Every management decision for the field, herd or flock has financial implications. Understanding all the angles can be a complex task. If you want to analyze your farm/ranch financial performance but don’t want to spend days with a calculator, Integrated Farm Financial Statements (IFFS) is for you. IFFS generates financial statements—projected or actual—useful in decision making and evaluating performance. Projected statements provide insights into anticipated credit needs, cash flows, income levels, and changes in financial ratios, important information for both potential new producers and continuing operations. Historical financial statements provide important benchmarks, document financial progress, and help identify business strengths and weaknesses.
IFFS is a set of interdependent Excel-based workbooks and budget files: Crop and Livestock Budgets (CLBUD), Additional Information (AI), and Multiple-year Integrated Statements (MULTSTAT). The software facilitates data entry through point and click options, drop-down lists, and on-screen “help” (while also maintaining the keyboard commands of original versions of the software). Customized enterprise budgets, a monthly cash flow statement, debt worksheet, balance sheet, income statement, and financial measures can be generated. Because of its flexibility, IFFS software has been used in 36 other states and adapted for use in nine foreign countries.
More about the software components...
CLBUD (crop and livestock budget) facilitates development of enterprise budgets. The budgets show expected per acre or per head monthly receipts based on average yields and prices, and specific monthly expenses required to produce crops or livestock.
AI supplements the CLBUD files to list farm receipts and expenses that are not directly attributable to a particular crop or livestock enterprise. Examples are insurance, utilities, and real estate taxes. Capital sales and purchases are entered in AI (or they can be entered into MULTSTAT) along with outflows such as family living and income taxes if a consolidated set of statements for farm and family are sought.
MULTSTAT (Multiple Year Integrated Statements) combines customized budgets (up to 40) with detailed asset and liability information to generate financial statements and ratios. Budgets developed using CLBUD and AI data are combined in the Monthly Cash Flow Statement in MULTSTAT. Asset purchase/sales information may also be entered in MULTSTAT, allowing the user to quickly and easily evaluate asset purchase/sales options. The initial year plan can be rolled forward one or more years with the same or altered budgets, additional information, and capital sales and purchases.
IFFS is designed to allow the user to easily evaluate changes in whole farm plans. To use this feature fully, the Cash Flow Statement should be constructed by creating or modifying a set of budgets using the crop and livestock templates provided, then importing the budget data into the Cash Flow Statement. This method has significant advantages in analyzing changes in the farm or ranch organization compared to developing a Monthly Cash Flow Statement by direct entry. For example, if the user wishes to evaluate the impact on farm cash flow and profitability of selling a small cow herd and using the summer grass for an expanded stocker operation, the MULTSTAT menu has an alternative that will subtract an enterprise budget from the Cash Flow Statement. The cow calf enterprise budget could be subtracted and a summer stocker budget could be created using CLBUD and then added into the Cash Flow Statement. These types of analyses are difficult to perform if the Cash Flow Statement is created by direct
keyboard entry. They can be performed in just a matter of minutes if the Cash Flow Statement is built from budgets. Thus, for maximum flexibility and analytical capability, Cash Flow Statements are built from enterprise budgets. The CLBUD and AI files facilitate construction of the Cash Flow Statement in this manner.
The Monthly Cash Flow Statement is organized by item of receipt and expense rather than by enterprise. That is, rather than having a single line for wheat expenses by month, expenses for seed, fertilizer, fuel, oil and lubricants, etc., are shown on different lines by month. In addition to cash operating receipts and expenses, the Cash Flow Statement reflects capital sales and purchases, inflows from wages and salaries, outflows for family living, scheduled debt payments, and new borrowing. The bottom portion of the Cash Flow Statement, the Cash Flow Summary, calculates the cash position of the farm business month by month and for the year. Based on the receipts and expenses reflected at the top of the statement, IFFS subtracts outflows from inflows to determine the cash position of the business each month. If funds are available, payment of credit line principal and interest are calculated automatically. If additional funds are needed, new borrowing and accrued interest are calculated.
The Debt Worksheet is for entry of loan information for a farm or ranch operation. For a Line of Credit, the user enters the Description, Total Principal, Interest Rate and Interest Accrued. For each short-term operating, Non-Real Estate, Real Estate and non-farm loan, the user enters a Description, Payment Month, Interest Rate, Payment Amount, Interest Accrued, and Total Principal balance. Once the data are entered for each loan, the worksheet divides the payment into principal and interest components due during the current year and during the following year. Interest accrued at the end of the period and current and non-current portions of the principal balance are calculated. These are transferred to the Balance Sheet.
The potential impact of changing debt situations can be evaluated easily by changing the Debt Worksheet and recalculating the MULTSTAT workbook. Of course, if the changes in debt are associated with the purchase or sale of a capital asset, such as land or machinery, a change must also be reflected in the Balance Sheet and Cash Flow.
The Balance Sheet summarizes beginning and ending values for current and non-current assets. Individual asset values or balance sheet line subtotals are entered using the keyboard. Beginning and ending values for current and non-current liabilities arising from loans or capital leases are received from the Debt Worksheet. Any other liabilities are entered directly. Total owner equity is calculated within MULTSTAT and presented for the beginning and end of the reporting period. Subtotals, totals, and net changes for assets, liabilities, and owner equity are calculated automatically.
The Income Statement is generated automatically. Operating receipts and cash farm expenses are transferred to the Income Statement from the Cash Flow Statement. Adjustments for change in inventories and other non-cash adjustments are calculated using information transferred from the Balance Sheet. Net Farm Income is the return to unpaid operator labor, management, and equity.
The Financial Measures Section is entirely computer-generated based on information contained in and transferred from the other statements. The various financial ratios, which are discussed in some detail later in this manual, are used to measure liquidity, solvency, risk bearing ability, credit worthiness, and profitability. The right side of the Financial Measures Section indicates the cash available for debt service in the current year. This format focuses on the ability to make scheduled payments and reduce operating loans. Changes in inventories of current and capital assets may distort the current measure and must be considered in evaluating the measure.
Like the Financial Measures section, the Farm Stress Test is designed to provide insights into for liquidity, solvency, risk bearing ability, credit worthiness, and profitability. The numbers used in the stress test come from current financial statements (Cash Flow Statement, Balance Sheet, Income Statement). Here, the interpretation is visual and designed to provide insight into sources of farm financial stress and the extent of stress. Financial ratios are presented on a scale from low stress to high stress along with benchmarks. Using a stoplight transition from green to yellow (caution) to red (stop), low stress is shown with a green bar, high stress with a red bar.
Once a set of integrated farm financial statements has been completed for a single crop year or calendar year, ending values of assets and liabilities and information from the Debt Worksheet provide much of the beginning information needed for the following year's financial statements. MULTSTAT contains procedures to transfer the ending financial data to the appropriate locations in the financial statements as beginning values for the next year.
The Cash Flow Statement from the first period is modified as required for subsequent periods. If desired, the entire Cash Flow Statement from the first period may be erased and a new Cash Flow Statement created for the following period. Once the statements for the second period are complete, financial progress can be evaluated by studying changes in Owner Equity, Net Farm Income, Net Cash Flow, and the Financial Ratios.