The hidden costs: Why tracking expenses builds profitability
Tracking expenses across each product line in your farm operation can help build your profits.
“When farmers take the time to track expenses separately by income-generating activity of their operation – whether it’s crops, livestock or custom work – they start to see which areas are really pulling their weight and which ones might be draining resources,” says Steven Tippe, senior product owner with FCC AgExpert.
Treating each piece of an operation like its own business can help farmers make smarter decisions.
Treating each piece of an operation like its own business can help farmers make smarter decisions about where to reinvest or seek greater efficiencies. It also provides lenders and partners with greater confidence in a farm’s direction.
“We call these distinct operations on the farm ‘enterprises,’” Tippe says, and these enterprises provide an additional level of income and expense categorization.
“It’s not just a fuel expense, but it’s a fuel expense that’s split at a user-defined percentage to specific enterprises,” Tippe says. “This additional level of income and expense categorization makes it possible to then generate a report that will allow the user to compare their income and expense entries across various enterprises rather than just at the whole farm level.”
Risk versus reward
Using AgExpert’s account enterprise tracking, producers can record income and expenses separately for each enterprise.
With that data, they’re able to determine if, for example, that second application of nitrogen fertilizer their agronomist suggested midseason to boost yield potential will pay off.
“Most operators understand if an enterprise is generally profitable, but when margins are tight, having that more detailed view of the overall operation helps them determine likely level of risk versus reward when it comes to spending money to make money.”
Regular reviews and adjustments
Income and expense are typically reviewed on a quarterly basis, according to Tippe, “and that cadence fits in nicely with tax reporting and regulatory cycles.”
But when cash flow or margins are tight or variable, users may wish to switch to a monthly review to identify opportunities and adjust plans, if necessary.
“This kind of detailed data is also an important tool when it comes to budget planning and cash flow forecasting,” he says. “Planning is an important annual process, but it’s rarely a once and done process.”
Reviewing plans before seasonal activities, such as planting or harvest, allows for tweaks if necessary.
Plans should also be reviewed any time major changes occur, such as environmental impacts, regulatory changes and market fluctuations, either on inputs or commodity sales, Tippe advises.
Ready to start tracking?
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