Farms will need to focus on their business plan to stay profitable in 2016 and 2017
The key to your farm’s future will be how you continue to respond to current economic challenges. Here are some ideas that you should incorporate into your farm's plan for success.
Many commodity prices have bounced off contract low price levels during the past few months. This makes 2016 farm profitability dependent on yield and early marketing. It is clear that just working more hours or doing more tasks like farmers have in the past will not solve a farms profitability problem. The next option is to lay out a plan of action that may improve the farm’s outcomes.
Farms across the country have been very active in their adjustments to maintain profitability in 2016. Farms have been making changes at all levels of the farm’s management and financial areas. This process starts with building a projected farm budget based on the farm’s 2014 and 2015 financial situation. Then, adjustments are made where possible to trim costs and improve income. This is not an easy task and not something that most farms want to take the time to do. The key to your farm’s future will be how you continue to respond to current economic challenges. Every farm’s plan for success should include:
- Meet with your management team. This should have several off-the-farm members. The farm’s lender, veterinarian, crop advisor, nutritionists, and management advisor are a few examples of people that can and should provide input on your current and long-term farm goals. This type of group will bring a wide range of views of your farm and provide input on what they see as potential steps to improve issues and problem areas on your farm.
- Write down your goals. It is easy to talk about goals, but they only become real when you put them in a written format and share them with your family and farm management team.
- Perform an annual financial analysis. This establishes your farm’s financial position and allows you to monitor it.
- Create a cash flow projection. Many farms have their own way of monitoring the farms financial status, but putting together a cash flow projection can help provide a road map of expected incomes and expenses. When this is done using a computer template, it makes it possible to make monthly adjustments to track actual income and expenses. In addition, a template may provide the option to project different scenarios if input costs or production output (yields) changes are used. A sample excel template can be found by visiting the FIRM- farm management web.
- Make a farm budget. A farm’s budget can be a valuable resource to provide you with estimated monthly financial goals. The budget may also be the key to estimating a cash flow projection. Individual commodity budgets can be the building blocks for building a full farm financial projection. Budgets also provide you with a set of projected sale prices or target prices of each commodity that a farm produces.