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NextGen Business Insights

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

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

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.

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.

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. 
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