As the 2010 tax season comes to a close for most farmers and we look for lessons that can be learned for the 2011 marketing year, the questions can outnumber the answers. As a manager of a farm business you know that income tax results, by themselves, are not adequate forms of measurement for your business in a given year to effectively manage your business.
Everyone uses different benchmarks for measurement. The key to measurement is consistency. Measuring the same variables with common benchmarks over time can give us the data to make good management decisions.
Changes in net worth from one balance sheet to another on a regular (annual) basis can serve as one tool for measuring business success. Another tool is determining the cost of each unit of production, whether bushels or cwt, and breakdown the components of that cost.
Rich Baumann and Wayne Schoper
Marketing plans, whether milk, beef, hogs, poultry, or crops, require forward planning and historical data of those measured variables. Break- even prices from past years, historical trends, and adjustments for the anticipated changes for 2011 can begin to form the outline to any marketing plan and goal setting session. The ability to check a working plan compared to actual income and expenses maintains the integrity of the process of planning. A cash flow projection can serve as a measurement tool for the 2011 year as well. Cash accounting of all income and expenses allows you to keep the business on track by cross checking income/expense on a quarterly or semi-annual basis.
So what does your management plan look like? What management tools do you utilize in your business that guide your management decisions? Developing and maintaining a balance sheet, completing a business analysis with breakeven costs for each commodity produced, and finally, developing a cash flow projection that involves a method of cash accounting to compare projected to actual on a regular basis, are keys to a strong management plan, not just when taxes are due!
To put all these components of measurement in place can take time and may seem daunting even though we can agree that the results would be well worth it. The Farm Business Management Program teaches about the components of a management plan.
To find out more on this program contact Wayne in the Sleepy Eye area (507-794-4241) or Rich in the New Ulm area (507-354-7836).
(Some of this information is from Keith Olander, FBM Instructor, Central Lakes College. Keith is a former New Ulm High School Agriculture Instructor.)