While most cattle producers don't choose the lifestyle for the love of spreadsheets and financial planning, we all know that dedicating a little more time to those areas of the business can bring about more positive returns. That's especially true in a year like 2023, where market forces appear likely to favor the cow-calf producer.
Noble Research Institute agriculture economic consultants Dan Childs and Jason Bradley shared ideas about how to finish 2023 in a stronger financial position in a recent article.
Bradley recommends updating income and expense reports monthly, with a review of operational goals quarterly or every six months. Write out a marketing plan each year and adjust as reality unfolds. Consider asking your accountant, banker, or adviser to schedule meetings throughout the year for these check-ins to help hold you accountable.
"Having that meeting set where you know you need to have all your information ready, even just for the first few months, might be enough to get your feet under you and get you in the habit of tracking the data," Bradley says. "It gets easier if you just keep at it."
The two consultants point to three financial statements that will serve as building blocks for successful financial strategies this year: profit and loss statement, net worth statement, and cash flow statement.
MANAGE FOR TAXABLE INCOME
A profit and loss statement, also known as an income statement or statement of earnings, tracks basic revenue and expenses over a specific time period, typically a fiscal year. This statement should consider how to best manage for taxable income, meaning a tax professional can offer you guidance about things like equipment purchases, calving season shifts, custom grazing, etc. Remember, tax codes change all the time, so be sure the decisions you are making now are in line with the must current requirements.
SET OPERATIONAL GOALS
A net worth statement, also known as a balance sheet, considers the bigger picture of your operation's financial health. It incorporates assets, liabilities, and any shareholder equity.
Childs says, "Assessing a net worth statement is really the gold standard way of asking, 'How are we progressing financially?'" He likes to review these statements at the beginning of a new year and use this as a vantage point from which to set goals.
"Make an honest evaluation of this statement with your CPA, banker, or financial adviser," Childs suggests. "Then use that to help forecast a realistic financial goal of x amount of profit for 2023."
REVIEW CASH FLOW
This statement illuminates where money comes into the business and where money goes out. It measures the operation's ability to generate cash to pay debts, fund operating expenses, etc. The ability to focus on individual cash-generating opportunities gives you a clear picture of which enterprises on the ranch are most profitable.
Enterprise accounting allows a manager to ask powerful questions, such as: Can we shave a little off the overheads on this enterprise, or can we get better margins on that enterprise? If we got better returns here, could we reinvest that to improve over there?
"If you're really concerned about addressing profitability, this is where you need to go," Childs says. "Your knowledge of your enterprise profitability is very powerful in building an accurate operational plan."
The bottom line, Bradley says, is that the best way to achieve success is to plan for it.
See the entire article here: https://www.noble.org/….
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