As 2020 draws to a close, it’s the ideal time to put together an annual snapshot of your farm’s financial state. Accurate and complete year-end financials not only reflect performance from the past year, they serve as resources for securing operating loans and meeting the long-term farm goals of your operation.
Balance sheets indicate a farmer’s net worth at a given point in time. So, it is important that balance sheets be compiled at the same time every year to monitor farm financial health.
“Balance sheets can change a lot from the beginning to the middle of the year with so many activities in motion. We want consistency, and year-end may be the best time to reflect some stability,” says Robert Alexander, Farm Credit Mid-America Growing Forward specialist.
“We can take those year-end financials and combine them with the tax return information and it will show us what actually happened with a customer’s operation over the year,” says Stephanie Briggs, Farm Credit Mid-America credit analyst. “Accurate year-end balance sheets will help us build a solid foundation of information that allows us to grow with our customers. Having this information allows a customer to understand where they are and where they are going.”
To put together the most accurate balance sheet, Alexander encourages farmers to capture every asset by walking around the farm and making notes about equipment inventory, inputs on hand, crops in storage, animal numbers and even fuel stored on the farm. The list should also include credit card use and balances and any equipment or labor trading. A monetary value should be attached and recorded on a receipt. Similarly, if more than one person owns livestock, the balance sheet should reflect specifically how ownership breaks out.
“Write down everything you own and everything you owe,” he says. “If you have questions, reach out to your lender. We are happy to talk through the process and print out the previous year’s balance sheets to work from as a baseline.”
Briggs agrees that including all assets and liabilities is critical. “If you forget to include a check you haven’t picked up at the co-op or leave off a retirement account, it impacts your financial position and possibly your loan decision when we underwrite the loan,” she says.
Likewise, Briggs asks farmers to step forward as soon as possible when they come under financial pressure. “If you know a payment is coming due, reach out and have a discussion,” she adds. “It is much easier for us to help when we know in advance rather than when a payment is overdue. Communication is key to any successful relationship and we will work to do our best to help you through the tough times. Having an accurate year-end balance sheet and financial information allows us to look at all possible options. If we have inaccurate or incomplete information, we run the risk of not making the right decision for your operation.”
Going forward, Alexander urges farmers to make notes about what was different financially each year compared to previous years. Sharing this history allows Farm Credit Mid-America loan officers to talk about trends in the customer’s financials and how to improve profitability.
“We want to see you succeed, and accurate financial information is the scorecard of an operation,” he says. “We are partners working together for the common goal of successful financial health. Farmers must be honest with themselves about what works and what does not and be honest with us. It is not a criticism. It is a way to make the best decisions for your operation.”
Briggs shares similar sentiments. “We want the customer’s farm to become their legacy, and the decisions they make now impact that. This is a long-term partnership. We each bring a piece of the puzzle together, to make one beautiful picture that in the end will last for many generations.”
