Farm Financial Planning

Balance sheets measure the farm’s current financial standing at a specific point in time. It shows how much is owed (liabilities) and how much is owned (assets) to calculate the total net worth of a business or an individual. Tools, machinery, vehicles, land, buildings, and even unsold crops are considered farm assets. Any money owed on these assets is a liability. Credit card debt, machine loans, and mortgage or operating loans are liabilities. 

Assets – Liabilities = Net Worth (owner’s equity)
$50,000 - $30,000 = $20,000 

A best practice is to update the farm balance sheet annually on the same day. While any date can be chosen, Dec. 31 and Jan. 1 are commonly used. A small urban farmer may not have entries for all categories in a standard balance sheet template. 

If the farm has not yet been started, create a personal balance sheet to assess your finances. Lenders will request this information from farmers without a farm loan track record. 

Income statements measure the farm business’s profitability over the past year. 

Total Revenue – Total Expenses = Net Income
$60,000 - $40,000 = $20,000 

Net income is the amount of money the business gets to keep at the end of the year. All sources of revenue, including crop/livestock sales, government payments, custom work for other farms, and any other revenue generated by the farm business, must be accounted for. The expense list includes seed/feed, soil amendments, fuel, repair, utilities, property taxes, insurance, and more. 

Enterprise budgets show how the farm will generate revenue from a specific crop, product, or sales outlet, like a farmers market or CSA. It assists farmers in making better-informed decisions because it shows if a specific product or sales outlet is positively contributing to overall farm income. 

The budget predicts expected net return, or how much money farmers get to keep, based on what might be earned (expected revenue) after all costs have been calculated. 

Expected Revenue – Total Costs = Expected Net Return 

A tricky part of an enterprise budget is determining how to allocate items across various enterprises. It’s simple to track how much gas was spent on farm work each week, but how much of that gas was used on the collard crop? Small, diversified farms may find it easier to use enterprise budgets by sales outlet.

See expanded example of an enterprise budget for annual farmers market sales in the downloadable fact sheet. 

Cash flow worksheets show how much money is coming into a business, leaving a business, and how much remains each month. It indicates when available cash might be unable to meet the needs of the business. When built out across several years, cash flow worksheets predict the future financial viability of a farm, and can provide guidance about when to make expensive infrastructure or labor investments. When used for forecasting, they may be referred to as a proforma. 

The example worksheet on the downloadable fact sheet shows how a farm may end up with a negative balance before any income is earned. This new urban farmer starts off with $5,000, invests in a small high tunnel in January, some simple irrigation in February, and a more expensive seeder in March, which results in a $1,000 negative balance, despite not paying for any insurance or utilities. The farmer may want to reconsider the $600 seeder purchase, consider how to generate income before April, or be comfortable with carrying $1,000 in debt until income is earned.