Following is a simple case study involving a fruit producer from the northeastern United States.  His/her financial statements which include a Balance Sheet, Enterprise Budgets, and a projected Cash Flow Statement were prepared utilizing Finpack®, agricultural financial planning and analysis software developed by the University of Minnesota’s Center for Farm Financial Management.  Take a look at the numbers and try to identify those areas where risk may have a negative impact.

Both husband and wife are partners in this fruit operation along with their son and one seasonal employee.  With a minimal amount of custom hire, they farm approximately 45 acres. They grow apples, peaches, and sweet corn that they sell both wholesale and retail.  The also produce apple cider. For more detailed information, please refer to the set of actual financial statements.

I. Balance Sheet

The Balance Sheet is the most important financial statement.  It is a summary or “snapshot” of the assets, liabilities, and owner’s net worth or equity at one point in time.  The Balance Sheet is the critical part of a loan application and it shows financial position and progress.

Their net worth is $1,931,096.  This is calculated by subtracting their total liabilities ($287,483) from their total assets ($2,218,579).

Their assets (anything of value) are divided into current (one year or less), intermediate (one to ten years), and long term (more than ten years).

Current Assets:

Checking                       $  76,000

Apple Inventory                 30,000

                TOTAL         $106,000

Intermediate Assets:

Farm Machinery/Equip         $121,150

Long Term Assets:

Farm Land                         $1,991,429

Like their assets, their liabilities (financial commitments or debts) are divided into the same categories, current, intermediate, and long term.

Current Liabilities:

Farm Accrued Interest                    $  1,483

Accounts Payable                              20,000

Current Principal Due                        7,006

                           TOTAL              $28,489

Intermediate Liabilities:

Truck Loan                                    NONE

Long Term Liabilities:

Mortgage                                          $258,994

II. Crop Budgets

The fruit farm family has developed enterprise budgets for each of the commodities that they produce and subsequently sell. These particular budgets include the yield and price, as well as direct expenses associated with the individual commodity on a per acre per year basis.  The budgets reflect the average of the expenses and income over the past few years.

Referring to the actual budgets, you will note the following return (per acre) over direct expenses for each of the commodities:

           Apples                         $1,509.69

           Apples (New Trees)      $-1,640

           Peaches                        $2,239.75

   Sweet Corn                   $1,565.41

In these examples, all of the expenses that were difficult to break out on a per-acre per-commodity basis are included in the projected cash flow as lump sums spread out throughout the year.

Projected Cash Flow

Referring to the first page of the Cash Flow, please note that the ending cash balance is $58,571 in the Cash Flow Summary. Over the course of the year this nursery farm was required to borrow $13,457 all of which it was able to pay back before the end of the year.  By doing their cash flow projection, they could make plans to secure an operating loan at the beginning of the year.

When you look at the Farm Financial Standard Measures, also on the first page, plug the numbers into the Farm Finance Scorecard that also includes the definitions and calculations of the measures. These measures will provide a summary of the financial health of the nursery operation ranking the farm’s performance from vulnerable to strong.