Agribusiness expert outlines important financial records for producers
In a Feb. 28 webinar by American Agri-Women on financial record keeping, South Central College Agribusiness Instructor Megan Roberts explained that there are several important financial records that producers should keep, both for personal use and for working with their bank.
One of the most basic and crucial financial records that producers need to keep is an income statement.
“This is really the primary statement used to evaluate performance,” said Roberts.
While there is variation from operation to operation, the income statement covers the same amount of time each year.
“Some farms use different fiscal years, but regardless, we’re working with 365 days of income,” she continued.
When looking at the income statement, Roberts explained, “Operating expenses would be related to the everyday tasks on that farm.”
When starting out, Roberts cautioned that income statements may not give a positive view for beginning operators, so it is important to also keep other records, such as a statement of cash flow.
“It’s really scary, but a lot of times, beginning farmers and ranchers are going to see some net losses, particularly in this climate,” noted Roberts.
According to Roberts, the statement of cash flow is useful “if we are going to a banker or trying to sit down and look at if we can make farming in the next year.”
It is an additioal statement that looks at a one-year time period in the future.
When going to discuss farm or ranch operations with the banker, Roberts said, “We should have one that looks at last year, but we should also have one we create at the beginning of the fiscal year for predicting the coming year.”
Statements of cash flow can give bankers insight on an operation before the bank makes lending decisions.
“Sometimes farms have negative cash flows, but their balance sheet looks great,” commented Roberts.
While not often discussed, another important document for farmers and ranchers is the statement of owner equity.
“If I were to say there is one document that is the least discussed, it’s the statement of owner equity,” commented Roberts. “In a nutshell, what this statement looks at is how has the value of our farm or ranch changed throughout the year.”
Part of this information goes into the accounting equation, which looks at the relationship of assets compared to liability plus equity.
She explained that there may be periods of the year where producers have all of their income and that it may not match up with when the most expenses are coming out of the operation, which may look “risky.”
According to Roberts, “Assets are items used in the production of farm products. They are the things used to create the product of our farm.”
Assets can be divided into the categories of current and non-current, which can be complicated to determine.
“Assets can be tricky to completely understand. There are some really great resources online that can help us with determining what kind of asset something is,” she said.
Roberts defined current assets as items that will be on the farm or ranch for less than a year.
“Current assets are things like feed and any of our finishing livestock. Those are all short-term assets,” continued Roberts.
Intermediate assets are items that have an expected lifespan of one to seven years.
“That doesn’t mean that they won’t last longer or shorter than one to seven years, but that’s what is expected,” she stressed. “Things like tractors and equipment typically fall into intermediate assets.”
“Long-term assets are things that are generally structures or land. All of our farmland and pastureland is long-term,” commented Roberts.
Roberts explained that liabilities are any monetary or other value that is owed to a third party.
“It’s not just money that we owe to a bank,” she continued. “If we are working with someone, that’s still a liability that needs to be on our balance sheet.”
Similar to assets, Roberts commented that there are different types of liabilities.
“Just like assets, we can look at liabilities in terms of current, so things we have to pay back in the next year,” said Roberts, “and then we have non-current, where there are intermediate and long-term liabilities.”
Emilee Gibb is editor of Wyoming Livestock Roundup and can be reached at firstname.lastname@example.org.