AFR Toolbox

Growing conditions and production practices present demanding challenges, but those are not the only skills today’s farmer must maintain. To thrive in changing markets, farmers must also operate with a high degree of business savvy.

Farm business health can be divided into eight different topics for purposes of identifying a farm operation’s strong points and weak areas, and to direct efforts for business health improvement. These topics are:

• Business Formation
• Land
• Accounting
• Taxation
• Labor and Contractors
• Production and Marketing
• Credit
• Business Planning, Insurance, Energy and Miscellaneous

The legal form under which your farm business is organized has significant consequences regarding personal liability and debt collection. In many cases, the default business organization may not be the most advantageous to you, your farm, and your family.

Farmers’ Guide to Business Structures, published by Sustainable Agriculture Research & Education (SARE), identifies the various ways your farm business can be formed or organized, offers insight regarding the relative advantages and drawbacks of each, and can help you take steps toward formalizing your desired business structure.

Cooperative business models can help farmers reduce production costs, maintain a reliable source of inputs, and effectively market and process farm products. Cooperative Farming: Frameworks for Farming Together, a Greenhorns Guidebook, outlines approaches to sharing resources, responsibilities, and services -plus case studies and practical strategies for making it work.

Watch the second video in the Business Health Assessment series: People Land and Activities: A Framework for Structuring a Farm or Ranch Business. This webinar will address the topic areas of business formation, land, labor, production and marketing, and business planning.

The relationship that you maintain with the land on which you farm sets parameters for decisions you may make with serious consequences for your business. Understanding the nature of your relationship to the land is critical to such decisions and should also inform your efforts searching for or acquiring access to land.

Finding Land to Farm: Six Ways to Secure Farmland, published by the National Center for Appropriate Technology (NCAT), briefly discusses different types of agreements that can secure a farmer’s access to land. For an in-depth look at these various options, check out American Farmland Trust's (AFT) Land Access Training Curriculum which provides tools to help you assess your readiness to pursue land tenure.

Ready to take the next step? Visit the Farmland Information Center. This project of AFT and USDA Natural Resources Conservation Service (NRCS) is a one-stop shop for learning how to evaluate and find land as well as access capital to begin or expand your farm operation.

Land upon which different generations of farm families rely carries distinct values and risks to the farmers who are responsible for it. Succession planning is a critical and complex issue for intergenerational farm families. While every farm business, every family, and every farmland parcel will require careful and specific attention, Northwest Farm Credit Services offers a brief series of Succession Planning Videos to help farm families think about the succession planning process.

Farm business accounting presents the opportunity to measure the efficacy of your efforts, assist you in determining which ventures do or do not work for your farm business and help you accurately anticipate expenses. An effective accounting system should facilitate cash flow management and facilitate beneficial interactions with tax authorities and lenders.

Today, accounting methodology is typically tied very closely to your chosen software platform. However, Preparing Agricultural Financial Statements, published by Northwest Farm Credit Services, and Accounting Coach can help you become familiar with the concepts upon which popular accounting software platforms are built. Northwest Farm Credit Services also offers three e-Learning Courses, available on demand, on Balance Sheet Basics, Cash Flow Budget, and Time Value of Money that can help farmers enhance their understanding of these topics.

Watch the third video in the Business Health Assessment series: Introduction to Farm and Ranch Accounting Frameworks and Bookkeeping Systems. This webinar will explain how to use a balance sheet and an income statement together to plan for short term and long-term liquidity and asset acquisition.

Additional Resources mentioned in this video are the Farm Business Readiness Assessment (BRA to Print) and the Succession Planning tools (Current Owner and Potential New Owner).

Watch the fourth video in the Business Health Assessment series: Bookkeeping Set Up, Clean Up, and Maintenance. This webinar will discuss the role of a bookkeeper and a bookkeeping system, some special non-bookkeeping records needed for income taxes and the important financial management tasks that happen outside of the bookkeeping system – namely cost accounting and cash flow planning.

Additional Resources mentioned in this video are the List of Tools for Cost Accounting and the Model Chart of Accounts Spreadsheet.

The tax code attempts to accommodate some of the key differences that distinguish farm operations from other family businesses. Farmers should become familiar with how the tax code treats their businesses differently. Many tax assistance products and services that are not steeped in agriculture, and perhaps more specifically farming that is similar to your farm, will likely gloss over nuances that are beneficial to your business.

The Land Grant University Tax Education Foundation, Inc. has produced an extensive Tax Guide For Owners Of Small And Medium Size Farms to assist farm managers in becoming effective tax managers. For additional resources, including webinars, course materials, charts, forms, and tax-related articles, visit the extensive TaxPlace Library hosted by Iowa State University's Center for Agricultural Law and Taxation.

Watch the fifth video in the Business Health Assessment series: Introduction to Taxation for Farmers and Ranchers. This webinar will introduce the tax formula for an individual, demonstrate how taxable income or loss flows from a business to an individual and discuss significant tax issues for farmers and ranchers and often-overlooked deductions.

Watch the sixth video in the Business Health Assessment series: Introduction to Taxation for Farmers and Ranchers Part II. This is the second half of the webinars focused on taxation.

Farming is a family business, and businesses invoke labor regulations. In addition to regular labor, you may have intentionally secured, help on the farm from friends, family or customers may trigger rules regarding independent contractors and employees. In order to avoid unintended regulatory implications or liabilities, farmers should become familiar with labor laws that may apply to them.

Farm Commons has a Hiring Farm Workers Basics FAQ sheet you can use to get started. The National Agricultural Law Center outlines everything you need to know about Workers’ Compensation for Agricultural Workers.

Given the complexities of hiring and managing farm labor, coordinating key aspects of farm labor through a cooperative venture can be advantageous. Coordinating Farm Labor Across Farms: A Toolbox for Diversified Farmers and Farmworkers, a joint publication of Farm Commons and the University of Wisconsin Center for Cooperatives, outlines how farmers can come together to aggregate their farm labor demands to attract a more qualified workforce, share the costs of training and compliance, and streamline various HR operations.

Care of living things makes farming distinct from other livelihoods. However, the exchange for value when the product of your efforts passes the farmgate will determine whether and how you are able to stay in business. Improving marketing practices may ultimately enhance your ability to produce in the manner and volume you would prefer.

Marketing practices vary widely; family farms sell grain globally, vegetables under contract, fruit at the farmers’ market, and everything in between. Many farmers achieve and maintain success by exploring innovative marketing strategies, as well. Farmers who want to evaluate how they market their products or consider changes to how and what they sell can consider Compeer Financials’ industry expertise, organized by commodity. Farmers involved or interested in local marketing can consult Cornell University’s Guide To Marketing Channel Selection: How To Sell Through Wholesale & Direct Marketing Channels.

Regardless of the size of your operation, products raised, or services offered on your farm, credit is often a critical component of a successful farm operation. Farmers may need to seek loans when they first strike off to farm on their own, for annual operating costs, or to expand or update their operations. Further, farmers can enhance their likelihood of successful loan applications if they maintain good financial records throughout the course of all transactions, rather than producing records retroactively for the application process.

Northwest Farm Credit Services offers a number of documents to help farmers think constructively about access to credit, including How Lending Decisions Are Made and Financing Agriculture: The Business Borrower-Lender Relationship.

Watch the seventh video in the Business Health Assessment series: Planning for Cash Flow and Credit in a Farm or Ranch Business. This webinar will demonstrate techniques for estimating monthly or quarterly liquidity needs and planning to utilize credit to cover seasonal operating needs or to buy or build long-term assets.

Additional resources from the video: Download the Cash Flow Planning Spreadsheet.

Farms are complicated businesses. Profitability and wealth-building are the end results of equations with many variables that can be maddening to track. A good business plan can help a busy farmer keep all the moving pieces in steady focus. Sustainable Agriculture Research and Education (SARE)’s Building a Sustainable Business: A Guide to Developing a Business Plan for Farms and Rural Businesses includes worksheets to help farmers develop detailed, lender-ready business plans.

Finally, every farm and every farmer are different, necessitating a widely varied “miscellaneous” group. Some important, or valuable, considerations that may help you and your farm succeed include:

• Clean Energy Farming: Cutting Costs, Improving Efficiencies, Harnessing Renewables (SARE)
• Find your USDA Local Service Center, the first stop to learn about potentially cost-saving programs with the Natural Resources Conservation Service (NRCS), here.