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Business Savvy

January is best time to prepare balance sheets for your farm.

January 11, 2007

1 Min Read

Get your farm, ranch or agricultural enterprise off to a good start in 2007 by preparing a new business plan and balance sheet.

"Many business people wait until their lender tells them they need to have a balance sheet before discussing a loan. But, it is a good idea to prepare a balance sheet annually to get a handle on the progress of the business as well as an individual's personal assets," says David Whitson, agriculture business specialist, University of Missouri Extension.

For example, a balance sheet reflects a farm's financial position in terms of assets, liabilities and net worth or owner equity at a point in time. If the balance sheet is prepared yearly, and book value of the long-term assets is used instead of market value, then the difference from year to year of the net worth would show the net income minus withdrawals for living expenses.

"Balance sheets are a list of your assets, or what you own, minus what you owe. In simple terms, the balance sheet is an indication of the difference between what you own and what you owe. The difference is the owner equity or net worth," Whitson says.

Some small business and farms may prepare what is known as a consolidated balance sheet, in which the assets and liabilities include both the items owned in the business as well as all personal belongings.

"From a business point of view, it's best to keep the balance sheets separate if you want to analyze the growth of the business over the years. Once the first balance sheet is prepared, the job is easier and more accurate as the years go by," Whitson says.

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