farm business plan worksheet balance sheet

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The basics of a farm balance sheet.

The farm balance sheet is one of three financial statements that provide critical information about a farm business. Completing an annual balance sheet, income statement, and statement of cash flows is critical to helping farm businesses understand their financial health. The balance sheet provides a picture of your farm’s financial position on a specified date. The picture is painted by describing all of the assets owned by the business and listing all of the liabilities or financial obligations to others. The balance sheet is also known as the net worth statement. A well-prepared balance sheet can provide an objective measure of farm business growth, liquidity, solvency, and risk bearing capacity.

Categorizing Balance Sheet Items

Balance sheet information is organized into two columns: assets and liabilities. The column on the left describes the farm business’s assets and the column on the right describes the farm business’s liabilities.

Assets are items owned by the farm business that have value. They include the items that the farm uses to produce the products they sell. Assets include, but are not limited to, cash, grain and feed inventories, prepaid expenses, market livestock, breeding livestock, machinery and equipment, buildings, and farmland.

Liabilities are debts owed to others including commercial lenders, vendors, and private individuals. Debt may be used to finance asset purchases or cover cash shortfalls in the farm business. Balance sheet liabilities include outstanding financial obligations for farm operating expenses such as feed, seed, and fuel. Other liabilities may also include loans for market or breeding livestock, machinery, equipment, land, buildings, and improvements.

Total assets and liabilities on the balance sheet are used to determine the owner’s equity, or net worth, of the farm business. Net worth represents the value of the business owned and free of debt. Net worth or owner’s equity is a simple calculation:      

Total Assets – Total Liabilities = Net Worth

Terms of Assets and Liabilities

Beyond the broad categories of assets and liabilities, the balance sheet categorizes items by terms of useful life. Useful life is the amount of time an item is likely to be utilized in the farm business. Both assets and liabilities are categorized into current, intermediate, and long, or fixed, terms of useful life.  Some lenders now combine “intermediate” and “long term” into one category simply using “current” and “non-current” categories.  

Current Assets —Current assets are cash or items that can be easily converted to cash in one year or less. Common current assets include cash, savings, prepaid expenses, growing crops, harvested crop inventories, market livestock, accounts receivable, seed, feed, fertilizer, and other supplies on hand.

Intermediate Assets —Intermediate assets have an assumed useful life of one to 10 years. Common intermediate assets are breeding livestock, machinery and equipment, titled vehicles, and not-readily-marketable bonds and securities.

Long-Term Assets —Long-term, or fixed, assets are typically permanent items with an assumed useful life of more than 10 years and include farmland, improvements such as tile and fence, buildings, farmsteads, capital retains, investments, and other similar items.

Current Liabilities —Current liabilities are obligations that are due and payable in the next 12 months. Common current liabilities include accounts payable (bills), credit card balances, operating lines of credit, accrued interest, and the principal due on intermediate and long-term loans in the next 12 months.

Intermediate Liabilities —Intermediate liabilities are debts that are scheduled to be paid back between 13 months to 10 years, and are usually associated with the intermediate farm assets found on the left side of the balance sheet. Common intermediate liabilities are the principal remaining on machinery and equipment loans or breeding livestock purchases.

Long-Term Liabilities —Long-term, or fixed, liabilities are debts with terms greater than 10 years. Long-term liabilities typically include farmland or building mortgages. Loans are classified as intermediate or long-term liabilities based on the original length of the loan. For instance, when there are eight years left to pay on a 20-year mortgage, it continues to be listed as a long-term liability on the balance sheet.  

Keys to Completing the Balance Sheet

To develop a high-quality year-end balance sheet:

• Complete the balance sheet on the same date each year, usually as of December 31st.
• Inventory all assets, using standard weight and measure units (e.g., pounds, head, tons, bushels, bales, etc.)
• Utilize current market prices for crop and livestock inventories.
• Value growing crops at the cost of inputs.
• Include government payments, insurance indemnities, and other income yet to be received as accounts receivable.
• Apply conservative breeding livestock values, avoiding large year-to-year changes.
• Separate farm and personal assets and liabilities. Either create separate balance sheets, or itemize personal assets and liabilities as separate schedules on the balance sheet.

Balance Sheet Tools

Tools are available to assist with development of a farm business balance sheet. The Ohio Commercial Farm Account Book, available through your local OSU Extension office  or extensionpubs.osu.edu , offers a paper-based version of a farm business balance sheet and supporting schedules. For those who prefer to use software programs, there are spreadsheet-based programs with templates and accounting formulas available, or there are accounting software packages linking balance sheet values with online resources. OSU Extension has a spreadsheet-based balance sheet template with farm schedules that can be found at go.osu.edu/BalanceSheet or on the farmoffice.osu.edu website under farm management tools and resources.

The most important factor for completing a quality balance sheet is to make timely, accurate, and complete entries, regardless of the method used for creating the balance sheet. Each method has drawbacks and advantages, and the choice of computer versus paper-based systems usually comes down to personal preference.  

References 

Hachfeld, G., D. B., Bau, C. R. Holcomb. 2016. Balance Sheet . Farm Financial Series, #1, University of Minnesota Extension. Available online at: extension.umn.edu/farm-finance/balance-sheet

Langemeier, M. R. 2011. Balance Sheet—A Financial Management Tool . MF-291, Department of Agricultural Economics, Kansas State University Extension. Available online at: agmanager.info/farm-management-guides-0/balance-sheet-financial-management-tool

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Farm Operating Loans

FSA’s Direct Farm Operating Loans are a valuable resource to start, maintain and strengthen a farm or ranch. For new agricultural producers, FSA's Direct Farm Operating Loans provide an essential gateway into agricultural production by financing the cost of operating a farm. With a maximum loan amount of $400,000, all FSA Direct Operating Loans are financed and serviced by the Agency through local Farm Loan Officers and Farm Loan Managers . The funding comes from Congressional appropriations as part of the USDA budget.

• Fact Sheet: Farm Loans Overview (PDF, 800 KB)
• Direct Loan Making Handbook 3-FLP (PDF, 2.29 MB)
• Farm Answers Library
• National Agrability Project
• USDA Veterans in Agriculture
• Farmers.gov

Application Forms*

Loan Application Package of All Forms Listed Below (PDF, 1,094KB)

Loan Application Instructions for All Forms Included in Loan Application Package  (PDF, 420KB)

*All FSA direct loan applications require the same basic forms.

Simultaneous requests for a direct farm ownership loan and a direct operating loan should be combined on a single loan application form.

When you meet with your FSA county Farm Loan Program staff, you will be asked to complete additional forms based on applicable loan program requirements for the loan type.

Frequently Asked Questions

Loan Purposes

Operating loans must be essential to the success of the farming operation and only for the following purposes:

• purchase of equipment to convert from conventional to no-till production
• change from stocker to cow-calf production
• shifting from row crop to vegetable production
• purchasing grain drying and storage equipment to facilitate better marketing
• purchase shares in value-added processing and marketing cooperatives
• Purchase of livestock, including poultry
• Purchase farm equipment
• farm supplies
• family living expenses
• initial processing of agricultural commodities, under certain circumstances
• Minor improvements or repairs to buildings
• Refinance certain farm-related debts, excluding real estate
• Land and water development, use, or conservation
• Loan closing and borrower training costs

Maximum Loan Limitations

The maximum loan amount for a Direct Farm Operating Loan is $400,000. There is no down payment requirement. 

Repayment Terms

Direct Farm Operating loan repayment terms vary depending upon the purpose of the loan, the loan applicant's ability to pay, and when income is projected to be available. General operating and family living expenses are normally due within 12 months or when the agricultural commodities sell. For larger purchases such as equipment, minor repairs, or livestock, the term will not exceed 7 years.

Interest Rate

The interest rate charged is always the lower rate in effect at the time of loan approval or loan closing for the type of loan wanted.   Interest rates   are calculated and posted the 1st of each month.

Eligibility Criteria

There are 2 different types of qualifications which need to be met:

• eligible farm enterprise
• general eligibility requirements

First, the operation must be an eligible farm enterprise. Operating loan funds cannot be used to finance nonfarm enterprises, such as exotic birds, tropical fish, dogs or horses used for non-farm purposes (racing, pleasure, show and boarding).

General eligibility requirements include:

• not having Federal or State conviction(s) for planting, cultivating, growing, producing, harvesting, storing, trafficking, or possession of controlled substances
• the legal ability to accept responsibility for the loan obligation
• an acceptable credit history
• be a United States citizen, non-citizen national or legal resident alien of the United States, including Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, and certain former Pacific Trust Territories
• no previous debt forgiveness by the Agency, including a guarantee loan loss payment
• being unable to obtain sufficient credit elsewhere, with or without an FSA loan guarantee
• no delinquency on a Federal debt, other than IRS tax debt, at the time of loan closing
• not being ineligible due to disqualification resulting from a Federal Crop Insurance violation
• have sufficient managerial ability to assure a reasonable expectation of loan repayment

Explanation of "Managerial Ability"

Managerial ability is shown to the Agency through any combination of education, on-the-job training, and farm experience or by meeting just 1 of these criteria. The level of management ability required will depend on the complexity of the operation and the amount of the loan request. Every application is evaluated on a case-by-case basis.

• 4-year college degree or graduate degree in agricultural related field(s)
• 2-year college degree from a technical college in agricultural related field
• successful completion of farm management curriculum offered by the Cooperative Extension Service, a community college, adult vocational agricultural program or Land Grant university
• successful completion of a community-based, nationally-based, non-profit or similar farm workshop programs
• vocational or general agriculture classes in high school in addition to working on a farm and participating in, and successfully complete agricultural projects in, 4-H, FFA, Tribal youth organizations, Grange Youth, or another agricultural affiliated club

On-The-Job Training:

• working or recently worked as hired farm labor with management responsibilities (make day-to-day decisions)
• completing or recently completed a farm mentorship, internship or apprenticeship program with an emphasis on management requirements and day-to-day farm decisions
• participating or recently participated in urban or community-supported agriculture programs which incorporate basic agricultural training

Farm Experience:

• owner, manager or operator of a farm business for at least 1 full production and marketing cycle within 5 years of the date of the loan application
• employed as a migrant farm worker and elevated to leadership or foreperson position for at least 1 entire production and marketing cycle with responsibilities related to crop and field management, livestock health, breeding supervision, labor management or hiring, or general farm management
• raised on a farm and had significant responsibility for day-to-day management decisions for at least 1 entire production and marketing cycle
• obtained and successfully repaid at least 1 FSA Youth Loan

Credit Score Basics

FSA does not use credit scores. Loan applicants are expected to have acceptable repayment history with other creditors, including the Federal Government. Loan applicants are not automatically disqualified if there are isolated incidents of slow payments; no credit history; or if it can be shown that any recent undesirable credit problems were temporary and beyond a loan applicant’s control. "No history" of credit transaction by a loan applicant does not automatically indicate an unacceptable credit history.

Technical Assistance

Many answers are found in our booklet, “ Your Guide to FSA Farm Loans " (pdf, 2.53MB). It is also recommended that you call and make an appointment with your   nearest Farm Loan Officer or Farm Loan Manager . Agency officials are required to:

• help loan applicants complete FSA forms and gather information necessary for a complete application;
• explain the application procedure, process, and the requirements for a complete application;
• assist loan applicants in completing FSA forms and identifying sources of information needed for a complete application, if assistance is requested;
• inform loan applicants of other technical assistance providers who may be of assistance at minimal or no charge. Some examples include, and are not limited to, the Cooperative Extension Service, non-profit organizations and institutions, the Intertribal Agriculture Council, and other similar organizations; and
• advise applicants of alternatives that will help overcome any possible barriers to being determined eligible for an FSA loan.

Suggestions for First Meeting with FSA

• Have a general idea of what it is you want to do and be able to identify your goals. What type of operation do you have or want to have? What do you need to operate that farm or ranch? How will you market your product(s)? How much do you need? What are your projections?
• Good recordkeeping is very important. If you do not have your records organized, it is a good idea to try and put all your income and expenses into an understandable format. It does not have to be fancy. Also, what is happening inside the household is just as important as your business needs. Expenses such as food, clothing, mortgage or rent, insurance, taxes, medical costs, credit card payments, education expenses, and other consumer debt are part of the farm plan calculations. Know your costs. Bring your records with you.
• Remember to bring any financial records, which can include tax returns, for the most recent production cycle to assist in projecting the cash flow for your loan proposal. If you need to rely on off-farm income to repay the loan, bring in your last few pay stubs.
• Bring copies of any written leases to the office with you if you are leasing land or equipment.
• It is a prudent idea to check your credit report before applying for a loan. This allows you to spot any errors or research events that may have negatively impacted your credit. The Fair Credit Reporting Act (FCRA) requires each of the nationwide credit reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months. The FCRA promotes the accuracy and privacy of information in the files of the nation’s credit reporting companies. The Federal Trade Commission (FTC), the nation’s consumer protection agency, enforces the FCRA with respect to credit reporting companies.

Additional Information

We encourage you to contact your   local office or USDA Service Center   to learn more about our programs and the information you will need for a complete application. You also should be able to find a listing in the telephone directory in the section set aside for governmental/public organizations under the U.S. Department of Agriculture, Farm Service Agency. Our local FSA offices are happy to help you.

Instructions For FSA-2038

Farm business plan worksheet (projected/actual income and expense), the worksheet is used to gather income and expense information from a producer and is used to develop a farm business plan.   the completed farm business plan provides the business's financial condition, operating plan and actual summary for a specified time.   it is used for loan making and servicing decisions.   the final plan should be completed in partnership with the producer and the agency.  .

Submit the original of the completed form in hard copy or facsimile to the appropriate USDA servicing office.

Producers who have established electronic access credentials with USDA may electronically transmit this form to the USDA servicing office, provided that the producer submitting the form is the only person required to sign the transaction.

Features for transmitting the form electronically are available to those producers with access credentials only.   If you would like to establish online access credentials with USDA, follow the instructions provided at the USDA eForms web site.

Producers must complete all Items.