Status of Producers’ Financial Records

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In a nationwide and Canadian webcast for ag lenders sponsored by Web Equity Solutions, inquiring minds asked if I am seeing upgrades to financial records by producers.

My answer is yes and no.  In the affirmative, the top 25% of producers economically have very sound financial record systems.  That is, they complete annual and sometimes quarterly balance sheets on a cost and market value basis.  They complete accrual adjusted income statements and develop projected cash flow statements.

What makes this group exceptional is that they not only complete the statements, but also use them in business decision-making.  For example, one young producer at my ag lender school indicated that he monitors performance by comparing projected to actual results.  He makes a note to his lenders concerning deviations and whether they are created by macro or microeconomic events.

Many of this top echelon of producers will benchmark their operation to others in the industry and in some cases, by enterprise.  Exceptional data sets like FINBIN by institutions, state and lender databases are excellent resources with very clean data.  Much of the data is compiled following Farm Financial Standards Council recommendations.

Does record keeping pay?  A study I conducted a few years ago found that profits were twice as high for those operations that keep good records.

One danger that I see on the horizon is many business decisions and lending decisions are being made using only tax records, without factoring in accrual adjustments for inventory, payables, receivables, etc. This can be a recipe for disaster.

 

Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at sullylab@vt.edu.

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