The last two columns on this topic addressed the teachable moments in the last 18 months. We have drawn from some football analogies for a parallel universe to agriculture. Now let’s examine some more lessons beyond liquidity and risk management.
In the last column we stated that one needs to work from a good set of records. Records are your game results and partial scouting report for developing a game plan or projections. One of the most useful tools in financial volatility is budget variance analysis. That is, comparing projected income and expenses to actual results. Depending upon your enterprise, you could review budget variances monthly, quarterly or annually; however, some intense seasonal businesses analyze results daily or weekly.
A useful management tip is to compare year-over-year results to discover similarities or variances. This trend analysis is useful in tracking successes, determining what is making you money and managing expenses. Financial computer software and spreadsheets help many businesses easily conduct enterprise analysis to determine which economic player is making or losing you money in the business. This is so critical in evaluating shifts to be made in game plan schematics.
As you explore your variance analysis, determine which deviations were due to macroeconomic events and which were micro or management factors. Then determine whether deviations were preventable or should be continued if positive and identify strategies, execution plans, and who is responsible for each action.
Finally, always step back and look at the whole financial statement. Do not focus upon one factor or give one plan too much emphasis because the bottom line may not be impacted.
Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at email@example.com.