Farm Budgets: Growing Your Farm into a Business (2024)
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EmailFebruary 28, 2024
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How do you define your farm business? Is your definition different than what the IRS uses? How important is a business mindset and farm profits to your opportunities for growth and success? Join us as we discuss how attention to details and effective planning can help your farm continue its growth into a successful business.
The 2024 MI Ag Ideas to Grow With conference was held virtually, February 19-March 1, 2024. This two-week program encompasses many aspects of the agricultural industry and offers a full array of educational sessions for farmers and homeowners interested in food production and other agricultural endeavors. While there is no cost to participate, attendees must register to receive the necessary zoom links. Registrants can attend as many sessions as they would like and are also able to jump around between tracks. RUP and CCA credits will be offered for several of the sessions. More information can be found at: https://www.canr.msu.edu/miagideas/
Video Transcript
Today we're going to talk about farm budgets and more specifically, about growing your farm into a business. I want to highlight for everyone that as we go along, really, we've got a number of different topics we're going to try to cover starting off with what is a farm business? And we'll look at some different examples of that. Talk about some particulars, these questions that come up for people when we look at starting a business related to tax ID numbers, exemptions, business structures. And then I'll touch a little bit on business planning. I mentioned in the title that this is related to farm budget, so we'll talk about how farm budgets fit into this whole premise here as we go along. And then we'll also explore a little bit about finding cost of production and thinking about different perspectives on what that may look like depending on how you're looking at your information. Then we'll wrap up with talking about how details are really a must for success in a business filed. Lastly, by looking over just a couple resources from MSU extension. So when we think about what is a business, I think one of the most obvious places that people usually go to, because we have to worry about filing taxes, is what is the IRS? Think IRS has a definition that they actually list in the Farmers Tax Guide. The addition I've got on the screen is a couple years old, but they release this new every year, give you the latest information for farms. They actually list in the document that a farm is a business if it cultivates, operates, and manages for profit. That for profit aspect is really important when we think about what the idea of a business is trying to do and it is trying to make money, the IRS actually expands on that a little bit more by talking about this presumption of profit. The IRS will actually look at your tax return information and try to see if the farm produces a profit within the first three out of five years. If you do, if that is the case, then by the IRS definition you are a business, not a hobby farm. Now, depending on the operation you're in, the that the profit years out of the last five may be a little challenging, especially if you're in a start up situation. The IRS will actually extend that time period to look at really can you produce profit in two out of the last seven years, but the whole time, the key is this last point here of being able to carry on activities that you would do if you were seeking a profit. This idea of seeking profit and activities is a big focal point that they look at. But it's nice to know though that as you're starting out, especially as there are challenges you're going to run into, especially if they're out of your control. Or if there are situations that in some cases it just takes a number of years to get to a productive level where you can actually make money. We see this actually quite often in our fruit industry, depending on what kind of fruit crops you're growing. But I want to circle back to this carrying on activities to seek profit, because really there's this question of, okay, how does the IRS decide your farm is seeking profit? That's a pretty loaded question, really. On seeking profit, they'll consider a number of things. The first thing they're going to look at is the methods of operation, which is really how you operate. Are you operating in a business like manner? And that's a really key phrase, What is your day to day activity Like, are you going out, attending to your fields, or to your livestock? Any of those production aspects on a routine basis? Or are you just doing it as you feel or you think about it? Some of that repetition, that attention to detail in terms of the production aspect really becomes important. They're going to look at those business losses and alluded to this a little bit ago that if you had any losses, what are those from? Was it because of things you couldn't control like the weather, or is it just normal start up costs? For example, I mentioned fruit. If you're growing new produce, for example blueberries or grapes, and those are newly established, there's going to take a couple of years to get those two maturity level. You're going to get some production off of those. That's understood. That's where maybe you might find yourself in that two or two out of seven years for profit situation. And they look at those kind of cases. Then they also look at what's the expectation on profits in the future. Are your assets going to appreciate? In the example of those fruit crops you plant them, They're going to get more valuable as they mature and start producing an actual crop to harvest that you can make money with. They'll look at those situations and say, is there potential sitting there to make money? The other thing they'll look at is really profit motives. That gets back to the time, the effort spent on farming. Are you operating such a way that's really intentional towards trying to create a profit? The other side of it is, are you dependent on that farm income for your family living to help cover some of those household costs that get generated on a yearly basis. Then the other thing that actually can get looked at is do you change those methods of operation we talked about on the previous slide. Over time to try to improve profitability, you learn something new about production practices. Maybe look at cases where you change your marketing strategy to try to capture more profit, and they'll actually consider some of those. They'll also look at historical performance if you have that. In some cases, you might be a farm that actually is transitioning into a new enterprise, or maybe you relocated. We've had some people that we've worked with that have actually moved into Michigan from other states. If you've gotten past farming experience, they're going to look back at that and say, was that successful, what you were doing before? Using similar methods, even if you use the extreme example of, well, I was raising livestock, now I'm raising crops or vice versa. There's some similar thoughts and approaches that you take to farming that they would still be able to look at and say, okay, yeah, this trans, they were successful, we can expect success going forward. And yeah, this still categorizes as a business based on those things. Especially if you've had profit in some of those years, they will actually look at the amount of profit. It's more than just a couple of dollar. Is it significant profit that you see in a year? The other thing that they'll also look at is do you or your advisors that you're working with, whether it be nutritionists, agronomists, it could be people like myself. An extension could be your lender, your bank, something you do marketing with. Does that combination of people have necessarily knowledge to be successful? And I'll be very honest with you when a question we get asked about this is, okay, how does the IRS come look at this stuff? Because in most cases, you file your taxes and you don't really run into a lot of questions. Well, what happens is occasionally people get audited. And when they audit farms, especially if there's a question of profitability in those first three to five or two to seven years, that can trigger an audit where they'll come in and look and say, okay, we want to investigate this because we've been treating you as a business, are you a business? And that's generally the process of how that happens. So you try to do these things and make sure you're documenting some of this information to be able to highlight that just in case you get audited. We hope nobody ever actually does audits are never a fund process in any realm, but that's something to kind of keep in mind that these are the things to look for if that's a situation that comes up. Now, we talked about the IRS standpoint of this. An important question, if you're starting out a business or thinking about it, is, does it need to become a business? This is a really important question, because not every farm has to be a business. It can be a hobby farm. It can be something for enjoyment. That decision ultimately rests with you as the farm owner. There's a couple of questions that I think you can ask yourself to help decide which makes sense to you starting out. The first one is, does tracking expenses or those for profit activities that you have to do take away from your enjoyment of the farm? There's a lot of cases where people get into farming because they love the outdoors, they love raising things, they really love the lifestyle that's associated with farming. Having to do these extra things to be categorized as a business and take advantage of the benefits that will go over in just a few moments. Does that really take away from that enjoyment? In that case you get in this question of, is farming more for recreation or is it also maybe for added family income? It can be a hobby and something you enjoy and put money into and not have to be a business. But if you're dependent on covering some of that family living, then that's a question might want to ask about, maybe getting into the business style. It's just something to note that if you do have any sales, even hobby farms still have to report that income to the IRS. Even if they only sold to your next door neighbors or to family members, you still need to report that income to the IRS. I mentioned benefits. There are actually some benefits to being in a business. The first one is really tax deductions. When you have capital assets you bought, whether it's a truck, a tractor, it could be packaging supplies. Any materials that you buy, you can actually, if it's a capital asset that you're using, you can what they call, depreciate that and treat it as an expense. Because your farm expenses will actually reduce or offset the taxable income that you would have reported on your tax return. That's a huge benefit to being in a business because if you're in a hobby farm, you don't get to count any of those expenses. Especially in those capital assets, those big purchases like a, or a truck or something like that. The other thing, and we often get questions about this, is there is a sales tax exemption. And if you're a business, you don't have to pay a sales tax at any of the inputs you buy. In fact, a lot of cases, some of those capital assets I was just referring to, you don't pay any sales tax on those either. There's some advantages there. From a cost savings in that standpoint. It does require that you fill out a certain form, and I've got that list here on the screen, A Form 33, 72. It's a State of Michigan form. You can actually get that right from their website. It's something that you would actually turn into the retailers that you're working with and buying those products with. In fact, some cases you go to those retailers. Maybe it's a tractor supply company or a rule king. If you're in the southwestern part of the state, we've got a few of those around. Those places may actually have their own version of that to turn into the state that they'd have you fill out. So they keep it on record at the store to know that when you're in there that you're buying things that are going to be tax exempt. Another important thing that people often ask us about is these employee identification numbers or these EIN numbers we get asked a lot about, do you have to have one? There's a little bit of a misconception about whether or not it's really required for your business. It really depends on the business structure that you're going to be in. If you're in a corporation or a partnership, you have to have an EIN. It's actually used as your tax ID number when you're filing separate away from your personal income. If you're in those kind of business structures, you need to have one. Limited liability companies or LLC's are very popular for farms. They don't always have to have an EIN, but if you're in two specific cases, if there's going to be two or more members, or if you're going to be a single member LLC, but you're going to plan to hire employees, you do need to go get an EIN and we'll highlight a little bit why that is in another slide here. Now, if you're a sole proprietor, which is actually what most farmers are especially are small and beginning farmers, you don't need an I. You can operate under your own name because the income that you have from the farm and the expense you have can actually be farmed under your name. Now, you can create your own farm name. We actually have done that on our farm, and you can actually operate the farm under that name. But in terms of the actual tax ID and liability, you don't need to have an EIN because it's still going to go to your personal income and expense listing. As part of the tax filing, you still filed the proper paperwork as a farm would, but you don't have to have an EIN specifically if you're not in one of the other structures we just mentioned. Now, where can you get an EIN? There's really two easy ways to do it. You can actually go online to the IRS and apply for one right from the website. There's also a Form SS four that you can fill out and submit to the IRS and whoever you're working with as your tax accountant can actually assist you with doing that. Now as we think about business structures ran through a little bit of these. I want to highlight real quick for you though that sole proprietorship, just to make sure we're clear on definitions and terminology here, this is one person. You are the business. That's really easy to form because you're just going to go far, you're buying everything under your name. As I said, you can create a farm name, you can have a DBA where you doing business as name. But you're still, for all intents and purposes, you are the business and so you would file your taxes that way. Partnership is similar to that, sole proprietorship, but you can then have more than one person. And that's where the EIN becomes important because you've got two people sitting there very easy to form. You have to make sure you've got balanced books to keep track of who's got what in terms of what percentage of income and expense goes to what person. Very similar to a limited liability company, although an LLC operates, provides some additional protection that's similar to what you get from a corporation, but without the complexity that comes in the start up process. Because there's a lot of paperwork that when you get into corporations, a lot of things to consider when you're trying to start one of those, if you've got employees or those type of things, LLC, you do have a few other requirements like payroll that you've got to make sure you cover. And then when you start getting into government program payments, if you're looking at programs, we've been talking about the Farm Bill lately here a lot in the news. If you're looking at the PLC or our county programs, you can be limited on the amount of money you can receive from those payments. If you're part of an LLC, because they limit it by individual, an LLC can get capped in terms of payments. S Corporation C. Corporations are really complex, but they do offer some potential tax savings. I don't recommend them for most farm starting out. You have to really think about the reason for why you would want to go to a corporation if it makes business sense for you. A lot of cases, people are looking for additional liability protection. Usually, I recommend looking at an LLC to see if it would serve that purpose. Also, looking at your farm insurance and seeing what your liability coverage is there that meets the needs you're looking for without having to go through the complexity of a corporation. Because it is very difficult to exit out of a corporation. It's one of those things that they're not easy to get into and they're not easy to get out of, Think really hard and discuss a lot with the advisors. You have to decide whether or not that's a direction for you to go, whereas one of these other options are a little easier to work with and might be really good starting point as you go along. The next question is, when should the transition to the business really happen? That's going to depend on a number of factors. Number one, has your income reached a level that there are significant tax implications? If there are tax implications, then it might be to your advantage to look at forming or making the move into a business because then you get the advantage of the tax deductions or possibly even the sales tax exemption that can help as well. That's where you might want to think about, do those benefits make it a point where it really is beneficial. The other aspect of this is that the expenses have reached a level that the hobby is no longer affordable to just be a hobby. I have some friends of mine that started an apple orchard many years ago. They've gotten into making cider, and now they've gotten into having their own Es. We've talked about the different enterprises they've added in. They always describe it as well. These are our hobbies that got out of hand. We had to go to the business route because they just got too out of hand for us. The expenses got too much, so we had to go to the business route. As they talk about the next business venture, they often joke about, well, this is the next hobby that's going to get out of hand for us. That's a very real situation for a lot of people and that can be a good reason to think about going to that business style because that hobby has progressed to a point where it just naturally needs to go there if you're going to keep doing it to make it affordable for you. And then we don't want to discount personal choice and desire because maybe your desire is to be in a farm business and you actually want to go that direction. Certainly don't want to dismiss that as a very important reason when you should be able to make that transition. There's no reason why you couldn't start today if you wanted to, if that's what you really want to do. Now, outside of these reasons, the next consideration is, okay, how do we start that transition to making that business happen? The first thing I always recommend is get a separate checking account from your personal account. You want to be able to separate the cash out and be able to track the business separately. You can get a lot of things mixed up in terms of personal money, business money. And trying to keep track of how much you have coming from off the farm versus on the farm can be really important. Because at some point you want to evaluate, does this make sense for us to keep going? It's hard to do that when it's intermixed with personal money. You can also open a savings account if you want to. It's not always needed, it depends on how you want to handle your money. But at the very minimum, I would suggest a checking account. Then you need to decide which business structure really works best for you. As we went through, there's a lot of different options. If you are going to go the route that needs an EIN number, you want to make sure you get that right away and file the paperwork if that's needed in that business structure you're looking at. Another thing to think about in getting started is really going through the process of developing a business plan. I have pictured here a really great resource from Sara called Building a Sustainable Business. We've done some programming work around walking people through how to develop business planning. There's some videos out there from another webinar program we put on, but this is a great resource that really walks you through the ins and outs of developing a business plan. I often call this blueprint to how your business starts and then the guidebook of how your business intends to grow. There's a number of different things. We'll highlight each section that I've got illustrated in the bottom image here, where we talk about the different parts of the business plan. But often one of the first things that I think you need to think about, and I recommend people think about, is we keep talking about these ideas of the mission statement, the vision, what are your core values and what are your goals? I think you can tailor these down to really some specific questions that'll help you to address creating these. First off, what is your passion about raising produce? Or maybe it's raising livestock. Maybe it's raising other types of crops. If you're growing field crops, or maybe you're going to take that product, you've got the commodities you're going to turn into a value added product. Does that translate into a business? And that gets into this idea of vision, where you want things to go, then what goals do you want to achieve intermixed in these questions of what are you passion about, can that become a business? And then what are the goals? And you mix your core values into those. As you think about how you answer those questions and what it is you're really trying to achieve with the business. Once you've gotten through this part of it, you spent some time thinking about this, then you jump into the various sections of a business plan. There's a lot of different opinions on where to start. I recommend starting with the marketing and thinking about developing your marketing plan and thinking about where the markets are you want to operate. I recommend this from a very simplistic place. You've ultimately got to have customers that are willing to buy your product. If you don't have customers, you don't have a business identifying the potential markets, even looking at the market strategies that you would use become really important to thinking about answering those questions before. What are you passionate about? Can that translate into a business? And what are your goals? Your available markets can impact whether or not the answer those questions are really obtainable. You need to think about what is it your marketing? Is it the actual vegetables as it processed products? Maybe you want to do something that's got to tie into agri tourism that's become very popular over the years and there are a lot of successful farm operation that make that a big part of their operation. Then you need to think about how you're marketing, what are the actual methods you're going through to promote what you have to sell? Then we joke about, there's always this phrase of location, Location, location, that's very true in marketing. Where are you marketing to? Where are you advertising to people that you have product to sell Equally important with that is not only where you're marketing, but who is your competition where you're marketing? Because that can influence some of the things that you're going to look at and experience trying to decide what makes sense for the direction that you want to take your business in. I often recommend people think about the four piece of marketing. There's the products that you're going to sell. Price, you're going to sell it at a place where you're going to sell it. Then your promotion of how and where you're going to actually market that product to people and let them know it's available. There's a lot of different consideration that you can go through as you funnel through the the different areas. From a promotion standpoint, you can think about, are you going to run sales, is it going to be a direct marketing? We have a lot of people that are interested in CSA's. If you're raising grain, you're looking at the local elevators that you're going to sell to. Sometimes the promotion there can simply be that letting them know you're available and getting a feel for how they operate business that funnels into place where you're going to sell that product to. Price can be a tricky one because you want to think about some considerations in terms of what your price is going to be. Is it going to be based on, At a bare minimum, you want to try to meet your cost of production. But then are there some advantages that separate, like a competitive advantage that separates you from the competitors in your market. As you think about that product and you think about maybe packaging or features or qualities that can then come back to really affecting the price that you're going to have. From that standpoint, you want to think about all those pieces first, maybe individually, but then how they meshed together. Another helpful thing to do is to perform what I call a Swat analysis. But just a simple Swat analysis where I've got pictured here, where you identify these internal external factors. But make it more of an active analysis where you're looking at, okay, what am I going to do with those things I've identified? Instead of where we think about internal, we talk about strengths and weaknesses, opportunities and threats. We want to do more than simply say, what is we want to focus on, what do we do about it? How can we take advantage of the strengths that we have? How can we reduce the weaknesses that we identify in our business? In some cases, those are things that we can actually change. Or maybe we look to some cases, you take on insurance, whether it's farm insurance, livestock or crop insurance, those type of things. To mitigate some of those things out there, maybe there's some opportunities out there that you can really take advantage of. That competitive advantage that I mentioned before can be an opportunity that can separate you from your competition and give you a leg up. Really in terms of the marketing structure, then there's always threats out there in the farming world and the insurance point I made for weakness, you often think of that for threats. What can we do to dissolve those? Some cases it's more of a case of looking at your production practices and thinking about what changes can you make to the operation of the farm or the management decisions to try to mitigate some of those things. Now, in business planning, we've highlighted the marketing plan. Another area that you want to eventually work on is really the business description. And that can be pretty straightforward. Who are you, what do you do? Where is the farm located? And then who are the farm owners? You also want to be able to highlight what the business structure of your farm is. These are basic things that really just highlight a basic good profile of who the farm operation is. You then want to file that up with the management organizational side, where you talk about who's involved in the business, maybe who the owners are, maybe the employees. How are tasks being divided amongst the different people involved? How are you managing those employees? And then what professional services or parts are actually a part of your management team? Once you've identified those, you then want to talk more about the operation side. This is the fun side of the farming. We usually like to think of this first because when I get out and start farming and actually do the farming activities, this can be the easiest part of the business plan to write because what are you going to produce? What are the methods you're going to use to produce it? How are those methods may be managed then? What risks are you exposed to and how are they managed? You think about these often a lot as you're thinking about getting into farming, there's a lot of thought about or a lot of incentive for people to want to just write that first because this is the exciting part. But I would recommend starting with marketing and working your way to this, because this will be honestly the easiest to write. We can't get out of talking about business planning without wrapping everything up with talking about financial planning because numbers are important. One of the main considerations we have is, does this business plan make financial sense? You can look at the market, you can think about how you're going to raise something. Who's involved, What business structure we're going to use. But at the end of the day, are you going to make money? You have a real good possibility or reasonable opportunity to make money. Your financial statements can help answer that question. When we think about balance sheets, we talk about what do you own versus what do you owe. The difference between those is really your owner equity or your net worth of the business. We. Then we'll think about an income statement where we actually look for the year or did the business make or lose money in the last year. Then there's a cash flow statement where we get into where the cash come from. Really, where did it go? You know what money coming in, but what was it spent on during the year? An important thing to remember is that farms starting out don't necessarily have a lot to put on these statements. And that's okay because you're just starting out, but these can still get a good idea of where the sense of the business is going. I want to highlight real quick that there is a wonderful planning tool out there from the Center for Foreign Financial Management called Ag Plan. And they've been doing a lot of great work actually adding new features and new examples to this. But you can actually develop your business plan in this. You can have people review it. I've actually reviewed business plans that people have asked me to take a look at through the system. There's a lot of nice little resources, some tips and tricks and things that they have in there that you can actually gain access to to help you think the write up of actually putting your information together. They've got a lot of sections in there and not all of them would apply to your business, but they have them broken down that you can pick and choose which areas within like a marketing plan or within an operations plan makes sense to your farm business. I encourage people to check that out. We've got the link at the bottom of the slide there. Now I promise to get to the point where we're going to talk about where farm budgets fit into all of this. Really, we have to first start with what are farm budgets? And what we're really talked about are the goals for the year, your production, your financial achievements. These are a reflection of the farms capabilities and really their concerns. We get back to that Swat analysis, we want to make sure they're reasonable and accurate in terms of their expectations. We think about historical to depress and date comparisons. Then they're going to outline for us the path to success in terms of achieving those goals with foreign budgets. We also have to ask the question of why is cost of production a big deal? Well, managers improve decision making by understanding that historical success. They want to know that performance they've had in the past, your cost of production is really going to be a representation of what that performance was like if you had a lot of high expense versus low expense. That tells you how you did in terms of managing your operating costs. When you compare your budget to historical cost of production, it helps to guide you and maybe you can think about ways to improve your performance. Now finding the cost of production, we have to think about what it is and what it is not. Your cost of production is not just your operating input costs, your fertilizer, your chemicals, it's all your operating costs, your farm insurance, your land rents, Any labor that you've got, your variable and fixed expenses. Both. Depreciation, from an economic standpoint, is different than taxable. We want to talk more about the economic side where it's more of the wear and tear on your assets. What cost of production is also not, is based just on your tax return. Because when you look at your tax return, you can actually have multiple years worth of information there. You can have expenses from one year, or excuse me, you can have inventory sales from the previous year, the actual sales and costs during the year. And then you can have expenses you prepaid because you can take advantage of those expenses on your taxes. But those are expenses we prepaid because we're going to use them next year. Whereas really the cost of production you want to shift over into looking at the more of a production year standpoint, where you're looking at what was the actual sales and costs for the year. We want to factor in those prepaid that we had the year before, that we used in the current year. But then we also want to take advantage of any inventory that we know we're going to sell next year, but we're really part of this year's production. So we make this change from tax view to the production view. How do we get to that viewpoint? Well, that's where we come back to and think about our records and our information that we've kept track of and even our financial statements. I've got an example here that highlights, just a quick example of some expenses. We have seed and nitrogen costs for this sweet corn example of five acre farm. We've got our balance sheet from the year before the transactions during the year. And then we've also got our balance sheet at the end of the year to highlight the stuff we prepaid that we're going to use what really would be, we're looking back this last year, the stuff we bought last year to use this year. So you see these pluses and minuses? Well, we want to add the Pre page that we bought the year before into our example here of 2023, because that's the year we're actually analyzing. This is the year we want to compare against and look at, but we want to take out that stuff we bought that's really going to go to 2024. These expenses we had in our tax return really shift a little bit based on how these pluses and minuses worked out. When you look at this, you can see that the actual a little bit less in terms of seed costs about $1,000 less, or $100 less, About $50 more in terms of our nitrogen costs for the sweet corn. We can take this information, we can actually compare it to what our planned information was. If we look at this, we can see that our C cost we are expecting actually is going to be a little bit less. So we can ask ourselves some very good production questions at this point. What led to those differences? Was there some unforeseen circumstance that we had to spend a little bit more on seed than we thought? Did we have a mishap somewhere or did we have to change the seed pipe that we are going to use? Was it more of a management decision? Maybe we changed up our planning routine. Maybe plan a little heavier based on what was going on in the year. In that case, maybe that's a combination of management and some unforeseen circumstances. We can see on the nitrogen that we're pretty close we were actually within the ballpark of what we were close to planning. Then we can ask why were they similar? Did everything go according to plan, the decisions we made, the things we put in motion? Did they work out? Great more importantly, can we repeat that for next year and take advantage of that? You can also do the same thing when it comes to looking at the income side. In this case, we're going to do things a little bit more in reverse, where we have some receivables that we sold in 23 that we're really part of 22, but we've got some receivables, we know we're going to actually sell in 24, that we're really part of 23. You flip the equation a little bit for income and we see that we actually gained a little bit of income from what we reported on taxes to what we actually had for the year. Then with our information we can look at, this is five acres. We can see what our gross income per acre was. We can actually figure out what our production was per acre. And then we can use that gross income to tell us what our selling price was. Again, we can come back and we can compare to our plan and think about really where we were at in terms of how the year went. What we planned for a price was a little bit lower. We actually got a higher price than what we were expecting. Production was a little bit less than what we thought it was going to be. And so the price we got was actually a little bit higher based on the fact that we actually had more income overall. But we are actually planning for a little bit more income because we thought we're going to have a higher production. We see there's some differences here between these. Again, we can use this financial information to talk about some of these production management things that go on and help us think about our cost of production a little bit differently than just in numbers. What led to the lower yields? Was it weather impacts, was it other production issues? Was it management decisions? Again, back to, was it planting, was it spraying, how did things go in the year? Did we do something that negatively impacted or was it something that was out of our control? Then you can ask the standpoint on the higher price. Was that because of a higher market demand? Was that because of the marketing efforts you used? Did you change up your strategy again? If it's something you changed up that worked out really well, can you repeat that for next year? The only way you really get to be able to use this information this way is that you have to have details in your records. Your expenses can't just be seed, fertilizer, feed. If your livestock and your sales just can't be sales, you have to have some details in there about what's being sold. If you're talking about what was the seed expense, what crop did it go to? Fertilizer. What crop did it go to in terms of feed, Especially if you're looking at things like trying to separate multiple types of livestock you have on the farm. Which animal did it go to? Or maybe you break it up. In the example here where you're breaking out, well, the minerals went to this animal, the hay went to that animal. Where you can still tell some of those details, then you use that same information you want to make sure you're using the actual unit sold and the price received for whatever the crop is or in some cases, the animal that you're selling ultimately to be able to track that information. For those that are a big fan of the Jack Reacher show, even Jack will tell you details matter. It's especially important when you're trying to develop your business because details are really a must for success. If we think about production records, very often that farms will track those production records. Why is that? Well, we want to know what the farm's abilities are. What's that production history? What's potential? We always want to do better production wise than what we did the year before. Those records help us to recognize areas of concerns. What's those limiting factors in our production that we want to really overcome? And it helps us to really address those and improve performance. Well, when you think about farm records, you apply that same reasoning to why you want to track details financially. Because you're going to be able to better understand what the farm has actually achieved from a profitability standpoint, business growth wise. Those details also allow you to get a better comparison to maybe some industry numbers that you might be seeing out there. There's always projections about what we think the income expense for the year is going to be. How do you compare to those projections based on what you expected budgets are looking like, based on your historical cost of production? Really those records, they serve this great foundation for your year's plan. You've got something that serves you as a guide book because it's based on your information. You can't get a better guide than that to know how have we performed in years. Especially as we run through some years that maybe are more of a struggle than others. As we go along where we've experienced some of those because we run into cycles in farming, where we have really up years in terms of the income that's available. And then some years, the down years where we've got more expense than income. How have we worked through those? What have been the management decisions we've made? What are the numbers telling us that really help us to determine how our business is going to grow and continue to grow over time? I see we're getting short on time here and I want to make sure to open up for questions. There are some resources that I want to highlight here for everybody that are available from our demand series, developing and educating managers and new decision makers. We've actually just launched a new website, and so that's a new web address there at the bottom. And make sure we get that in the chat for you at some point here. I also want to, quickly, as we're wrapping things up here, I wanted to launch a poll just to help as how we did today. Have everybody take just a few minutes to fill that out for us. There's about five questions, try to keep them short and sweet for you. Then we do have a session evaluation for the conference that we'll also be bringing up here in just a moment. But give everybody a couple moments here to fill out the poll. Okay, I appreciate everybody filling that out and giving us some great feedback we'll be able to use for future programming, especially on this topic. Then I wanted to share, great question from where do you find industry comparison by size and type of operation? There is a great resource called Fin Bin that is actually a database that MSU participates in. We work with a number of farms that actually provide their financial information that we work with. It's IN IN, we get the link here in the chat for you in just a moment. But it got resource in terms of a lot of it pertains to for Michigan, most of our participants are in field crops and dairy. We actually have, I think we're up to 13 other universities across the country that participate there. Actually some vegetable information, a little bit of fruit, I will be honest, it a little limited in those areas. There is some good beef information, there's some swine, I believe there's a goat information in there. If you're looking for numbers for that, it's got some information in there depending on what you're getting into. That's one resource and we're always looking to try to build that resource. Especially the folks that actually operate fin been are actually the same people that have ag plan, The Center for Farm Financial Management. That's a really great question. That's an available resource, usually where I recommend people start with. Then there may be other databases you can look at, depending on the type of proper livestock you're into, that other states may have. But that's really the main one that Michigan participates is Finbin. Great question. Appreciate everyone coming out and appreciate the questions.
