Is your farm expense spending out of control?
I am about half finished with the yearend FINPACK Analysis of the farms enrolled in the South Dakota Farm/Ranch Management Educational Program at Mitchell Tech that I work with. What have I seen so far? The cash expenses have increased dramatically over the past few years. The farming/ranching community has prided itself in the late 1990’s through the middle 2000 years. We have had to be efficient with our dollars to survive in those economic times. The last few years it appears that we are looking at the income tax liability as the main driving force in our spending. Don’t get me wrong, as we have had some better times the last few years. Yes, I know that farm input expenses are going up, but does that mean we can go hog wild in our cash operating expense spending?
We need to look at ways to take advantage of the economic savings that your suppliers offer. Many of our suppliers have open houses and offer early order discounts, volume discounts, and cash discounts. Run the numbers and compare the interest rates of borrowed money to the percentage of the discounts on your supplies. A 5% discount on a crop input that you pay for and use in 6 months equals a 10% savings for the year. How would you like to save 10% on all of your crop or livestock inputs for the year? You can accomplish that if you plan ahead and purchase your crop and livestock inputs by taking advantage of the discounts offered.
The interest rates charged for not paying a monthly bill on time may look small, and 1 1/2 percent per month interest rates may seem very small, but that is 18% interest rate per year. You all can go to the bank of your choice and set up a line of credit for 7% or less. That 11% difference on $100,000 line of credit is a savings of $11,000 per year. You can use your interest rate difference and the average dollars of borrowed money and calculate your savings.
These are some of the issues that we discuss with our farm/ranch families that enroll in the South Dakota Center for Farm/Ranch Management administrated at Mitchell Technical Institute. You may contact us at 1-800-684-1969 or go to http://www.mitchelltech.edu/sdcfrm for more details. We now have instructors who work with farm/ranch families throughout 90% of South Dakota.