The saddle horn provides an anchor point of stability so you can stay in control as you guide your horse through rough terrain.
In the same way, financial analysis and knowing your production costs can be anchor points. They provide the perspective and control you need to properly guide your business through tough times.
When the country is gentle you can get by riding with a loose cinch and slack rein. But when the country gets really rough, you had better tighten your cinch, gather your reins and grab the horn. If you don’t, who knows where you’ll end up. You might not even be on the horse.
It’s the same way with your ranch. When the markets are good and the weather favorable you can run things with a little slack and not get hurt. But when times are worse, you had better be paying attention or you are going to get banged up.
The last couple of years have been very forgiving, but times have changed. It looks like we’re back to normal. Get ready for some tough times.
Some of your ranches are like well-broke horses. When the going gets tough don’t make stupid mistakes, hang on tight and they will get you through.
Other ranches are like green colts. You had better be directing their every move or they will get you both killed.
Financial analysis is how you know the difference.
You may have been able to get by using your records to figure your taxes and satisfy your banker. But now you are going to have to use them to guide your decisions.
It’s time to dust off those balance sheets, cash flows, and income statements. How are your liquidity, solvency, and profitability? What are the trends?
You need to know your costs inside and out. Which costs need covered every year? Which can I defer a couple of years but eventually need to catch up? Are there any I can simply forgo?
Need help? Nebraska Extension Financial Literacy, Quicken Record Keeping, and Unit Cost of Production workshops are a great place to start. Watch for information from your local Nebraska Extension Office for workshops in your area.
Jay Jenkins, Nebraska Extension Educator
University of Nebraska–Lincoln