in an overall financial assessment.
Managing overhead costs and debt payments have become increasingly difficult due in part to increased land rent and the increased costs of investing in land and equipment. Creating and annually updating a market value net worth statement provides a snapshot of the farm’s current financial situation and a foundation for which planning can proceed. Reviewing the details of your leased land agreements as well as your credit portfolio structure, arrangements and terms is an essential component to an annual financial assessment and will give you the valuable information you need to identify options and opportunities to reduce costs, relieve debt service requirements and increase your farm’s return on assets (ROA) and return on investment (ROI).
With farming comes significant and diverse risks that can and do have a negative impact on farm profits. A financial assessment that is thorough, detailed and based on accurate and timely data provides the information required to identify some of those risks. Many risks can be managed and mitigated with a strategy that is clear, attainable, includes an action plan and is reviewed and updated annually.