Complex considerations, such as when it makes more sense to pay or defer self-employment tax and when to make equipment purchases call for a holistic approach to planning. You utilize precision farming methods to grow you crops, so why not take a similar approach to managing your farm operation on a day-to-day basis. Every decision matters.
Like anything else in production agriculture, it’s not a one-size-fits-all approach in terms of your operation or the variables in play.
It’s a balancing act. You can’t just be looking at dollars. It’s a matter of five dimensions, much of which you can manage.
- Outlays (inputs, interest, payments, taxes)
- Tax policy
You have limited control over the prices you pay for inputs and the price you receive for what you produce. But you can control the timing of your purchases and sales, you can use risk-management tools, and most importantly, you can utilize the data on your own farm.
Putting it All Together
Alan Grafton heads up the AgKnowledge division of K•Coe Isom. He emphasizes yield maximization for clients, even in years with lower prices. But here again, it’s not a blanket policy.
“It’s not always a matter of minimizing costs. You have to look at both sides of the profit equation,” he says. “It might make sense to go ahead and spend the money on more trips across the field to maximize profits by boosting yields and revenue.”
When you work with your farm manager (if you have one), your consultant and your other advisors, including tax planner, your team can help you determine, from a 360-degree point of view, what makes the most sense for your farm or ranch.
Alan Grafton says capturing and analyzing the right data plays a huge, positive role in this kind of farm management. When you have a farm management expert in your court, that professional can help forecast and determine the best strategies given various price, weather and input cost scenarios.
“No one has a crystal ball. We’re not fortune tellers, and we don’t try to be,” Alan says. “But what we can do is take the data and create scenarios and strategies that we can test ‘in the laboratory,’ so to speak. We equip producers with the information they need to react quickly to potential outcomes.”
In the past, farm management strategies were based on data collected at a national, state, or county level. What Alan and his team have learned over the years is that the best information is based on data pulled exclusively from your individual farm.
“The first step is sitting down and looking at five pieces of the overall picture that we call a K•Coe Ag Score,” Alan says. These five areas are:
- Financial performance
- Farm management best practices
- Land resource optimization
- Enterprise‐level management
“It involves some effort to get all the information together, and there is always a temptation to look at what everyone else is doing,” Alan says. “But the effort pays off when you have information–knowledge–in front of you that helps you make better operational decisions.”
(Source – http://www.kcoe.com/proper-farm-management-requires-planning-good-advice/#sthash.MP86VlWa.dpuf)