As farmers reflect on a demanding 2022 season they simultaneously start planning for the challenges the 2023 season will present. Careful planning can greatly increase a producer’s chances of success while minimizing exposure to potential hazards.
“This time of year is also a really good time for operation managers to have discussions with the experts they work with on the farm,” said Chad Hart, an economist at Iowa State University.
Get your working capital in order. Working capital is the difference between an operation’s assets and liabilities, often referred to as its “cash on hand.” Liquidating unused or unproductive assets and carefully managing inventory and accounts receivable can greatly strengthen your short-term risk-bearing ability.
Keep your debt as low-interest as possible. Interest rates have risen, and debt costs more than it used to. Now is not the time to take out a new loan. Be mindful that capital purchases or business expansions will affect your business’s leverage.
Remember: Land equity does not pay the bills. As commodity prices go, so goes land value. Falling land prices make relying on your land equity as your “savings” a risky business model. Instead, concentrate on generating cash and lessening debt. Bankers lend you cash to run your business. It’s fair to say they want to get paid back with cash, not your real estate.
Hold off on repairs that aren’t time sensitive. Not everything needs immediate attention. Prioritize your farm equipment maintenance and separate repairs that are time-sensitive or essential to the operation of your business from those that can wait. By holding off on less pressing repairs, you can direct your spending to what’s most important.
Optimize workflow efficiency. A more efficient business saves more money. Streamlining farming processes can result in less hours worked or less material waste. Keeping detailed records can guide farmers in making better informed purchases. By sidestepping unnecessary purchases, you cut down on your seasonal costs. Speak with your local ag supplier. Seasoned suppliers can help if you are unsure of the quantities you need.
Know your break-even point. Break-even points are determined by dividing fixed costs by gross profit margin. But margins have become somewhat more volatile in recent years and are likely to be different in 2023. Don’t get blindsided by shrinking margins.
Consider your financial situation holistically. The best business decisions are made when farmers think about their operation as a whole. Keep in mind how each decision will affect your overall operation first. Once you’ve done that, you can get down to individual issues and decisions.
Also, keep in mind this quote from American entrepreneur Jim Rohn: “If your outgo exceeds your income, your upkeep becomes your downfall.”
by Enrico Villamaino
Leave A Comment