Should your farm go public? Do you know how to put together a cash flow statement? Should you lease your next combine? Do you know the best financial ratios to measure farm performance? Are you and your lender on the same page?
Those were just some of the questions asked and answered at last week's Ag Finance Boot Camp, held in St. Louis with help from our friends at John Deere, Farm Credit and the Farm Financial Standards Council.
A good crowd of (mostly) farmers and spouses were looking to learn more about the dollars and cents of their business, and we had the experts there to help. Presentations were made by volunteer professionals from the Farm Financial Standards Council, a national network of financial consultants, lenders and technical people dedicated to helping farmers by promoting uniform financial reporting and analysis in the ag industry.
A few nuggets from the meeting:
"Cash flow is the most important piece of any financial statement," says Lance Fulton, Chief Accounting Officer at Foreland Ag, Sublette, Kan. "It's designed to tell you how you used your cash. You generate cash from operations, then used it to pay down debt, buy stuff or fund personal things. Those questions get answered in a cash flow statement."
Farms with multiple enterprises need to figure out how to transfer costs to inventory. Stephen Severe, CFO at Padlock Ranch, Ranchester, WY, has been working on that process for over 10 years now. He manages the numbers for the ranch's seven cow/calf herds, two development replacement herds, backgrounding feedlot, 19 crops, a guest lodge, overhead costs and "non-operating" costs.
Severe produces enterprises reports that contain annual income statements, interim income statements, and ad hoc reports to match changes. "That's how I determine costs that I transfers from, say, hay production, to feed costs," he says. "In the annual income statement it contains cost and production numbers, and shows transfer costs to inventory."
Severe also encourages farmers to develop key ratios based on historic financial performance. He focuses on Return on Assets, Return on Earnings, Debt to equity, wean to preg rates, cost per calf/cwt. weaned, cost of replacements, and cull sales vs replacement costs.
"I'm not as concerned about comparing ourselves to other ranches; I'm more interested in comparing how we do against ourselves historically," he says. "We use a scorecard, which is put together by the board of directors, family and management. Then we track those goals that are listed and record the results. That ends up as our management report card for the year."
Financial ratios are important, agrees Paul Neiffer, a CPA and Principal at CliftonLarsonAllen LLP. "It gives you a picture of how well -- or not – your farm is performing based on the following metrics: liquidity, solvency, profitability, repayment capacity and financial efficiency."
Tomorrow: More tips from the Farm Futures Ag Finance Boot Camp