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It’s time to do an honest analysis on 2020 profitability It’s time to do an honest analysis on 2020 profitability

Besides ‘weather and prices,’ what hidden, controllable factors impacted profit or loss this year?

Ashley Arrington

November 19, 2020

3 Min Read
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So how is 2020 going to shake out for you? Profitable? Breakeven? Loss?

Now is the time of year everyone really starts to analyze the bottom line in their business. As you review, I want you to take note of more things than if the number is positive or negative. I want you to think about what played into that profit or loss. Then I want you to think one step further. Don’t stop with one answer. If you see a negative number and you had bad weather in an area, don’t just say, okay, that’s why I lost money. Just because weather was a major player doesn’t mean it was the only player!

Really understand your operation

Before I start working with a farmer, I always get them to tell me what is going on in the operation. I have them fill out a questionnaire of sorts.  In that questionnaire, I ask – how has this past year been? Profitable? Breakeven? Loss? I then ask them to explain their answers. This is where you need to dig deep to understand what’s really going on in your business.

If it was a loss I sometimes get a one or two word answer – weather, prices, or weather and prices. Those short answers may be true, but sometimes we need to dig deeper to see if there are any smaller factors feeding into the loss. 

Why should you do this? By simply blaming the factors that are out of your control (weather, prices), you ignore those management practices and efficiencies that could be improved. ‘Weather and prices’ end up being a crutch. As a business person you can’t let that happen.

Related:Farm Business on the Brink

I have worked with farmers who said that prices were the reason for their loss, but when we really dug down we found other issues: High levels of equipment debt in relation to acreage, lazy assets, unfavorable debt structures, to name a few. Had we just blamed the loss on prices and went on planning the next year, we would not have found the other issues that need to be remedied.

I’m not accusing all farmers of blaming everything on prices and weather. But, those are the easiest answers, and often these easy answers give us an excuse to ignore the deeper issues.

Find fresh eyes

So, maybe you do think you know what’s causing a loss – and it’s not weather or prices. I encourage you to dig a bit deeper. Sit down with a financial professional, banker, or fellow farmer who can look at your numbers with fresh eyes and notice something you may be inadvertently turning a blind eye to.

Just so you know - I practice what I preach. My CPA told me a thing or two about my business numbers that I didn’t recognize, because it was what I always had done.

Related:Farm business planning: Tool for the times

So, break out of the norm and do a little more during your end-of-year business evaluation. You might be surprised by what you find.

The opinions of the author are not necessarily those of Farm Futures or Farm Progress. 

About the Author(s)

Ashley Arrington

Director of real estate lending, Ag Resource Management

Ashley Arrington grew up in Georgia surrounded by everything agriculture. She graduated with a Bachelor’s degree in Finance, then obtained her Masters of Business Administration degree. She worked in the banking industry for 14-plus years where she concentrated exclusively on agricultural banking, financial analysis and debt analysis/placement. She was the founder of AgriAuthority, a consulting company focused on the financial side of agriculture. Now, Ashley is the Director of Real Estate Lending for Ag Resource Management. She also teaches banking and financial concepts and works as a public speaker with appearances at various seminars and conferences. NextGen Business Insight aims to offer valuable business insights for young farmers.

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