Business Matters: Keep One Eye on the Budget

May 23, 2018 07:42 AM
 
Business Matters: Keep One Eye on the Budget

As we cruise into the growing season, it’s difficult to think about anything other than planting. It’s time to get this crop off to a good start. At this point, seed- and crop-protection-purchasing decisions have been made. Many of the other production costs such as equipment, fertilizer, insurance, labor and taxes also are pretty much fixed for the upcoming crop season. 

Although many of these expenses have been calculated and placed into the budget, we must resist the temptation to transition our focus completely away from the business and toward production. A budget requires detailed tracking, analysis and fine-tuning. If we aren’t measuring our results against our actual projections, how can we ever expect to improve? 

Most operations are walking a tightrope between profit and loss, meaning there’s never been a more prudent time to control and manage your budget. 

Test Projections. As the season progresses, compare how close the budget comes to actual final costs. For example, if your seed budget is $275,000 but you paid $285,000, how did you justify the additional $10,000? There might be a perfectly good reason, such as the need to increase seeding rates, change out an older hybrid for a newer one or add a hybrid with an additional trait.

The primary issue isn’t whether you spent more money than anticipated but whether you can justify the budget change. Although you should focus on reducing the cost of many budget items, you must avoid trimming costs to the point of derailing productivity. Areas to trim with extreme caution include those involving people on your farm team, fertility, crop protection, equipment timeliness and seed technology. 

Practical Review. Admittedly, budgets can be difficult to forecast. Some line items can hurt productivity if they are slashed too deeply. Within most farm budgets, though, there are significant overhead expenses that can be reduced. These overhead expenses might appear to be fixed, but many of them are manageable if properly monitored. Earmark and target expenses you think can be improved upon. Each month, analyze your budget compared to actual expenses to see if you can come in under budget on those categories. 

Once you’ve identified areas in which you can improve, you will be able to repeat the process in the same category and possibly add additional areas for improvement. It’s amazing how dramatic the results can be. Simply reducing expenses 2% to 3% in four or five line items can make a dramatic difference to the bottom line. If you are able to find savings of 1% in every category, you can often improve the bottom line with a return on investment of more than 5%. 

When walking the tightrope between profit and loss, opportunities to improve your balance will only come from keeping an eye on where you are going. 


Find Savings by Assessing Overhead Farm Expenses

Take time on a regular basis to analyze overhead costs tied to operations and labor. Doing so can result in savings to your bottom line and help you forecast future costs more accurately.

Operational Overhead

  • Machine repair
  • Fuel and oil
  • Owned trucks and utility vehicles
  • Utilities
  • Interest expenses
  • Insurance
  • Repairs to buildings and bins
  • Bank fees
  • Technology subscriptions and fees
  • Office supplies
  • Travel

Labor Overhead

  • Social Security and Medicare taxes
  • Medical, life and disability insurance
  • Meals
  • Payroll
  • Phones

 

This article first appeared in the April 2017 issue of Top Producer.

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