I hope everyone is having a great July 4th weekend. This post focuses on the importance of financial analysis and record keeping. These are two of the most difficult tasks to get done, and to get done right. There is always something more important to do, such as working ground, planting, spraying, spreading fertilizer and the list goes on and on. During prosperous times in does not matter much. However, that time is long gone. Alfalfa farmers maybe experiencing record high prices, but dairy farmers are struggling to figure out how to reduce their cost and at least break-even.
The following are tips I learned from my dad and his good friend Owen Shaw.
Tips and Tricks-
1-Always keep good records. These records should not just be about prices, yields, fertilizer costs, and good buyers, but should also be a record of the problems we have had that year. What we did to fix it, if it worked, and what we have done differently. Then when the problem comes up again, we can look back and have a better idea on what to do.
2-Save for a rainy day, and put a little away for retirement. I know several successful farmers who do not believe they will ever be able to retire. These farmers have an incredible balance sheet with little debt and many physical assets. These farmers always planned on selling part of the farm to help them retire but now find their children needing more and more ground to remain competitive, resulting in a retirement cash crunch. It does not have to be a lot, a little bit every year will add up. In the book “The Richest Man in Babylon” the author encourages his readers to pay themselves 10% from each paycheck, and invest these dollars. Honestly, 10% maybe the wrong number for you but decide on the right number and get to saving and investing. This will create diversity, security, and savings for retirement. It is always better to be safe than sorry.
3-Do something you love and you will never work a day in your life.
4-Know your cost of production. Study the markets, subscribe to trustworthy market reports. Know the factors affecting your fixed, variable, and differential costs. This is good to know for many reasons, I listed just a few examples-
a.Will it pay to apply 20 more units of N at the current or contracted sales price of the crop? The opposite is also true, will the return of the crop be so low that it may be more profitable to reduce inputs by a certain margin in order to break even.
b.Will it pay to buy heifers to feed some weedy or rained on hay instead of selling it on the open market at a discount?
c.Will it pay to plant right behind the disk or groundhog and save a pass across the field and reduce your fuel costs.
Darn-It! I have rambled on and did not get to the basic formulas, and did not even mention capital budgeting. TO BE CONTINUED…..
WORK HARD, BE PATIENT, NEVER QUIT, ALWAYS BE HONEST