This article was originally published in Progressive Dairy. For many farmers, farming is widely viewed as a “way of life” rather than as a business. The Internal Revenue Service (IRS) considers an activity a trade or business if it is conducted with a profit motive. Profit is defined as income or receipts greater than expenses, […]

This video series will introduce you to the Financial Statement and Analysis Spreadsheet. In these videos, Kevin Bernhardt, Extension Farm Management Specialist with UW-Madison Division of Extension and Professor at UW-Platteville, provides information on completing the spreadsheet.   The Extension Farm Financial Statement and Analysis Tools consists of Excel worksheets that: The Spreadsheet Tools are more […]

Wisconsin farms will often have many different enterprises that contribute to their whole farm business. For example, a dairy farm may have enterprises for milk sales, calf or finished cattle sales, grain sales, and hay sales. It is important for farmers to understand the income and expenses associated with each enterprise, how equipment or other […]

Farmers can use multiple tools and methods for analyzing their farm financial statements. Some are very involved and take lots of time, while others don’t take much time at all. Benchmarking is making comparisons to assist the farmer with making the best financial management decisions for their farm business that will improve financial position and […]

Farm financial statements, such as the balance sheet, income statement, statement of cash flows, and statement of owner equity provide a historical review of the farm business’s financial position and performance. This financial analysis provides a basis from which to plan for the future of the farm business and draft pro forma financial statements. What […]

The second measure of financial position is solvency. Solvency is the ability of a farm business to pay all its farm debts if the business was sold tomorrow.  Solvency is important in evaluating the financial risk and borrowing capacity of the farm business. Debt-to-Asset Ratio The Debt-to-Asset ratio compares a farm’s total assets with total […]

The first measure of financial performance is profitability. Profitability is the difference between the value of farm goods produced and the cost of the resources used in the production of those farm goods. In other words, profitability is what’s left after the farm business has paid all of its bills. Profitability measures the financial performance […]

The second measure of financial performance is repayment and replacement capacity. Repayment capacity shows the farm’s ability to repay term debts on time and as they come due.  It includes non-farm income so it is not a measure of the farm business performance alone. The two measures used to assess repayment and replacement capacity are […]

The final measure of financial performance is financial efficiency. Financial efficiency shows how efficiently a farm business uses assets to generate income.  It also indicates where each dollar of income generated in the farm business has been spent.  The four measures used to assess financial efficiency are operating expense ratio, interest expense ratio, depreciation and […]

The first measure of financial position is liquidity. Liquidity is the ability of a farm business to meet the financial obligations as they come due – to generate enough cash to pay family living expenses and taxes and make debt payments on time. The two measures used to assess liquidity are current ratio and working […]

A farm business that has collected and organized their farm records will be able to complete management reports or financial statements. The Farm Financial Standards Council  (FFSC – https://ffsc.org/) recommends farmers create four financial statements from which the financial position and performance may be analyzed. These statements include the balance sheet, income statement, statement of […]

Having financial statements (balance sheets and income statements) is a first step towards financial management decision-making.  However, it is the next step that makes a difference in future profitability and that is analyzing the financial story being told by the financial statements and making decisions on where to spend management time to improve future profitability. 

Having financial statements (balance sheets and income statements) is a first step towards financial management decision-making.  However, it is the next step that makes a difference in future profitability and that is analyzing the financial story being told by the financial statements and making decisions on where to spend management time to improve future profitability. 

Selecting the best recordkeeping tool will assist in making management decisions for the future. At the end of the year, farmers may be reviewing their income tax obligations and marketing plans or completing a business or enterprise analysis. A successful farm manager is already keeping good, accurate records throughout the year. Selecting the best recordkeeping […]

Whether on the tractor, in the barn, or at the farm office, farm managers are always mulling over some change to their operation that might improve profitability. It might be employing a new technology, launching a new enterprise, buying or leasing machinery, altering a production practice, or some other possible change.  Occasionally, one of those ideas […]