Approaching your Small Farm Dream with Financial Reality

Posted: October 23, 2013

For a beginning farmer, making economic decisions may be a stressful task if accounting records and financial statements are not available. The use of spreadsheets and computerized financial records help farmers relax while making a plan.

Starting small can lower capital assets investments. Look for a used tractor you can buy or lease. A lease may provide lower monthly payments. But no matter the scale of your business it is important to monitor your income and expenses.

“We started on 2 acres we borrowed from my dad, “said Sarah Stahl, who grows vegetables for the farmers’ market in Somerset. She and her husband Todd Wetzel are very determined to make their farm dream a reality. “In turn I help milking my father-in-law’s cows,” said Todd, “it is a win-win solution.” Todd tracks all his crops schedules in a logbook. He also creates budgets with all money inflows and outflows to make sure there will be working capital to cover expenses throughout the season and grow the business. “Our best advice for beginning farmers is to locate their farm close to the market” Wetzel said. He said they started with an old pick-up truck to avoid debts. “Our mission is to bring quality produce to the market and sell what the market demands,” said Wetzel. He also stresses it is important to “avoid focusing too much niche marketing ,” which can be tricky if too much of your businesses is invested in something trendy and then the trend changes.

“Living within your means is a must when establishing a farm business,” said Sarah who stressed the importance of eating at home, buying at the cheaper stores, and watching the ball games at home.

There are many new farmers like Sarah and Todd who see the need to control the family and farm income and expenses by using production and financial records. But a farmer can only feel comfortable with their feet on the ground if they have a plan, both a production and a business plan. A production plan for produce can be embodied in a spreadsheet. The first step is a list of harvest dates in one column and the different crops to be planted on the top row. Then under each crop the planting date is placed so that it is matched with the harvest date. A second spreadsheet will establish cost and yield per square feet and needed inputs per enterprise. Please visit the following website where you can download these spreadsheets free:

The financial plan includes the three main financial statements: The balance sheet lists all what you own (assets), and all what you owe (liabilities) in your farm business, it also includes the difference between assets and liabilities which is your equity. If your equity increases from one year to the next then your business has grown. The cash flow budget is a projection of cash inflow and outflow. You can plan which month will have needs or surpluses and is an indicator of liquidity. For example, will you have cash on hand to pay your staff and your grocery bill each month? The income statement includes cash and non-cash income and expenses and indicates the net profit or bottom line of the operation. Non-cash expenses are for example the depreciation of your tractor and vehicle. A non-cash income is, for example, the corn-grain inventory increase, which you have not sold or used but is part of your gross income. I consider the most important financial statement is the cash flow budget because it indicates if there will be enough money to pay debts.

The best financial planning tool I can recommend is FINPACK, financial software out of the University of Minnesota: This software helps evaluate financial position, explore alternatives, and make informed farm management decisions.

FINPACK helps farmers to prepare the farm’s balance sheets, monthly cash flow plans (FINFLO), annual cash flow plans (Annual Plan), business analysis of past performance (FINAN), long range “what if?” plans (FINLRB) and historic trend reports.

The FINLRB (long-range budgeting) component of the software is extremely useful to evaluate different enterprise alternatives or strategic plans. The cash flow planner (FINFLO) is equally important to analyze major operational changes to the farm and investment analysis. The FINAN year-end analysis allows a producer monitor inventory changes and calculate accrual net income.  It helps farmers me see the level of production and area needed to support a family to meet financial obligations. With FINPACK you can analyze as many as 600 crops and it can be adapted to virtually any agricultural business.  For information on farm financial management contact Miguel Saviroff at the Penn state Extension office in Somerset County at 814-445-8911 extension 144.