Why Do I Need a Budget? Prepare for No Surprises

If you haven’t yet put together a budget for 2026, it’s not too late … and I would highly recommend you start as soon as you’re done reading this article. If you or your business puts together a budget every year, then you probably already have it done or nearly complete. If you do it solely to satisfy a lender or supplier, then it’s time to dig it back out and seriously look at the amount of thought and detail that it shows and decide for yourself how serious you take planning the success of your business.

“Why do I need a budget? It’s a lucky guess at best." If that’s your mindset, then I would ask you the following questions:

1. Between 2023-24 did you receive any new equipment from any supplier that A) ran out of free floorplan terms, B) you still have on the lot and looks like it’s been sitting 24+ months, or C) got ambitious and found a home for the piece where you either lost money, lost money on the trade, or still own the trade because it is booked way over market?

2. Did you have a couple of post COVID years where you sold the heck out of some key products, taking in lots of high-dollar trades that eventually brought 70% or less than you had booked?

3. Did you go out and hire every warm body to sell, look up parts and repair equipment that you could in the last 3 years, and have subsequently seen the market drop 15-20% the last 2 years?  

4. Have you paid attention to your main supplier’s forecast for 2026, as well as your main competitor’s suppliers?

5. Have you talked to your best customers and gauged their appetite for buying equipment this year? How about their bankers?

So, let’s say you haven’t done a budget yet or have a lame version to satisfy some requirements, here’s my predictions on where to start, or to embellish what you already created for 2026 based on your 2025 results:

Revenues:

• New Big Ag Row Crop: Down 10%

• New Hay and Livestock: Flat

• New Rural Lifestyles: Flat – down 5%

• New Material Handling: Flat – down 5%

• Parts: Flat to up 5%

• Service: Flat

Margins:

• All New: Slightly better than 2025 as the glut of aged new inventory has, for the most part, moved through to retail in 2025. Dealers took their hits and hopefully learned their lesson.

• All Used: I look for the market to be stable and comparable to Q4 of 2025.  Most agree that auction values rose during Q4 and the glut of used iron in most regions has shrunk.

• Parts: The most consistent part of our businesses should hold it together for another year.   

• Service: Assuming your service cost of goods sold is labor, you can expect a slight increase in costs. Can you adjust retail rates to absorb these pay increases? Be cautious here.

Expenses:

• The question shouldn’t be “Can I do more with less?” It should be “Can I do the same with less?”

• Interest expense should be less in 2026 with better control of wholegoods management. However, it’s hard to imagine many other costs actually going down without some serious cost controls.

• We are all braced for higher insurance costs, so how much risk can you stand by raising deductibles or eliminating some coverage?

• Can AI help streamline some of the costs in your dealership? Time in looking up parts, writing warranty claims and work orders, allowing your marketing director create or gather content for target marketing, and the list goes on. If you ignore AI, your competitors will thank you for giving them a leg up.

• A well-managed dealership should be able to keep expenses at or below the inflation rate (2-4%) over last year. Ignoring expense control will probably create 6-8% rise in expenses in 2026.

THE BOTTOM LINE 

If you held it together in 2025 with a return on sales (net income before tax divided by total sales) of 1.5% or more and your used inventory is right-sized and right-owned, then congratulations, you’ve seen the worst. IF you just barely skated by in the black, lost money or haven’t dealt with used tractors and combines traded in in 2024 or prior, then you have a problem.  

If I’m right on most of my above predictions, then there isn’t a lot of room for error in 2026, and it may not be very fun. No one likes downsizing or cost-cutting, but everyone likes staying in business. The good news is that this fickle economy can change on a dime. $5 corn, $12 beans, 4% interest and low unemployment would help a whole bunch. I may be asking for too much here.  

In conclusion, prepare for the worst, be proactive in righting the ship and ride out these turbulent waters.

MAC member, Leo Johnson started selling farm equipment at the retail level in 1978 for a very small International Harvester dealership in Clinton, WI.  After acquiring 50% ownership, Leo grew Johnson Tractor to a 5-store complex exceeding $140MM in annual sales with over 100 employees.  Leo retired in 2021 and continues to farm approximately 1,000 acres of corn and soybeans in southern Wisconsin.  He has been active in industry leadership positions in the local, regional, and national

levels.