Tax time is a great time for farm financial analysis
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EmailTax time is the perfect time to take your farm’s financial information and develop a farm financial analysis. MSU Extension is ready to help you with this process
The heat is on for farm families across the state to complete their compilation of farm and personal financial information for 2011. As the 1099’s and other yearend financial information are delivered and posted, the next step in this process is to complete the income tax reporting. During this process, many farms and families evaluate their farm’s financial situation and monitor the changes that may have taken place. Michigan farm families have a great resource in Michigan State University (MSU) Extension’s farm management educators, like Dennis Stein, steind@anr.msu.edu, who is available to work with you in developing an annual farm financial analysis. The process of a financial analysis takes the income and expense totals from 2011 along with the inventory report from the beginning and end of the year to calculate a series of ratios and values. When the standard financial ratios are calculated, you can then evaluate your farm’s financial position against industry benchmarks. To aide farms in looking at their situation, a financial score card can be used to provide a risk rating for the farm financial situation. By using this type of bench mark evaluation, a farm can then begin to identify the area(s) where they may need to develop an action plan to reduce risk.
In the past, a farm may have felt that they were doing well financially if they had some taxes to pay at the end of the year. That standard is not acceptable in today’s world where farms are now dealing with double or triple the dollars that they may have handled a decade ago. This huge volume of income and offsetting expenses has created a new risk that farm families are now seeing as something that they need to monitor. The larger cash-flows of today’s farms mean that even a small mistake can add up to large dollar values of risk that now require monitoring to stay profitable and competitive in the current markets.
If you have not done a farm financial analysis for your farm in the past, 2012 may be the year for you to start a new farm management practice that can help you and your family meet the challenges of this volatile farm economy. Consider giving your local farm business management educator a call by contacting your local MSU Extension office, or email Stein at steind@anr.msu.edu and he will help you make the connection with the farm management educator that covers your part of the state. Take action today while your financial numbers are fresh in your mind and easy to find as later in the season you will lose the time and focus leaving your farm floating in the world of no-one knows.
