The Importance of Farm Fitness
There are varying degrees of similarities when comparing your farms financial fitness to that of an athlete. An athlete will have a goal in mind and then choose the training or tools needed to achieve that outcome. The athlete will have a head coach, but typically will include doctors, nutritionists, therapists, trainers, and managers of all types.
As a farmer, you also have goals for your operation. To put together a plan you have a team of advisors or managers. Teams may consist of your agronomist, veterinarian, feed nutritionists, marketing advisor, accountant, and finally, your lending partner, like SouthPoint.
Whatever tool you are using, it needs to be measurable. Farmers are usually the first to share the number of bushels that were produced per acre. But what did it take to have that production outcome? The seed per acre, the tons of fertilizer, the chemical used, rain received and the timing of all those things combined.
But, the overall profitability of the operation is the primary goal. Every farmer wants to see a return from the operation. Keeping good financial and farm business records is required to manage a profitable outcome. It takes commitment, discipline, and perseverance, but the payoff to the operation can be significant.
Good, solid, and detailed financial records are a requirement of any operation. A lot of a producer’s recordkeeping and business analysis focus almost exclusively on the income tax concerns. In most cases, tax accounting is much different from financial accounting. Tax accounting generally focuses on transaction of cash within that year. You record revenue and expenses when the cash is exchanged, regardless of what production year or cycle it came from.
Detailed year over year financial statements is very helpful when meeting with your lending partner. As a lending partner, we focus primarily on the income and expenses in the correct production year, regardless of when the cash changes hands. This is an accrual account method, focusing on the transactions of a specific production year.
These numbers are typically used by the producer to develop a solid marketing plan. These profitability markers not only include the direct input costs, but also the debt payments that need to be serviced, family living needs, and what the projected profit margin will be.
These numbers help the lending partner understand the operations cost of production and break-even prices; determining the overall profitability. Historical year over year records are beneficial to help the lending partner understand the overall capacity or risk that the operation has.
The financing requirements may look different for every operation. As your lending partner, SouthPoint is here to assist you to understand the financing options for your operation. With better understanding of the operations finances, we can provide an outside perspective to assist you in your financial decisions.
It is never too late to start making improvements to your financial management, utilizing the operations numbers to make more educated decisions, and see long term benefit. SouthPoint Financial Credit Union has a team of lenders that is prepared to assist it members in the financing of their operation and providing excellent financial data that can be a valuable tool for any operation.