This is the time of year that many farmers dread: the culmination of a year of receipts, tax season! You painstakingly keep track of purchases, livestock sold, crop sold, depreciation on equipment, etc. Eventually this all comes together with the help of your financial/tax advisor and accountant. Sometimes the financial advisor and accountant are the same person. If they aren’t make sure to talk with both and have them consult with each other… both “hands” need to be talking to each other to get the best of both worlds. All of this hard work and effort cumulates into the famed schedule F (and other forms) to complete your taxes. Whew! Another season under the belt.
Wait, don’t stop there. All of that effort to get to the schedule F for taxes just got you two thirds of the way to using some financial analysis tools that can help you make better financial decisions. Work with your financial advisor, technical college agriculture instructor, UW-Extension agriculture agent, or other trusted advisor to help you work through a few tweaks that may be needed to translate your schedule F into a cash flows statement, balance sheet, income statement, or various budgets.
So why might you use each of these various measures? A balance sheet is a snapshot in time that measures your financial position, or what your business is worth today. An income statement is a measure of financial performance, or are you making a profit or not. A cash flows statement helps evaluate where cash shortages may occur in a set time period.
There are three different budgets you may find useful. The whole farm budget allows you to determine the profitability of your farm (or lack of). The enterprise budget is useful for determining which parts of the farm are doing well. Finally, the partial budget is useful in evaluating ways to alter your farm’s profitability by determining if the change is an overall net gain for the farm. Many versions of these financial tools are available online, just do a search for the one you are interested in, ask your banker, or contact your local extension office for assistance tracking one down.
If you are working with a bank, you are likely creating some of these statements or sheets already as they help calculate standard financial measures that your bank is interested in. If you are curious how your bankers are checking on your financial performance, you can view the farm finance scorecard that has 21 different measures that banks use to determine farm financial health. The scorecard also has definitions and how to calculate each measure. The farm finance scorecard is available at https://goo.gl/6jnGGL. Find out which of the measures your bank uses and familiarize yourself with how to calculate those measures so that you can continue to check in on how you are doing so that you aren’t surprised if the farm isn’t performing to the expected level. This allows you to make changes before financial challenges get out of hand.View the farm finance scorecard.
Note: This article originally was published in the Marquette County Tribune, Waushara Argus, and/or the Berlin Journal. This article was written by Lyssa Seefeldt, UW-Extension Agriculture Agent for Marquette County unless otherwise noted.