Elizabeth A. Yeager and Freddie L. Barnard write about evaluating the effectiveness of operating strategies for firms with different levels of financial leverage. Article re-printed with permission of BankNews Media:
Welcome to 2017
The celebrating is over and it’s back to the routine for most of us. But what a way to greet the new year….with lots of NEW MEMBERS!! We hit the 152 mark last week while at the Farm Futures Boot Camp Program……it has made it a challenge to keep the membership directory up to date….no sooner do we get an issue put together and we get a handful of new members, so we do it again….just wanting to keep it as current as we can.
New Guidelines Document is Out
You should have received your copy of the 2017 Financial Guidelines for Agriculture right at the first of the year. I was accompanied with the Summary of Changes which highlights the primary changes to the document. If you did not receive your copy of these please let me know and we’ll resend.
Boot Camp was Biggest Yet !!
When the entire concept of the Ag Finance Boot Camp was launched over 4 years ago no one knew for sure just what kind of reception it would get. And there were weather problems the second year which threw everything sideways. Last week’s Boot Camp in Bettendorf, IA was the largest audience yet….officially 137 at the beginning of the day and then they added extra tables and chairs. Obviously there is a demand for the information and Paul Neiffer, Brenda Duckworth and Stephen Severe were on hand to provide some of the ‘tutoring.’ Former Council Board Member Curt Covington was also on the program representing FarmerMac.
In addition to a handful of FFSC members we were pleased to see Past President Ron Swanson join the group. All in all a great day with some preliminary planning already underway to look at how we may be involved with Boot Camp V next January.
Here are some stats from the meeting.
Are you familiar with the Farm Financial Standards Council?
Yes — 21%
Somewhat — 19%
No — 60%
What accounting system do you use?
Quickbooks — 38%
Other — 32%
Excel / Manual — 20%
What is your age?
35 or younger — 39%
36 – 50 — 39%
51 – 60 — 15%
Over 60 — 8%
Which best describes your farming operation?
Cash grain — 53%
Grain & Livestock — 39%
Other — 5 %
Primariliy Livestock — 3 %
Your financial statements are:
Self-prepared — 75%
Accountant-prepared — 25%
How confident do you feel your lender is with your financial management?
High — 60%
Moderate — 35%
Low — 5 %
Do you know more about your finances than yur banker?
Yes — 68%
It’s a tie — 23%
No — 9 %
Do you know your deferred tax liability?
No — 66%
Yes — 24%
I don’t want to know — 10%
What method of accounting do you use to measure performance of your operation?
Accrual Basis — 59%
Cash Basis — 41%
Summary of Changes
In this edition of the Farm Financial Standards Council’s Financial Guidelines, there are several important changes to be noted. These changes reflect the latest evolution of the guidelines to be more user-friendly and guided by the continual goal of being as consistent as possible between GAAP and the distinct challenges inherent in agricultural production businesses. The goal of obtaining a more stream-lined, visually appealing, and more concise set of guidelines was largely achieved by reducing verbosity and minor format changes.
Beyond these, the most impactful change affects the Income Statement and subsequent financial analysis ratio calculations and other computations that are derived in part or whole;from the income statement. While the terminology related to some of these calculations has changed, the interpretation of the results has not been affected.
The following summarizes how the Income Statement format has changed in the current edition:
- Interest expense has been moved out of operating expenses resulting in the subtotal, Income from Operations, which is prior to consideration of interest expense.
- The prior Income Statement format contained the subtotal Net Farm Income from Operations and was a subtotal that included all operating expenses and only differed from Net Farm Income by the exclusion of gains/losses on capital assets. The term Net Farm Income from Operations has been removed from the guidelines.
- In the current Income Statement format, Net Farm Income differs from Income from Operations by the exclusion of consideration of interest expense and gains/losses associated with the sale of capital assets.
The following list summarizes the specified effects of the Income Statement format changes:
- Income Statement format: Interest expense is removed from operating expenses and is listed below Income from Operations subtotal (Formerly Net Farm Income from Operations) as a line item prior to gain/losses on sale of capital assets.
- Rate of Return on Farm Assets and Operating Profit Margin Ratio computations: In the calculation of these ratios the numerators, Netfarm income from operations + Interest expense, are replaced with the single expression Income from Operations. The interpretation of these ratios remain unchanged.
- Rate of Return on Farm Equity computation: In the calculation of this ratio the numerator, Net farm income from operations, is replaced with income from Operations -Interest expense. The interpretation of this ratio remains unchanged.
- EBITDA computation: Net farm income from operations + interest expense replaced with the single expression Income from operations. Intermediate subtotal EBIT removed from the calculation to arrive at EBITDA computation.
- Capital Debt Repayment Capacity computation: Netfarm income from operations is replaced by Income from Operations. In this calculation, the addition of interest expense on term debt has been replaced with the subtraction of interest expense on current debt to arrive at Capital debt repayment capacity.
- Income from Operations Ratio computation: In this calculation since Net farm income from operations has been removed from the guidelines; Income from operations less Farm inter.est expense is now used as the numerator. The interpretation of this measure remains unchanged.
Order the 2017 Financial Guidelines for Agriculture
Order the Management Accounting Guidelines
By Mike Wilson
Ramping up your business skills makes sense any time, but especially now, with thin projected margins for agriculture. If you can spare a day, join us for the 2017 Farm Futures Ag Finance Boot Camp, taking place Jan. 18 at the Quad-Cities Waterfront Convention Center in Bettendorf, Iowa. This one-day workshop, sponsored by FarmerMac, Farm Credit and Grinnell Mutual, is designed for business-focused farmers, bookkeepers and office managers of all skill levels. In just one day you will:
— learn to more accurately assess the strengths and weaknesses of your farm operation, and understand how to work with lenders to get what you need;
— be able to use financial information to improve, year-over-year, and learn the importance of accurate year-end information;
— learn why working capital is considered a risk management tool for your operation, how your decisions impact working capital, and why it matters to your agricultural lender;
— learn the difference between cash and accrual accounting and how to use them both in management analysis;
— learn why contribution margin analysis is more valuable to your operation than net income;
— learn how to determine if you need to employ management accounting in your farm business.
Using financial standards in your business.
Today’s business environment in agriculture is becoming increasingly complex. The accounting systems that farmers and ranchers use must generate information for external reporting to creditors, government agencies and others. You also need good information to make good business decisions.
The Farm Financial Standards Council (FFSC) offers two sets of guidelines to aid farmers in capturing this information, preparing reports and performing financial analysis in a uniform manner. Attendees will be able to get these guidelines for free by attending the boot camp. Perhaps even more important, FFSC experts will be on hand to lead sessions and help answer questions on how the standards can help make your business more profitable.
Time is running out. To register, go to www.farmfuturesbootcamp.com or click the boot camp tab at www.farmfuturessummit.com. The boot camp is just $225 per person, and room rates at the Isle Casino Hotel Bettendorf are just $69.99 per night. While you’re browsing, be sure to register for the Farm Futures Business Summit, Jan. 19-20 at the same venue and convention center.
We are bringing experts to the workshop to help you learn how to manage the business of farming. If you fully engage and take advantage of this opportunity, you will master new skills that will help you the rest of your career.
A sharp uptick in debt, owed by farmers who loaded up on easy credit when commodity prices were high and kept borrowing after grain prices crashed, is raising fears of broader turmoil in U.S. agriculture.
A Reuters analysis of federal data on agricultural lending in Illinois, Indiana and Iowa shows that delinquency rates on farmland and production loans are rising sharply. According to Reuters, the proportion of extremely leveraged grain farmers in the U.S. – those with debts totally more than 71 percent of assets – doubled between 2012 and 2015.
(via Illinois Farm Bureau)
At the 2016 FFSC Annual Conference and Padlock Ranch, the hospitality and camaraderie were as large as the ranch itself. More than 60 professionals and family members gathered July 13-15 to meet new friends and reacquaint themselves with colleagues they’d not seen for a while.
You can see lots of photos and get a full summary of the conference — both the business and social aspects — by downloading our PDF wrap-up.
(Ranchester, WY, July 25, 2016) – Stephen Severe, chief financial officer at Padlock Ranch, located near here, was elected president of the Farm Financial Standards Council during the organization’s annual conference held at the ranch July 14 and 15.
Severe, who had previously served as the Council’s secretary/treasurer and vice president, was chosen to lead the group during a business meeting that capped off a week of activities on the sprawling 475,000-acre property which straddles the Montana and Wyoming state line.
Named vice president of the organization was Janice Bitter, a vice president with Farm Credit East, Homer, NY. Bitter had previously served as secretary/treasurer of the Council. Joining the leadership team is Todd Doehring, a director at Centrec Consulting Group, a management and financial consulting firm located in Savoy, IL.
Earlier in the week the senior leadership of the organization spent two days doing strategic and long-range planning for the Council. They were later joined by agricultural financial advisors, academics, accountants and farmers/ranchers from across the country for discussions on issues involving current and future financial planning needs of agricultural producers and lenders.
While meeting at Padlock headquarters the Council approved the adoption of new versions of the Financial Guidelines for Agriculture and the Management Accounting Guidelines for Agriculture. Both documents have undergone revisions to style and format and the new versions will become available in January 2017. The original Financial Guidelines were introduced in 1993 as a guide for bringing industry-wide uniformity in assisting farm and ranch owners / managers and their accounting teams to develop standardized financial recordkeeping formats and programs.
The group also discussed some possible changes to its organizational structure and fees being charged for the Guidelines documents.
In 2017 the Council will meet July 27 and 28 in Syracuse, NY.
This year, we’re making our annual membership renewal available online. You can fill out the form below to renew your membership through next June, and you’ll receive an invoice in your email enabling you to pay online. (If you’d rather send us a check, you can do that, too.)
Take a look at our corporate partnership program, as well. Our corporate partners make possible many of the services the FFSC provides to members, and we’d love to have you on board. You can add your corporate partnership to your membership renewal form and make one easy payment. We’d love to have you on board for a great 2016-17!
Update: Ag Finance Boot Camp is over, but you can still access a lot of great content from our event! Check out a list of our presentations here.
The Farm Financial Standards Council is proud to be involved in the upcoming Ag Finance Boot Camp for 2017. The boot camp is scheduled for January 18 in Bettendorf, Iowa.
The one-day workshop is packed with sessions presented by savvy ag finance experts and lenders.
Big picture topics include:
- How accrual transactions affect income statements
- How to measure business performance using ration analysis
- How to find and use financial resources to improve your business performance
- How to get what you want when working with lenders and accountants
The boot camp will be followed by the Farm Futures Business Summit in the same location on January 19-20.