As planting season winds down, it’s time to review, update and forecast your farm budget.
“Although many of your farm 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,” says Chris Barron, consultant with Ag View Solutions and Iowa farmer. “A budget requires detailed tracking, analysis and fine-tuning.”
With profit potential on the line, this business review is even more important. It’s the first step to improving financial sustainability on your farm, Barron says.
Take these steps, Barron suggests.
1. Test your projections.
“As the season progresses, compare how close the budget comes to actual final costs,” Barron says.
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,” he says. “Although you should focus on reducing the cost of many budget items, you must avoid trimming costs to the point of derailing productivity.”
Barron says the areas to trim with extreme caution include those involving people on your farm team, fertility, crop protection, equipment timeliness and seed technology.
2. Analyze your overhead costs.
Some budget line items can hurt productivity if they are slashed too deeply, Barron notes. Yet, most farm budgets feature significant overhead expenses that can be reduced.
“These overhead expenses might appear to be fixed, but many of them are manageable if properly monitored,” he says. “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.”
3. Commit to significant improvements.
Even small changes in spending can create dramatic results, Barron says.
“Simply reducing expenses 2% to 3% in four or five line items can make a dramatic difference to the bottom line,” he says. “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%.”
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