How Well Do You Know Your Financials?
Article By: Kristin Woodard, Relationship Manager for SFB
The commodity market rallies have been a source of hope over the last 10 months for some agricultural commodity producers. But, how long will it last? The improvement in some commodity prices and COVID assistance in 2020 has helped farmers to catch up or stay afloat financially, but the price improvement has historically been short-lived.
When the market conditions provide higher prices, it can be tempting to be optimistic about your finances and purchasing power. But, can you weather the storm if income drops but your inputs stay the same or increase? To answer that question, it is important to understand your financials (break even, cost of production, etc.) and what they mean for strategic decision-making and survival.
Ideally, a financial analysis is recommended to be reviewed on a quarterly basis with the insertion of actual receipts (income and expenses) followed by adjusting a projection for the rest of the year based on the results of actual receipts. This will provide an analysis of how the year is shaping out to be financially compared to how the year was planned to be. With this information, you can determine where you may need to make adjustments.
This exercise may seem daunting, but the knowledge and perspective to be gained can be a tool to guide making sound decisions. It will help you determine if something is a good purchase. It also can help you determine where you can make adjustments in order to have enough money to pay bills without impacting your production.
For a list of terms frequently used by bankers and financial advisors when they analyze your operation's financials, click here. (These terms were part of the paper Measuring and Analyzing Farm Financial Performance; Purdue Extension & Department of Ag Economics; May 2012.)
If you would like to talk about your financials or have questions, feel free to contact us or your financial consultant.
Kristin Woodard is a commercial/agricultural loan officer for Jackson County Bank, which will merge into Security Financial Bank in the summer of 2021. She can be reached at 715.284.5341 ext. 1355.