A lender recently shared with me the true story of a struggling producer. Unfortunately, this producer made matters worse by passionately saying something of the like to his lender, “I do not want to hear about cutting family living expenses! This is my family and my business.” In reply, all I could say was, “Wow!” This producer needs to get serious and truly appreciate how much family living expenses can impact the profitability of a farm business.
Recently, I had the privilege of sharing two programs with the good folks of the Nebraska Farm Business, Inc. I enjoy a long-time relationship with this group and continue to utilize their valuable data in many of my schools and seminars. In light of this producer’s comment, I believe the Nebraska data on family living can be extremely helpful.
This Nebraska group presented some compelling numbers at recent educational conferences around the state. According to their data, the average family living cost for Nebraska farmers in their program was $96,000. An additional $48,000 was attributed to taxes, income and Social Security. Let’s take a closer look at these numbers. The average family living cost per bushel of corn was approximately 76¢. For those producers who grew soybeans, family living expense per bushel was $2.28. When the price of a bushel of corn was in the $6-8 range, these living expenses could be absorbed. However, with today’s commodity prices, living cost and taxes must be acknowledged as significant players in successfully reducing costs.
Granted, income taxes may be less today than in the past, but maybe not. Some producers utilized deferred tax strategies such as, prepaying expenses, as a way to minimize taxes. In years where cash flow and liquidity may be tight, strategies such a prepaying expenses are really not an option. Unfortunately, this type of approach may leave the business exposed and vulnerable to a higher tax bill at the worst possible time. Especially if this sounds familiar, prioritizing and pruning living cost is a good option.
In summary, this economic reset will dictate at least some amount of reduction in costs in order to remain sustainable. The numbers tell us that family living cost and taxes are two areas in which to capture significant savings. Stay open to change and be proactive!
Family living cost tips
- Get a personal family living budget. I suggest utilizing the farm record-keeping systems in many states, as a good resource for sample budgets. A budget allows you to itemize expenses which is critical to reducing cost and covering obligations.
- Develop a monthly budget. Monthly budgets are detailed and require more frequent monitoring than quarterly or annual budgets. When developing your budget, remember to add in an additional 25 percent for unexpected expenses such as repairs or emergencies.
- Make family make it a family affair. In the budget process, it is important to include your spouse, children and even parents, if they are part of family cost. Communication is key and all those involved need to have some understanding of the urgency and importance in reducing family living cost.
P.S. From town hall meetings with farmers and small business owners, it seems increased health care costs are significant expense items in family living budgets. We will examine this and other impacting issues soon!