The end of the year is a smart time to prepare your farm business for the coming year. Crops have been harvested and stored. You’re wrapping up this year’s obligations. Cold, snow or rain may keep you indoors where there’s plenty to do. Take advantage of the coming weeks to work on the following recommendations:
- Take stock of your assets.
This is a good time to document what you have at your ranch or dairy. Write down your livestock numbers and feed amounts and what they’re worth. Make note of your crops, land and equipment and whether their value has increased or decreased. In addition, track your year’s progress as well as your marketing plan for the coming year. K·Coe advises ag business owners to assess personal holdings, including home, certificates of deposit and retirement accounts. All this helps tell you what progress you’ve made over the last year..
- Understand your cash position at year’s end.
Know how much cash you have in the bank as well as the amounts of your loan balances. This will tell you how much income, at minimum, you’ll need to generate over the next year to meet those obligations.
- Don’t make poor farm business decisions now just to get tax benefits later.
“You might be tempted to buy a piece of equipment you really don’t need just to get a tax deduction,” says Dusty Marquardt, a CPA and manager for K·Coe Isom. “Or you decide to lock in a high price for feed, even though a market drop could leave you with an over-valued purchase.”
Avoid paying cash for expenses you won’t be able to deduct from your taxes. Tax law allows you to prepay only up to 50 percent of expenses. So, if you expect to spend $100,000 on feed in the coming year, be aware you can only prepay $50,000.
Moreover, you don’t want to end up with new equipment, supplies and other purchases only to see next year’s income dip below expectations. The bottom line? Make sure your financial decisions make good business sense.
- If you’re looking to defer income until next year, use multiple payment contracts for more flexibility.
Maybe you and your buyer have set the price and delivery date for your commodity or cattle. Don’t lock in your sale with one big deferred-payment contract with that one buyer, Marquardt advises. Instead, set up several smaller agreements for more flexibility in reporting the amount of income you’re deferring.
For example, rather than defer $1 million in cattle revenues in one account, you could create 10 contracts of $100,000 with that same buyer.
- Reconnect with your professional advisors.
Talk with your financial consultant, accountant, lender, insurance agent and investment advisor. Are your accounts, policies and tax strategies adequate and up to date?
Your insurance agent, for instance, can tell you whether you need to increase your deductible for your health insurance coverage or whether you should consider a policy for long-term care.
Schedule an appointment with a land appraiser to help you decide whether you should be a buyer or seller.
It might also be a good time to review your business’s technology needs with a computer expert, not only to make sure you haven’t fallen behind but to boost your office and operational efficiencies. Consider updating your website or social media page – or creating one if you don’t already have an online presence.
- Review your employee status quo.
Are compensation and benefits where they should be? Do you have the right mix of personnel? Are you over- or under-staffed? Are your employees receiving adequate training?
Take the time to personally thank your employees. A personal word of appreciation can go a long way toward inspiring your staff for next year’s performance.
- Plan your goals for next year.
Decide what you want your business to achieve. Do you plan to increase production? Increase your herd size? Change your crop mix? Leave money in your business or take it out? What’s working and what’s not?
This isn’t like a New Year’s resolution. It’s a way to monitor your wealth and performance, to look at where you are and what you need to be doing.” Set a timeline for your strategic steps to help keep you on course.
- Don’t forget your personal side.
KCoe advises business owners to set new personal development strategies. Read nonfiction books on personal growth and leadership skills. Plan to attend an industry conference. Join a worthwhile organization. In addition, schedule time for regular exercise and recreation. Your business will benefit from the care you give yourself.
K·Coe Isom’s agribusiness consultants and tax advisors would be happy to help you evaluate and prep your farm business for a more stable, productive 2019.