The Budget is Your Road Map
Most farmers prepare a budget at the end of the year to present to their bankers and then promptly put it away and forget about it until the following fall. I like to envision a budget is similar to a road map. A map has many ways to get from point A to point B. Sometimes, you may want to take the most direct and fastest route for your trip and other times, you may get lost because you did not refer to your map.
A budget gives you the fastest way to get from point A to point B, i.e. your bottom line profit. At the start of your journey, you look at what is your projection for crop yields and pricing. You then project your total costs including the value of your time and management costs. The end result is your bottom line profit, or point B on the road map.
When you start on the trip, you must continue to look at the road map to see if you are still on the direct highway to point B. If your costs start to get out of whack, what steps can you do to reduce or eliminate certain costs. Have you hedged your fuel and fertilizer costs if pricing is at a optimum point.
Also, right now is a seasonally good time to be locking in pricing for your current year crop. Are you using a good marketing service to help you with this. This is all part of the road map to get you to point B.
Just like a good traveler continues to review their road map when they are on their journey, as a good farmer, you should review your budget each month or even each week to see if you are still on the right road to your profit objective. The sooner that you catch either larger costs or lower revenues, the easier it is to get back on track. There is some point, where it becomes impossible to get back on track. You do not want to reach that point.
Remember, use your map (BUDGET).
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
Comments are closed.