The Farm Financial Standards Council began recommending the use of accrual earnings in 1991. Think about all the technology that has been adapted by farmers since that time. Even Round-Up Ready soybeans were not introduced until 1996.
That is why I am still amazed that after over 23 years of having the ability to calculate accrual earnings, so many farmers and their lenders are not using this tool to know how they really are performing financially.
I have been getting accrual statements from my clients since 1986. Accrual statements along with a simple trend sheet that calculates the "Sweet 16 Ratios" have been an invaluable tool for me, my bank, and especially my clients. All you need is an accurate balance sheet completed on the last day of your fiscal year-end (usually Dec. 31) and your tax return.
Just averaging your schedule F income over several years does not give you a good idea of how you are doing. If you can make decisions off of information that is 66% wrong, then good luck! That was the difference between Schedule F versus accrual net income for a five-year period (2002-2006), based on a study by F.L. Barnard, P.N. Ellinger and C. Wilson in 2010.
So if you are not already doing accrual earnings, take the steps this year to start. If you need help, come to the Farm Futures Ag Finance Boot Camp on Jan. 6 in St. Louis. We're offering several sessions on how to improve your record keeping and financial management skills, including accrual earnings.
You can also tap into the resources you need at the Farm Financial Standards Council home page.
Brought to you by Farm Financial Standards Council. The opinions of Joe Kessie are not necessarily those of Farm Futures or the Penton Farm Progress Group.