Tools to help prepare growers for loan applications and

beyondStan 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:

Balance Sheet Example:

Balance Sheet Example:

Balance Sheet Example:

Balance Sheet Example:

Balance Sheet Example:

Balance Sheet Example:

Balance Sheet Example:

Balance Sheet Example:

Balance Sheet Example:

MSU Excel Balance Sheet

• Simple schedule based balance sheet• Does the calculations for you

Excel Screen Shot

Excel Screen Shot

Excel Screen Shot

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.

Income Statement

Income Statement

Income Statement

Income Statement

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 neededFrom 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

Financial ratios – General Guidelines

Finpack

Projecting Future Performance

• Two Options• Spreadsheets that you can use on your own• Finpack software to do FinFlo (Cash Flow

projections)

Penn State Cash Flow Model

Penn State Cash Flow Model

Penn State Cash Flow Model

Penn State Cash Flow Model

Penn State Cash Flow Model

Penn State Cash Flow Model

Penn State Cash Flow Model

MSU Cash Flow Model

MSU Cash Flow Model

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

http://agbioresearch.msu.edu/nwmihort/disaster.html

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