6 Steps to Strategic Financial Management

1. Cash Flow Statements

To ensure the financial stability of your farming operation, it’s crucial to create and regularly update cash flow statements. This should be done annually, with monthly or quarterly updates tailored to your operation’s cash flow needs.

A cash flow projection provides a comprehensive view of the funds flowing in and out of your farm on a monthly, quarterly and yearly basis. By estimating when cash expenses and income occur, you can anticipate potential shortfalls and plan ahead to cover them. This proactive approach enables you to make informed decisions, such as when to sell grain or invest in equipment, leading to a more stable business model. 

3. Marketing Plans

Develop an annual marketing plan to help navigate the complexities of grain sales effectively. With a plethora of information available through technology and various channels, having a written plan is crucial for staying focused on your goals. Set clear targets, establish a timeline for selling percentage of your grain and determine trigger points for selling at target prices. Consider factors like interest expenses and storage costs when making marketing decisions to ensure a profitable outcome.

 4. Capital Purchase Plan 

Given the rising costs and scarcity of suitable equipment, having a clear roadmap helps your stay focused on your goals. While farm profitability may impact the plan, having a strategic vision aids in making well-informed decisions about buying and selling equipment. Update your capital purchase plan annually, outlining equipment needs for the next 1-5 years. 

 5. Year End Balance Sheet

Annually, preferably at year-end, create a detailed balance sheet that provides a snapshot of your financial standing. Accuracy and detail are crucial, including valuing grain close to market value and updating equipment values. The balance sheet serves as the foundation for completing accrual earnings, providing a more accurate measure of profitability compared to tax earnings.  Monitoring changes in working capital from year-over-year aids in decision making for equipment and land purchases, interest expense management, strategic grain selling and maximizing buying power.

 6. Record Acres, Crops and Yields 

After each harvest, record acres, crops and yields. This data becomes a powerful tool for tracking financial and agronomic progress, understanding profitability variations and evaluating per-acre profitability. Regular documentation guides future plans to align with your financial and operational goals.