What is flowing out of your farm’s wallet? In August, there are probably a lot more dollars flowing out than in.
Big picture, you know exactly how many dollars are flowing out of your farm’s wallet. But per cow, per hundredweight, per ton, or per bushel?
Is the farm profitable? That question can be a little more challenging for many farms.
Bottom line, these are not such difficult questions to answer, but it can be challenging for some farms. How can it be easier?
These are some frequent challenges we run into as we work with farms to complete a farm business analysis and help them answer two very important questions: How is my farm business doing? What are my costs of production?
This is a really important job on the farm. Appreciate whoever is responsible, and give timely answers when they ask what crop a fertilizer or spray bill was for, or what group of animals ate the feed listed on an invoice or monthly statement.
When they can add that detail into transactions as they are entered into the ledger, the process of allocating expenses to the correct enterprises later is a piece of cake.
Of course, it also helps if all of the invoices get to their desk. Do not make them hunt through the barn office, shop, farm trucks, or buildings for invoices when it is time to pay bills.
To do a complete business analysis, we look at the farm’s cash business (the farm checking account), and combine that information with what happened to inventories of crops, feed, supplies, livestock, machinery, equipment, buildings, and any other assets and liabilities of the farm business.
What was there at the beginning of the year? What was there at the end of the year?
How good do inventories need to be? That answer is a question: How good do you want your farm business analysis numbers to be?
Excellent inventories lead to excellent quality analysis results that are reliably used to make management decisions.
The most frequent challenges are 1) lack of inventories, 2) missing items, and 3) amazingly unchanged numbers.
Set a time the first week of the year, and spend a few hours doing a good inventory. The more extensive the farm, the more time should be dedicated to a good inventory.
A piece of equipment can be gone a long time if everyone thinks it is stored or being used somewhere else.
Everything that has value to your business should be on the balance sheet. Yes, some items can be grouped such as “milk house supplies,” or “vet and meds,” but make sure the items are included.
When inventory numbers of cows, heifers, or feed and grains are amazingly exactly the same at the beginning and end of the year, we start asking questions. This usually happens because there is not a system in place to do an inventory.
With cow numbers, we may be able to go back and cross check against DHI or other records. What do we find? That they were not the same, and usually +/- 20 percent different than the estimate.
Acres and yields
The sooner acres and yields are recorded, the more accurate they will be.
Cost of production information will only be as good as the information that goes into the calculation. Not only are the numbers important for annual evaluation, but the acreage, yield, and cost of production history developed over time paints a picture of overall management and yield potential for the farm’s land base.
There is very little information that we use to complete a farm’s business analysis that the farm business is not already collected and used for some other task or activity of the farm business. A few tweaks in what is collected and how it is collected and recorded opens a huge door of opportunity.
Hay harvest continues, and silage harvest is rapidly approaching. How will you prepare for evaluating this year’s harvest? What will it cost?
To get started on farm business analysis, contact me at firstname.lastname@example.org, or 330-533-5538. Find out what is flowing out of your farm’s wallet.
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