Recently I stopped in Louisville, KY, to conduct an agrilending workshop with my academic peers from Tennessee and Kentucky. They shared a piece about family living cost from Clark Garland at the department of agricultural economics, University of Tennessee.
In many cases, family living cost or projections are the least reliable figure reported in cash flow statements. This has been particularly true in recent years with high commodity prices and the use of credit cards.
Family living expense is similar to concrete in the following ways:
- There is no firm, established family living cost estimate in general, just like each concrete pour or fill is different. Each family is unique so it is highly unreliable to assume a reasonable figure.
- Estimating family living expense is like estimating the amount of concrete needed for a job. If no good previous figure is available, you can try to estimate double the amount needed and still run short.
- After sand and gravel are mixed in concrete, it is difficult to separate them out. Similarly, it is difficult to separate business and family living expenses if monies move back and forth between accounts.
- Finishing concrete requires hard work. Likewise, effort and accurate records are needed to adequately estimate and manage family living expenses.
- Concrete sets up just like family living expenses become a fixed cost. Usually family living expenses grow by the amount a producer grosses rather than by profit or net income.
Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at [email protected]