Financial planning, reporting: How well is your farm business working?
Tom Urban, Vice President of Credit, GreenStone Farm Credit Services
Tax Paperwork


“To everything there is a season, and a time for every purpose under heaven.”


So goes the familiar and timeworn passage from Ecclesiastes. Even in this most unusual year turned upside down by COVID-19, the seasons have marched inexorably by.


Beginning in March from the vantage of my laundry room masquerading as a home office, I watched the first buds of the roses, lilacs and hydrangea push out with the warm days of spring, drape themselves in the full flower of summer and then wither and die at the hands of fall’s first killing frost. Their time spent and purpose served in accord with the great design of things.


As I write this article, I am watching my neighbor’s combine track back and forth across the field, stopping occasionally to spill its gold into a waiting truck. Even during the pandemic there was time to plant and time to pluck up that which was planted. The seasons it would seem passed without event on the farm too.


That idyllic scene, however, masks a turbulent year. As the pandemic took hold in March, our business and personal lives were disrupted. We all learned to work, play and pray in different ways. Somehow in this land of plenty, we faced food shortages despite the agricultural industry’s best efforts.


The commodity markets were roiled when it seemed like they were just settling down, and a barrage of new government programs, with new acronyms like PPP and CFAP, had to be learned and applied for.


Regardless of everything that went before, the season will change again. And to assure you that some things never change, tucked in among the holiday recipes for the best pumpkin pie and the world’s creamiest mashed potatoes, comes a perennial article about the importance of keeping good financial records. Those beans that were planted and plucked must now be counted!


I am not going to use this space to lecture you on how to prepare a balance sheet or profit and loss statement. You can find that information in 5 minutes on the internet. Instead, I intend to use the space to implore you to do something about financial reporting.


To effectively manage a business, a manager must understand how well the business is working. The manager must also be able to tell their story to lenders, and for that matter, the tax man.
I have been a farm lender for 40 years. I am best communicated too in a language I can understand, and that is your numbers. After all these years, it is still surprisingly difficult to get good quality financial information on a lot of farming operations.


I said I wasn’t going to lecture you on preparing financial statements, but you will have to endure just a small one. A balance sheet in its simplest form is a statement of stuff. Write down everything you own and everything you owe. Subtract one number from the other and the difference is what you are worth. After a year of toil and trouble, you hope it goes up a little. As your banker, I hope it goes up too!


Similarly, a profit and loss statement is a list of everything you sold minus everything you spent. You hope this is positive too. After deducting the cost of living the good life on the farm and paying a little income tax, it should come close to matching how much your net worth went up or down.


The last ingredient in this recipe for financial success is a projection. This is nothing more than a forward-looking profit and loss statement. Show your lender what you plan to produce, whether it is plant or beast, and your forecasted sales and expenses associated with achieving those sales. Include a capital spending plan for required equipment purchases and improvements.


Don’t avoid doing a projection simply because you’re worried it might not turn out exactly that way. It’s only a plan and some changes are expected, and necessary.


Please forgive my oversimplification, but my point is that it isn’t that hard. It just takes a little time and purposefulness. A set of financial records needs to be as complex as the operation it is supporting. There are numerous software programs, bookkeepers, accountants and tax professionals able to supply whatever level of detail necessary. Or, with a little discipline, you can do it yourself.


Whether it’s an engine, a business or a relationship, if it’s not working, you must fix it. The first one is easy. The last two are a little hard to figure sometimes. However, if your business is not working, a complete set of financial records will help you diagnose the problem and help you communicate necessary adjustments to family members, business partners and your lender. You’re on your own with the relationship thing — that is ground I dare not tread.


I don’t need to walk outside each morning and look to the east to know where the sun is going to come up. I know too that the COVID-19 pandemic will recede along with the anger and angst that it has caused.


This season too will pass and when the spring sun warms our good earth, the diesel engines roar back to life and the new crop goes in, all will be well.


I know it.


*As originally published in Michigan Farm News December 15, 2020.


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