Planning for Profit

A recent USDA study found that just over half of US farms report a loss each year. I’m just going to assume that you are farming or ranching to make a living. You cannot make a living without a profit. So how can that be done, exactly? Aside from reading crystal balls or maybe a time machine, the best way to ensure that your farm or ranch is profitable is by creating a financial plan.

I know, I know. Plan. A true four letter word in the world of agriculture. But please, hear me out. The plan is a starting point. It’s flexible, just like you. Priorities change on a daily basis and your plan can as well.

So, what should your plan look like? This is the best part. It can be as simple or as complex as you like. At the most basic level, you’ll need to have a projection. This will include anticipated income and expenses. You should be able to pull a base for your projection from your accounting software or your tax returns, based on previous years. If the business has been losing money, determine how you might be able to increase income or decrease expenses until you're running in the black.

Now for the best part… You take your monthly Income Statement from your accounting software and compare it to the projection. Do this every month. If you spent way more on chemicals than you anticipated, will it reap additional yield or do you need to cut back on other expenses? If calf prices are looking great, can you make a plan to reduce your debt load with the additional revenue? This is the beauty of looking at the actual vs budget each month. You have time to pivot. You can make decisions on the fly because you’re informed. When it’s March and you’re finally taking a look at your previous year’s tax return, it’s too late! So, while planning sounds like it’s restrictive, it actually gives you greater flexibility and control over your business.

I understand that this probably sounds like a lot of work. That’s because it is. But guess what? YOU can do hard things! Look at how much work you've put into your business already.

Do you think you'll create a financial projection for 2023? Let me know if you need any help getting started.