As you work with agricultural customers this winter, do you find yourself running multiple cash flow scenarios? Are some farms wanting to compare major changes to their operation with their current situation? Are farm customers
Why Long Range Planning?
Long range planning helps answer the “Where do I want to be?” question for farmers and ranchers. This tool allows for analysis of the current operation alongside other potential scenarios that are being considered by the farm or ranch. Each long-range scenario examines a typical year where the alternative is based on normal, average production and prices. The comparison of all scenarios in the plan will give producers the information needed to assess the best future path for their operation. Using long-range planning will help the farm or ranch determine which alternative best meets the future goals of their business and family.
Long Range Planning Tool (FINLRB)
FINPACK’s Long Range Planning tool (FINLRB) will compare the long-range profitability, debt repayment capacity, and potential net worth gain of the alternative scenarios within the plan. It allows comparing the financial strength of the current farming operation against alternative plans involving new enterprises; new resources; different sizes or combinations of current enterprises; changes in efficiency; or changes in debt structure. Scenarios are compared side by side, to help evaluate the relative strength and weakness of each. Continuing with the current operation is one alternative and is included as the base plan. This base plan is always the first alternative. Up to 15 alternative plans, plus the base plan, can be compared in one long range FINLRB plan.
What data is needed?
Long range planning is based on the typical year, so average production levels and realistic long term prices should be used for each alternative. Also, use consistent data between the alternatives of the plan. Don’t bias one alternative with an overly optimistic production level or overly pessimistic prices. Additionally, make sure the alternatives being considered allow for analysis of a single change. Don’t combine many changes into an alternative, without first considering the merit of each change alone. And remember, using FINPACK’s long-range planning tool (FINLRB) is a future best guess. Gather the best data possible, but don’t agonize over individual items.
A Long Range Plan requires a FINPACK Balance Sheet and Crop and Livestock Enterprise Budgets. Within the budgets, labor hours, livestock death loss, and long-range feed prices are additional data points needed, as compared to a monthly type of cash flow projection using budgets. (The FINPACK Knowledge Base has a Labor Hour Estimate resource if needed.)
Summary
Long Range Planning helps consider the long term profitability, liquidity, repayment capacity, and solvency of different potential alternatives for a farm or ranch operation. Use this FINPACK tool to evaluate the best path to meeting the operation’s long range goals.
Pauline Van Nurden is currently the Associate Director for the FINPACK Team. She has been with the team since 2017 as an Economist.
Prior to joining the FINPACK Team, she worked as a lender. This provides her valuable industry experience and knowledge in her work with FINPACK. Pauline holds a Master’s Degree in Agricultural Education and Bachelor’s Degree in Applied Economics, both from the University of Minnesota.