Plan Now for a More Profitable 2023
Source: Noble Research Institute
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f you’ve been waiting for a sign it’s time to deal with the shoebox of receipts piled in the corner of your office or shop or on the kitchen table … this is it. Dan Childs and Jason Bradley, two agriculture economic consultants at the Noble Research Institute, say that to end your financial year well, most of the work should already be done. “Don’t wait until the end the year to cram it all in,” Bradley says. To make the most of your end-of-year tax consultation meeting, be prepared with updated income/expense records, then use this final month of the year to reflect, recalibrate and look toward a more regenerative future on your farm or ranch. These three financial statements are the building blocks for successful financial strategies.
1. REVIEW YOUR PROFIT AND LOSS STATEMENT; MANAGE FOR TAXABLE INCOME
reports in December and prepare to have a thoughtful conversation with your accountant concerning any additional expenses or income you anticipate in the financial year. Evaluate your taxable income so far, and make a plan to adjust accordingly. Your profit/loss statement, also known as an income statement or statement of earnings, tracks basic revenue and expenses over a specific time period, typically a fiscal year. If you’re a new producer or are in the process of transitioning your operation toward a more regenerative model, make an honest evaluation of what kinds of tax implications those changes might have. Are you shifting a calving season to sync more closely with resource needs? Moving from a year-round herd to custom grazing? Need to purchase a no-till drill? Now is the time to identify those production goals and changes and decide how they will impact your income and cash flow. Do you need to stock up on cover crop seed now? Sell old drills to release capital for reallocation to new equipment? Only a tax professional can offer the kind of legal guidance you might need in these decisions. Remember, tax codes may change from year to year, so be sure your decisions are in line with the most current requirements.
2. REVIEW NET WORTH STATEMENTS; SET OPERATIONAL GOALS FOR THE FUTURE Tracking profit and loss is the baseline for
Take stock of your income and expense
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Keep After It, Little By Little
f your tendency is to let receipts and statements stack up until the end of the year, make 2023 the year you ask for help to start a new habit. Set a goal to update your income and expense report at least on a monthly basis; aim to review operational goals quarterly or every six months. Write down your marketing plan each year, but be prepared to adjust as reality unfolds. If tracking and recording all this feels daunting, consider asking your accountant, banker or trusted adviser to set short, intermittent meetings throughout the year for check-ins. “Having that meeting set where you know you need to have all your information ready, even just for the first few months, might be enough to get your feet under you and get you in the habit of tracking the data,” Bradley says. “It gets easier if you just keep at it.” He likens it to simple household chores. “We all know that if we load the dishwasher after every meal, or wash a few dishes every day, it’s way easier than waiting until the end of the week and facing that big mountain in a full sink. That’s when it feels overwhelming, and you just want to walk away,” Bradley says. Find ways to make record-keeping a small habit so it doesn’t become a big burden at the end of the year. Many accounting systems now come with apps or cloud-based sharing software, so your records are accessible on your smart phone. If that’s the case, use small pockets of time – waiting for the feed truck to warm up, sitting in a drive-through line or in a medical waiting room, for instance – when you might otherwise scroll through social media or respond to texts. Instead, use it as a small window to categorize expenses on your mobile Quicken or QuickBooks app. When you’re in the office, start small and set a specific time – say, five minutes before you eat lunch. Or set a goal to enter three to five data points while the first pot of coffee brews each morning. These little bits of time add up if you keep at them consistently, and the small bits of data will add up to paint a powerful picture of your ranch’s financial fitness.
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