Happy holidays to all of our northeast Ohio and northwest Pennsylvania dairy farmers. It is hard to believe that 2010 is coming to a close already.
December is always a great time for all of us to reflect on the past year and to take stock of where we are financially. I would encourage all individuals, especially our agricultural producers, to take time this month to look at your financial situation.
One great way to accomplish this is to complete a balance sheet. The balance sheet allows you to list all your assets and liabilities. The difference between the two is your net worth. Or more simply stated, it involves adding up everything you own and subtracting from that everything you owe.
Your assets include the value of your savings, checking, retirement accounts, bonds, equities, and accounts owed to you. These figures can easily be retrieved from your financial institutions.
Assigning a dollar figure to other assets may not be as easy to calculate on your first balance sheet.
For instance, how do you keep track of housing and land prices that may see-saw from year to year? Furniture, jewelry, equipment and other items are also harder to estimate.
The main idea to remember is to first develop a reasonable market value that can serve as a baseline. Don’t value your land for $50,000 an acre or your favorite hammer for $500 if no one would ever pay you that amount for them. Is that prize cow really worth $20,000?
On the liability side, you need to list all your current debt such as credit card and accounts or taxes payable plus all your long term debt for house or land mortgages.
I think most folks are stunned when they see the credit card debt that has accumulated over the past few years. Again, all of these figures can be obtained from your financial and credit institutions. If you have not calculated your net worth, it can be a real eye opener.
Our agricultural producers are encouraged to complete a yearly balance sheet on their business to help answer questions such as: Where are we, where do we want to go, and how can we get there? These are critical questions for farm businesses in all stages of growth: new, expanding, consolidating, exiting, or transferring to the next generation.
These important questions are not always easily or quickly answered.
OSU Extension is able to help farm businesses answer these tough questions through the FINPACK financial planning and analysis software. One of the features of this program is the FINAN program which allows an annual balance sheet to be completed along with specific analysis on the cost of production for any crop or livestock enterprise.
A farm business can analyze its business year and determine which crop and/or livestock enterprises were profitable and which were not.
It also analyzes the profitability of the total farm business. Profitability measures for the farm are graphically compared to Farm Financial Standards Council guidelines. This financial program also allows a farm business to look at the what ifs using the FINLRB program.
On paper, the farm can look at multiple ways of changing the business such as an expansion, changing enterprises, bringing in a family member, buying out a partner or making a major capital investment.
FINLRB allows you to look at different alternatives, evaluate profitability, and compare them to the way things currently are before money is invested or ground is broken.
Any producer who would like a FINAN or FINLRB completed for their agribusiness should contact Dianne Shoemaker at firstname.lastname@example.org.
December is a great time to get cozy with our financial numbers. Have a good and safe December.