Do You Know Your Breakeven Point?
AgStar Financial Services recently posted an article asking Where’s Your Break-Even?
We work with a large number of farmers with a wide range of farm sizes and it is still surprising to me how many farmers would not be able to answer this question or other questions regarding their finances. It is still not that uncommon to ask a farm client how their year went and their response will be “well, there is still money in the checking account.” If a farmer does not have a good grasp on the farm finances, in my opinion, they cannot make good strategic decisions for the future including when to sell crops, when to expand, when to take that extravagant family vacation, etc.
The article linked above provides a good example of different expenses that should be included in your total cost per acre and how to calculate a breakeven point. If you have not to this point, I highly encourage reading through the article and estimating your own total cost per acre. Many farmers we work with have a strong disdain for the financial / admin side of the business and if you are one of those farmers, I would recommend working with your trusted adviser to help with the process. Once in place, this is not a static amount but something that should be reviewed periodically and actual results should be compared against these estimated amounts. This will help you fine tune your estimates but can also help you identify areas of large variances and potential cost saving areas.
David Enquist, CPA