Balance Sheets: Who, What, When….

  • Who: every farm needs one, every farm lender/investor will require to see one
  • What: a snap shot of farm worth at a single point in time, what you own vs. what you owe to others
  • When: Usually prepared at least once per year (December 31 or January 1)
  • How: Record a value of how much your assets are worth if you had to sell them today, record the value for all outstanding obligations. See the resources listed below. Obligations minus Assets = Farm Net Worth
  • Why: You need to manage “wealth” or “net worth” for the long term, most farms need to position themselves for access to credit/loans at some point.

Do you have a balance sheet? Trick question….everyone has a balance sheet really, but not everyone has it written down. If you are in business, then you should be preparing an annual Farm Balance Sheet. If you are just a normal individual then you can prepare a Personal Financial Statement. These are essential statements required by lenders for farm loans (or personal loans like a home mortgage or car loan). They are just as essential to farm owners who are serious about improving their financial position over time.

Balance Sheets are easy to prepare and they are very powerful tools for farm management. An accurate balance sheet will answer important questions like:

  • Is the owner increasing or decreasing their wealth by running this business?
  • Is the business in a position to borrow money for purchasing land, buildings, equipment and livestock?
  • Is their a viable exit plan for the business?
  • Is there too much money tied up in equipment or resources that are not being fully utilized, can we sell some of that stuff to put some cash in our pocket?

Most new farms focus their energy on cash budgets. Don’t forget that you will also need to prepare and UNDERSTAND your balance sheet. In March and April, UVM Farm Business Specialists will be setting up one on one  “budget clinic’s” or “farm finance office hours” to help managers prepare these statements.

Here is a link to the UVM Extension Calendar:

http://www.uvm.edu/extension/?Page=Calendar&agenda=extension,UVM,4-H,,COPE,seminar,vermont,OMK&label=Extension+Programs&intro=calendarintro.html

Give it a try yourself. The VT Farm Viability Program has developed a series of financial statements. Find the “financial workbooks” at the bottom of this page. There is an inventory sheet that you can use to list your assets and a balance sheet that you can fill in:

http://www.vhcb.org/viability.html#ffw

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About Mark Cannella

Mark is a farm business management specialist with UVM Extension based in Berlin, VT. He specializes in business planning, farm financial analysis and agricultural economics.
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