By Dorinda Anderson

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Prairie Grains is the official publication of
the Minnesota
Association of
Wheat Growers,
North Dakota Grain Growers Association,
South Dakota Wheat, Inc., and the Minnesota Barley Growers Association.

The more accurate the information in answering those questions, the better.

"Doing a farm business analysis with enterprises is becoming a necessary item for every farmer in order to gain a better handle on all aspects of the business," says Greg Kalinoski, farm business management instructor in Red Lake Falls, MN, through Northland Community and Technical College.

A farm enterprise analysis gives a clearer picture of a producer’s financial situation: where they have been, where they are and where they are going with their farming operation. Doing an analysis takes a little over a day, on average, per person, Kalinoski says, and it may take longer the first time. "It depends on how well organized they are with their own records."

The farm enterprise analysis evaluates all segments of each producer’s business, including assets and liabilities, and then determines a farmer’s net worth. Several summary pages analyze financial performance of crop enterprises (and livestock, if a part of the operation). Once this is determined, the producer can make decisions to enhance his operation, which might include cutting back, changing crop or livestock enterprises or expanding, Kalinoski says.

Kalinoski says the farm financial program FinPack is used by the NCTC FBM to correlate information. Doing a yearly analysis is best to determine financial and production trends so more accurate information can be obtained, he says. "A lot of people usually have a general idea of how their year went, this just puts it down on paper and is more complete. Each year a person does an analysis, the information builds on itself. That is where we get the trends." Those trends include a comparative balance sheet, and profitability, liquidity, solvency, and cash flow trends.

Once trends are determined, they can be used to do cash flow projections, make management decisions, create a marketing plan, and provide information needed by lenders. All the financial information follows the guidelines of the Farm Financial Standards, which is what lenders use.

Producers can look at the information and determine if they are actually making more money than a few years ago and compare their trends to the average. Key profitability measures include the rate of return on assets and equity and net cash farm income. The two main highlights of trends are financial information and production information. Past trends can help determine the cost of production, which is very important, he says.

Trends vary by farm. Questions a producer might ask when reviewing an analysis:

• Is my production what I would like?
• Are my expenses in line?
• How high are my interest costs?
• Are my family living expenses in line?
• Can I make my principal payments?
• Is there any margin left for growth?
• What are my production efficiencies?
• What is my debt to asset ratio?
• What is my current ratio?
• What is my working capital?

Once trends are identified and evaluated, steps for change are in the hands of the producer.

In western Minnesota, the FBM program is coordinated by Northland Technical College, Thief River Falls, MN, ph. 218-681-0800 , or toll free 800-959-6282. The FBM program in North Dakota is coordinated by Joel Janke, ag education supervisor at the department of vocational education in Bismarck, phone 701-328-3167. The FBM program in South Dakota is coordinated by Gary Gray, program education representative, division of work force career preparation, ph. 605-773-4726.