2024 Dairy Margin Coverage: Enrollment and Policy Updates
Dairy producers need to stay informed about the latest developments of the Dairy Margin Coverage (DMC) program so that they can make timely and informed decisions for their operations.
Farm Financial Management
About
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.
Financial resources
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.
Farm Business Financial Management Model
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.
Records
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.
Management Reports
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.
Decision-Making
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.
Latest Financial News
Articles
Review recordkeeping methods and retention standards in the new year
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, […]
Observe Financial Planning Month by reviewing farm & personal finances
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.
▶ Watch: Financial Statement and Analysis Spreadsheet Walkthrough
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 […]
Enterprise Budgeting: Review of a single enterprise in a farm business
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 […]
Benchmarking: Three part process for financial analysis
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 […]
Pro Forma: Future Farm Financial Statements
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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Solvency: Relationship between total farm assets and liabilities
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 […]
Profitability: Seed for a farm’s future
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 […]
Repayment and Replacement Capacity: A farm’s ability to repay debts
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 […]
Financial Efficiency: A farm’s use of assets to generate income
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 […]
Liquidity: Relationship between current farm assets to current farm liabilities
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 […]
Financial Measurement: Quantification of a farm’s financial position and performance
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 […]
DuPont System for Financial Analysis
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.
Building a relationship with your lender
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.
Tax planning for farmers receiving loan servicing assistance
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.
Costs of production: Which costs of production?
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.