Data, Dollars and Decisions: Turning Financial Data into Confident Farm Decisions

Today’s farm businesses have access to more data than ever. The challenge is turning that information into better business decisions.

Dairy farms can track the hourly activity of their cows. Grain producers can monitor crop yields continuously during harvest. Specialty crop growers can track their labor productivity by the hour. All businesses can collect and track financial data closer to ‘real time’ than ever. But what do you do with all of this data?

Turning Data into Decisions

Collecting data and knowing how to use it effectively in making informed decisions are two different skills that every successful farm business needs. This is especially true when it comes to financial data. There is a difference between knowing if your business is profitable and knowing if it is profitable enough for a planned expansion. Successful managers go beyond knowing whether the business is profitable. They use production and financial data to evaluate opportunities, prepare for change and make informed decisions about the future.

Partial Budgeting

A tool that many of our Business Consultants use when working with clients who are considering various business changes is the partial budget. The partial budget is a tool that isolates marginal business changes of a proposed investment or change in practices by considering these questions:

• What additional income could the change generate?
• What expenses could it reduce?
• What income could be lost?
• What new expenses could it create?

The investment’s positive financial changes (increased income and/or reduced expenses) are identified and quantified. Then the negative financial changes (decreased income and/or increased expenses) are identified and quantified. The two sides of the analysis are then combined to determine the overall impact on the business. The result of this analysis helps determine if the proposed change(s) will result in an overall positive or negative financial impact on the business.

For example, a producer considering new equipment could use a partial budget to compare potential labor savings and increased production capacity against impacts to interest and operating costs.

One of the keys to a successful partial budget analysis is good starting data. Complete, accurate financial records will enable the manager to effectively use a partial budget and similar tools to make informed decisions in their business.

Develop Your Financial Skills Through GenerationNext

The modern farm business manager will need to know how to use tools like a partial budget to evaluate the data at their disposal to make sound decisions on a daily basis. If you are ready to build your business skills, including how to understand and use your financial data effectively, plan to attend an upcoming GenerationNext course. GenerationNext can help you turn data into dollars and decisions that strengthen your business for the future. Sign up today!

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