The Farm CPA
Paul is now part of the fourth generation in America that is involved in farming and hopes the next generation will be involved also. Through his blog he provides analysis and insight to farmer tax questions.
What is Your 20 Year Plan?
Nov 09, 2010
I was skimming the Corn and Soybean Digest website the other day and came across this very good article on planning ahead for the next 20 years on your farm operation.
It is very important for farmers to set goals and plans. I believe that these goals should be in writing and quantifiable. Also, on yearly goals, I think they should be expressed by year not by number. For example, a goal should state that during "2011" not in one year since the 2011 date is specific and the "one year" is not.
One method that might help farmers is to create a series of yearly notebooks. Each notebook would have the Year on the outside along with the word "Plan" or "Goal", etc.
In the notebook, you would have tabs for the various segments of your farming operation. For example, you might have a tab for:
- Tenant relations
Each farmer will have a unique set of tabs, but these would probably be in most of them.
In each tab, I would suggest typing up an individual sheet for each goal associated with the tax. You may even want to have an index under each tab with your goals and plans as you add them.
This sheet should state the following:
- What is the current situation
- What is the expected situation for this particular year
- What is the defined difference between current and expected
- How can the farm achieve the goal to get from current to expected
- What are the defined steps to achieve the plan including dates, action items, etc.
For example, assume you have a farm with 2,000 acres of corn and bean production on a 50/50 mix. Your current yield is 50 bushels for beans and 200 bushels for corn. You expect in 10 years for these yields to be 65 bushels and 250 bushels, respectively.
Under your storage tab, you might have a sheet for 2020 as follows:
- In 2010, our current storage needs are 250,000 bushels. We have on-farm storage of 250,000
- in 2020, based upon our projected yields that our storage needs will about 325,000 and we would like to have a 50,000 bushel cushion for bumper harvests or carry-over of the previous year crop if needed. This results in a total storage need of about 375,000 bushels.
- Our need for additional storage over the next 10 years is 125,000 bushels or an increase of 50% in our current storage.
- Our action plan is to (1) meet with our storage vendor to review our options for these storage needs, (2) meet with our banker to determine the best financing, (3) initiate construction of 50,000 bushels in 2011, 50,000 bushels in 2014 and the remaining 25,000 bushels in 2018 with a review of our needs each year.
This is a very brief summary of how the sheet should look. You would want to expand section 4 to show who, what, when, etc. on the details. Also, for your 2011, 2014 and 2018 notebook, you would have specific worksheets under your storage tab for the bins to be constructed for those years or adjusted to the actual year of construction.
I firmly believe that if a farm operation started a planning process similar to this with at least the next 5 years in very detailed notebooks and the 15 years thereafter in broad form, it would not take long for your farm to see the difference. Plus, another great benefit to these notebooks is the history that you build up over the years.