The University of Wisconsin-Madison Division of Extension Financial Management & Strategic Planning programs, information and resources intend to improve the farm financial and decision-making skills of Wisconsin agribusiness, farmers and farm managers, agricultural lenders and educators.
Farm Pulse
Information on how to use farm financials to explore farm business decisions. This course will help farmers evaluate their finances, take the pulse of their farm business, and set goals for the future of their operation.
The farm financial model helps the farmer make the best decisions for the farm business. From record-keeping to financial analysis, this model illustrates how to make sound financial decisions and identifies tools to help in the process. To understand the farm business’ records, one needs to understand the purpose records serve to and for the farm manager. The Farm Business Financial Model offers a process for informed decision-making.
The farmer must collect and organize income and expense receipts in an accounting system before generating financial statements. Receipt accounting is also referred to as record keeping.
Organizing the records provides the farmer with the financial information necessary to complete management reports, which are also known as financial statements. The Farm Financial Standards Council (FFSC) recommends farmers create four financial statements from which the financial position and performance may be analyzed. Financial statements should be prepared on a consistent basis. Statements include balance sheet, income statement, statement of cash flows, and statement of owner equity.
Understanding the farm business’s history of financial position and financial performance provides a basis for the farmer to make decisions and plan into the future. Pro forma refers to the future view of the farm’s financial position and performance. For example, what would the balance sheet look like after a future expansion? The future financial position can be analyzed for feasibility, profitability, and risk-ability. Pro forma financial statements complement the farm’s budgets. Cash, partial, and enterprise budgets are commonly used to assist the farmer in decision-making.
Financial Planning Month is observed during October. For farmers, this time of year may be focused on harvesting the crops that were planted earlier this spring or summer. But in this day and age of farming, crops can be harvested all year long with many different types of crops, season extensions like high tunnels, and indoor spaces such as greenhouses.
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: 1) provide a means and […]
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 […]
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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 […]
Conducting a farm financial performance or financial benchmarking analysis can be daunting to those unaccustomed to doing them. There are many financial pieces of information needed to perform a proper analysis including; both beginning and ending balance sheets, either an actual accrual or accrual adjusted income statement, and a statement of cash flows.
Dairy farmers have experienced strong prices this last year, though rising input costs may have tightened cash flows. Hopefully, dairy operations are entering this new year with a strong working capital position and have adequate liquid assets available in the short term.
The new year often brings thoughts of income taxes and tax preparation. Some farmers might have received a loan servicing assistance payment if they were experiencing certain types of financial distress.
Right now, farmers are finalizing 2023 crop production plans – making decisions on crop inputs, planting, and other practices. Farmers should also assess the risks for the upcoming 2023 crop year. The support that may be provided by various tools to manage production and marketing risk includes Farm Bill commodity programs, federal crop insurance, and marketing tools.
Many business owners and farmers often do not prepare their own federal tax forms due to the complexity of the tax laws. At the beginning of each year, farmers must review their recordkeeping, generate income and expense reports, capital asset purchases and sales lists, and meet with their tax professionals.
Pick up any farm magazine or listen to any farm podcast and it won’t be long before the phrase “Costs of Production” comes up. Knowing costs of production is an important piece of management information and vital in many farm management decisions. Yet, as obvious as it sounds, pop open the hood and the messiness is revealed.
