The benefits of financial modelling for your farm

As a Canadian farmer, your annual cycle may look like this:

• Harvest between August and October
• Fiscal year-end at the end of December
• Receive your financial statements in early April.

You want to use your financial statements to make strategic, fact-based decisions. But that can be challenging when there’s a months-long time gap between when the fields are cleared and when you know your financial results. You are often well into next years planning cycle before your statements are finalized.

Profit 360 is a shift in mindset for the planning cycle of your farm business. It uses the best available data at the time to develop a forecasted income projection for your year ahead. Profit 360’s financial modelling solution highlights your financial realities in real-time and allows for a more informed approach as you build projections for your future revenue, profits, and costs.

As seasons change throughout the year you can update your expectations and capture key moments that impact your projections such as acre changes, weather, capital purchases, harvest yields and interest rate hikes. Rather than always waiting for actual financial results, you utilize quick projections in a format similar to your financial statement, giving you information sooner so you can make faster and better decisions than your peers.

When financial modelling and forecasting comes in handy

Whether you realize it or not, you’re constantly making decisions that impact your big picture. These could include:

• Which crops to plant
• When and how to upgrade your equipment
• When and how to transition ownership of the farm to the next generation
• Whether to expand and purchase more land
• When to take on debt, how much, and what kind

Most financial data relies on past information to be perfect and concrete, but Profit 360 is all about looking toward the future. Even before your financial statements arrive, you can access the best information to confidently plan for multiple possible scenarios.

What success looks like in the field

A farming client in Southern Alberta grows a variety of crops on a vast number of acres. Their journey with Profit 360 included a review of their target crop plan and a ranking of their crop types from most to least profitable, based on gross margin.

Formerly, decisions about which type of crop to get contracts for were based primarily on gut feeling or non-financial factors. When they saw which crop had the lowest gross margin, they replaced it with what is now their most profitable crop. Although the new crop only covers 13 percent of their total acres, this change increased their debt service ratio from 0.96 to 1.30.

Another client near Lethbridge, Alberta faces constant evolution and volatility — no two years are the same. Before Profit 360, they were forced to make decisions in the fall without the benefit of financial data or statements to back them up. These included irrigation development, land purchases, and tactics for reducing risk.

Now that they use a more sophisticated post-harvest analysis, the client has real-time updates on what to expect for net earnings at year-end (based on the initial harvest results). They’re more confident in predicting what their financial statements will look like long before those statements arrive.

The post-harvest data allowed the client to confidently make decisions in the fall, including putting out offers to purchase new land. They have more support and trust from their lenders as they expand. And when the client’s financial statements did arrive, the post-harvest projections turned out to be accurate within $35 on net earnings of $500,000.

How to get started with Profit 360

There’s no wrong time to initiate the process; but starting with a post harvest snapshot is the best time to begin documenting key information that will inform your post-harvest decisions. Getting started with Profit 360 is seamless, with ample support from our advisors on how to take full advantage of the solution for your farm.

They will sit down with you to forecast your profit for the upcoming year. You will continue with the usual business of farming, providing updates periodically throughout the year to create a working model of your farm finances. As planning season gets closer to spring you will include more detailed acre and cost projections and may add in some risk management analysis to your discussions. The longer you stick with Profit 360, the stronger and more accurate the model becomes.

Backed by your financial projections, you have the agility and confidence to know you are acting in your farm’s best interest. Moreover, as you continue to provide sound projections showing your revenue, operating costs, and profit targets, you will gain credibility with your bank and other lenders as you negotiate with them.

Contact us

For more information on Profit 360, contact Peter Manness at [email protected] or Cale Rasmussen at [email protected].