It’s no secret that your operation’s breakeven point is a vital measure when considering your marketing plan, potential investments and your annual budget. However, many producers calculate their breakeven once a year when they are planning and never revisit that original number.
Don’t assess breakeven just once a year. As the season progresses and markets and weather shift, it’s good business practice to recalculate your breakeven at least once a month. With that additional knowledge, problems can be identified early and addressed quickly.
Current numbers mean a better plan
At Farm Credit Mid-America, we ask customers to share three documents with us: a balance sheet, a cash flow statement and their breakeven point. These elements of business financial planning give us the tools and information we need to help them effectively manage their operations. For instance, if market prices put the farm at a loss, we can easily assess if there is enough working capital on the books to cushion the loss. If working capital is thin, we can suggest other ways to help maintain sufficient cash flow.
Adjusting your breakeven follows the same logic. By identifying how seasonal factors impact your breakeven, you and your financial team can better predict your operation’s needs.
We encourage our customers to look into a few “what if” scenarios. It’s not pleasant to think about, but it’s important to know how your operation would fare if your revenue is 10% below your breakeven. Understanding this possibility can shed light on adjustments you may want to make to ensure profitability. We also ask customers to think about what they will do if revenues are 10% above breakeven. Both these measures can be eye-opening when it comes to how you operate your farm. However, if your breakeven calculation isn’t up to date, it can render the exercise moot.
Calculating your breakeven frequently throughout the year will go a long way toward ensuring your operation’s profitability. Reach out to your lender or financial advisor for advice specific to your business.
Adjusting your breakeven follows the same logic. By identifying how seasonal factors impact your breakeven, you and your financial team can better predict your operation’s needs.
We encourage our customers to look into a few “what if” scenarios. It’s not pleasant to think about, but it’s important to know how your operation would fare if your revenue is 10% below your breakeven. Understanding this possibility can shed light on adjustments you may want to make to ensure profitability. We also ask customers to think about what they will do if revenues are 10% above breakeven. Both these measures can be eye-opening when it comes to how you operate your farm. However, if your breakeven calculation isn’t up to date, it can render the exercise moot.
Calculating your breakeven frequently throughout the year will go a long way toward ensuring your operation’s profitability. Reach out to your lender or financial advisor for advice specific to your business.
