AMES, Iowa – As farmers enter 2020, now is an ideal time to revisit financial statements.
William Edwards, professor emeritus in economics at Iowa State University, said most farmers use calendar-year accounting, so the end of the year is prime time for wrapping up farm financial numbers.
He said meetings with lenders usually happen in January and February, and that completing financial statements now will give farmers a head start on the process.
“One of the things that ag lenders always ask for is updated financial statements. The earlier we sit down and pull that information together the more accurate it’s going to be,” Edwards said.
The net worth statement helps farmers track assets and liabilities, and includes the land, livestock, equipment and other items used in the operation.
The farm income statement, sometimes called a profit and loss statement, provides a summary of income and expenditures during a specific year.
According to Edwards, most farm families do a good job of keeping records of income and expenses for the purpose of filing income tax returns. However, values from the tax return “may not accurately measure the economic performance of the farm,” and consequently, farmers need the broader perspective provided by a good farm income statement.
Financial performance measures help farmers evaluate how they’re doing compared to other Iowa farmers, using data compiled by the Iowa Farm Business Association.
By using the Financial Performance Measures tool, farmers can track their liquidity, solvency, profitability, financial efficiency and repayment capacity, to create multi-year comparisons of their farming operation.