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Tools to help prepare growers for loan applications and beyond Stan Moore, MSU Extension Educator. Three Tools. Balance Sheet Income Statement Cash Flow Projection Why work with MSU: Now Later. Balance Sheet.
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Tools to help prepare growers for loan applications and beyond Stan Moore, MSU Extension Educator
Three Tools • Balance Sheet • Income Statement • Cash Flow Projection • Why work with MSU: • Now • Later
Balance Sheet A snapshot of the financial position of the farm business at a give point in time (aka Net Worth Statement). Everything that you own and owe.
Accurate and Detailed Balance Sheets • Analyze the financial performance of the business. • Secure credit and financing from lenders • Monitor financial progress over time • Make financial projections • Understand the financial risk position • Provide information for Estate Planning
Balance Sheet Decisions • Time Frame • Scope • Market Value of Intermediate and Long-term Assets • Cost value=purchase price-depreciation
Important Components of a Balance Sheet • Assets: Everything owned or coming to the business as of the date of the statement. • Current Farm Assets: Cash and other assets that are expected to be realized in cash or consumed in production during a business year. • Supplies • Growing Crops • Income due on previous year’s crops sold • Government payments on past activities (crop loans)
Important Components of a Balance Sheet • Intermediate Farm Assets: • Assets that support production. Machinery, Breeding Livestock, Securities not readily marketable. • Long Term Farm Assets: • Farmland • Buildings and Improvements • Non Farm Assets:
Liabilities • Obligations that are owed, related to assets on the balance sheet. • Classification does not change as a liability matures. • Accrued, unpaid interest should be listed separately and is added to current liabilities. • Current Liabilities: those due and payable on demand or within the operating year (including CCC loans).
Liabilities • Intermediate Farm Liabilities: debts against intermediate assets. Typically start with a note of 2-10 years. Machinery, Breeding Livestock, Trees. • Long Term Liabilities: debts against long term assets. Land, Buildings, Trees. • Non-Farm Liabilities:
MSU Excel Balance Sheet • Simple schedule based balance sheet • Does the calculations for you
Income Statement • Net Cash Farm Income • Net Operating Profit • Net Farm Income
Net Farm Income • Net farm income is summary of income, related expenses and the resulting profit or loss for a given time period (usually 1 year) • Net farm income = net cash farm income with adjustments for inventory, depreciation, and other capital changes.
Other Income Statement Options: • Finpack Software program from Minnesota • Many others (farmdoc – University of Illinois) has a cash to accrual income statement spreadsheet.
Performance Measures to Know! From the Balance Sheet • Debt to Asset ratio – Ability to borrow at all • Current ratio – Capacity to pay current debt if needed From the Financial Statement • Operating Profit Margin – has the farm showed the ability to make progress in the past 3-5 years • Return on Assets • Return on Equity
Projecting Future Performance • Two Options • Spreadsheets that you can use on your own • Finpack software to do FinFlo (Cash Flow projections)
So why should you consider working with the MSU FIRM team • Now • Prepare for loan application • Later • Farm Business Analysis • Farm Business Planning • What’s in it for MSU Extension? • Farm Financial Analysis database
For more information • Stan Moore – moorest@msu.edu • Phone: 231-533-8818 • Curtis Talley - talleyc@msu.edu • Phone: 231-873-2129 • Adam Kantrovich Ph.D. akantrov@anr.msu.edu • Phone: 616-994-4580