The Ag Lending Group team has been brainstorming ways we can help YOU prepare to look for a farm mortgage loan. We have decided to break out one of the most important components of your Farm Balance Sheet step by step. Knowing the financial position of your farm operation is critical to your future success. One of the most important tools in helping you to understand the financials on your operation is the balance sheet! It shows your financial position at a specific point in time. More on the "specific point in time" in Step #1.
Many of the folks that write into Ag Lending Group do not have an updated balance sheet or have not prepared one on their own without the guidance of their bank. Lets break it down over the next week to set you up for success on your own! In addition to creating a balance sheet for your farm business, it is also recommended to complete a separate, personal balance sheet on your individual finances.
Step 1: Pick a date for your balance sheet. When applying for a farm mortgage it is important that your balance sheet information has been updated within the last 60 days. We recommend on picking the 1st day of the last month for the new balance sheet you are preparing. If it is June 1,2019 you would then date your balance sheet May 1,2019.
The three main components of a balance sheet are assets, liabilities and owner’s equity. The standard accounting equation represented on a balance sheet is Assets = Liabilities + Owner’s Equity.
Step 2: Now that you have picked your balance sheet date it is time to start entering data into you balance sheet template. Lets start with assets! Assets are anything that is owned by a farm business that has monetary value. They are classified as current assets and non current assets. We will focus on current assets today and follow up with non current assets later.
Here is what the current asset section on a balance sheet template will look like
What is a current asset? Any assets that can be turned to cash within a year without disrupting normal operations, or will be sold or consumed within a year
Current Asset Examples: Cash, accounts receivable, marketable securities, stored crops, investment in growing crops, supplies, prepaid expenses, market livestock, cash value of life insurance