Some Records Should Not Be Broken
Apr 03, 2017
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Bad records cost more than good records benefit. Bad records, in my opinion, are dangerous to a business because it’s easy to misinterpret the true financial standing. In particular, break-even numbers for marketing may be inaccurate. I may not be able to sell above break-even every year, but I at least want to know whether or not I did!
I’m an advocate for accrual analysis. Honestly, I’m not able to do it myself. There are too many overhead expenses I’ll overlook. For example, my 2016 in-house figures were off from the numbers calculated by a professional. Sure, I picked up useful information figuring it out, but the big picture wasn’t accurate enough to make management decisions--especially marketing decisions.
Looking at the upcoming year, I’ve asked a couple of questions: “What do I aim for? How much risk should I take to lock in a profit?” My lender advised to aim for a profit, but not to expect to make up for previous years. For example, if I can make money at $4.20 corn, take it rather than expecting to take $6 corn and hit it big. I’d love $6 corn, but it’s not a realistic target at this time.
If you’re not using the full set of numbers, you’re selling yourself short-- literally. For example, a producer adds up his seed, chemical, and fertilizer. Maybe throws in land rent and equipment costs. Good, right? Not even close. The break-even target price will be too low in most cases. There are so many little overhead expenses that add up. Easy ones to overlook include crop insurance, liability insurance, labor, interest, and even grain storage. For example, a $10 per acre expense seems small, but may easily add 5 cents on corn and 15 cents on beans (per bushel).
The market has offered some sales below break-even within the past few years. It’s even more difficult if you think you’ve set the price above break-even, but haven’t. I’m afraid many have been taken surprise by the true financials as cash has quickly deteriorated. I feel this way because others are starting to admit their fears and weakness this year--yet were still optimistic or at least quiet last year.
With or without good records, it’s difficult to comprehend the current downtrend. My farm has had excellent yields and prices have been competitive with the national average. Still, returns have not been where desired. I think others can relate. It’s important to keep positive momentum to survive, but it’s difficult to keep that positive mindset. Sure, there are always improvements to be made, but in my records, gross returns per acre have averaged nearly 50% less from 2014-2016. Expenses have decreased 30%, but that leaves 20% out of balance. I’ve learned the hard way that it’s possible for everyone in the business to do an excellent job without seeing an immediate reward on the financials.
To summarize, be sure to consider all fixed costs because they add up quickly. Consider finding someone to create or double check a financial analysis-- if you don’t already. Don’t blame yourself for the downtrend because you’re not alone in the struggles. Marketing and budgeting will likely be about survival rather than recovery. And to keep the necessary momentum, remember those that try hard get luckier than those that don’t.
Email Katie at email@example.com