By Joe Kessie
The Farm Financial Standards Council recommended using accrual earnings in 1991. Think about all the technology that has been adapted by farmers since that time. Even Round-Up-Ready soybeans were not introduced until 1996. That is why I am still amazed that after over 23 years of having the ability to calculate accrual earnings, so many farmers and their lenders are not using this tool to know how they really are performing financially.
I have been getting accrual statements from my clients since 1986. Accrual statements along with a simple trend sheet that calculates the “Sweet 16 Ratios” have been an invaluable tool for me, my bank, and especially my clients. All you need is an accurate balance sheet completed on the last day of your fiscal year-end (usually December 31st) and your tax return.
Think just averaging your schedule F income over several years gives you a good idea of how you are doing? If you can make decisions off of information that is 66 percent wrong then good luck. 66 percent was the difference between Schedule F versus accrual net income for a five-year period (2002-2006). This information came from a study done by F.L. Barnard, P.N. Ellinger and C. Wilson in 2010.
So if you are not already doing accrual earnings, take the steps this year to start. If you need help, all the resources you need can be found at www.ffsc.org.
