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March 15
Organizing Your Farm Finances: Trends and Operating Cycles

​This is the second post in a two-part series​ to help producers create useful financial reports for their farming operations. In part one, we discussed the three key financial reports farmers need to make informed decisions on the farm.

Organizing Your Farm Finances: Trends and Operating Cycles

By Tamara Baker

A single report yields insight into the current state of your business, but comparing your reports over time provides additional value. On the balance sheet, look at your working capital compared to the last period you reported. If it has gone down, is it because you have drawn down your inventory, a finite resource? 

On the income and expense report, has income dropped due to lower commodity prices? On the projection report, is your anticipated income sufficient to cover your costs, including your living expenses? In each of these scenarios, you may need to secure a loan to bridge the gap until profitability returns and working capital can rebuild.

Align Reports with Operating Cycle

How often these financial reports are generated will depend on the type of farm operation. With one production cycle, annually is likely sufficient. A producer with two crop cycles should create reports twice a year; a year-round operation like a dairy, which has monthly income, inventory turnover, and expenses, would ideally review financial reports each month.

This can be challenging, as producers are often focused on what is happening on their operation every day. However, spending a little time reviewing financials can help identify issues and help a farmer more quickly develop plans to manage through them. 

At the end of the cycle, it is also important to compare the actual results in production, income, and expenses to the projections, and make appropriate adjustments so the projection for the next cycle more accurately reflects reality, and your plans can be built on a stronger foundation.

When it is Time for a Loan?

We anticipate low commodity and protein prices will continue in the near future, at a time when input costs are still high and labor costs may be increasing. This is putting a strain on farm incomes across the nation. As inventories are depleted, working capital levels can be expected to drop, which may lead more producers to seek financing. Accurate and complete financial reports are a necessity when applying for a loan. They allow the lender to have full understanding of an operation and adequately assess the benefits and risks of approving the loan, so both the lender and borrower make good financial decisions. While financial intuitions are in the business to lending, it is equally a business of relationships built on trust and mutual respect. It is important that lenders work with each client individually to develop a plan that works for them and their business. 

At GreenStone Farm Credit Services, where our borrowers are also our owners, we take a longer-term view toward supporting our customers’ success while also making decisions that will keep our borrowers and our institution financially healthy. Financial reports are the key for us to make those wise decisions to protect all of our cooperative members.

Tamara Baker is a Senior Credit Analyst at GreenStone Farm Credit Services.


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