Farm Credit Services of America (FCSAmerica) and Frontier Farm Credit are co-sponsoring a webinar series, Two Economists and a Lender. Our latest installment featured Agriculture Economic Insights (AEI) co-founders David Widmar and Brent Gloy, and Andrew Faubel, business development officer. The webinar recording from November 21 is available. Explore upcoming webinars.
Agriculture benefits from the unique ability to file income taxes based on a cash basis. This tool, however, can create managerial blind spots. In this episode, we discussed the differences and ideas for improving your insights.
In this webinar, we discuss the importance of accrual-adjusted income statements. Most producers rely on cash-based accounting because it is easier to set up and intuitive to use. But those who use accrual-adjusted accounting gain deeper insights into their financial position. They can answer the all-important question: Is my operation progressing or regressing?
Accrual income profit statements provide a clear picture of each enterprise's true profitability. This clarity informs decisions about where to invest your effort and resources. It takes additional time and effort to gain these kinds of insights, which is why accrual-adjusted accounting isn’t common in agriculture. Accrual-adjusted income statements also aren’t required by lenders, whereas the tax returns and balance sheets supported by cash-based accounting are.
Producers don’t need to abandon cash-based accounting. Instead, they can layer in accrual accounting to ensure inventories and other financial details are accurately recorded at year-end. Lenders can assist in this process, but it requires good communication and a willingness to engage in detailed financial planning.
The expectations on producers are evolving. Hard work and strong production must be accompanied by good financial management. Working closely with financial advisors, accountants and other business partners supports the success of a farm or ranch. Producers who are proactive in their financial planning continually adjust their strategies to align with and achieve their goals.
