Farmers and ranchers wear many hats to keep their operations running. From day-to-day managers, marketing specialists, to head mechanic, and everything in between, it’s hard to make time to think of long-term goals and the strategies on how to achieve them. Strategic planning is essential to all businesses and agriculture is no exception to that. Planning in this higher inflation and interest rate market challenges producers even more than normal.
One of the questions that I get daily is how does a potential expansion opportunity, whether buying new equipment or purchasing land, affect my operation? This quest is usually followed up with “is it the right decision for my operation at this time?” Having a strategic plan in place will help the farmer make those decisions in the best interest of their operations. The answer to those questions comes down to the strength of a balance sheet and having realistic projections/budgets in order to see if the proposed expansion is realistic. Projecting cash flows in the future will be harder going forward given the current economic decisions.
Creating a sound budget begins with building and maintaining a strong balance sheet. A strong balance sheet includes having strong liquidity and solvency, which includes using debt wisely. This is especially important during these economic times. With more rate hikes expected in the future, keeping the balance sheet strong will be essential to growing the business and understanding healthy debt in the context of funding expanding operations. Having a sound balance sheet will help absorb any potential downturns in the future.
The second part of the decision-making process is having a realistic budget and knowing your break-evens like the back of your hand. It’s easy to pencil out a profit with strong yields with these higher commodity prices. However, what would happen if you had a less-than-average crop and prices return to pre-December 2021 levels? Knowing your operation’s financial strengths, weaknesses, and your break-even’s will help you be able to make decisions promptly to keep them profitable for years to come. There are lots of different tools that different software companies have that can help operators come up with live-up-to-date profitability analysis. I highly encourage my customer to utilize these tools and use this information to help them make informed decisions on their operation.
One of the best parts of working here at AgCountry is having all the resources that you need under one roof to truly understand your financial position and help you make important decisions. For example, having farm accounting specialists review your records for current expenses to date or compare previous year’s budgets to actual numbers then sharing that information with our tax team to help plan for year-end planning. You could also look at having our crop insurance specialists in the same office to help with knowing what tools are available to you to mitigate some of the risks that your operation faces. Having all of this under one roof helps with time management, as we know how fast the winter season/planning season can come and go.
Speak with an AgCountry loan officer, tax specialist, insurance specialist, or farm accountant to see how we can provide our services to help you make the best decisions for your operation.
