The 3 financial statements farmers should pay attention to — and how to use them to build your future

If you’re trying to get a handle on how your farm is performing financially, it’s natural to reach for your most recent tax return first.

While that’s not a bad place to start, tax returns don’t show the full picture. Instead, farmers should integrate regular review of a handful of specific financial statements—often with a trusted advisor who can help interpret what the numbers are really telling you. Each statement illuminates unique pieces of your operation, and taken together, they can give you a much clearer bird’s-eye view of what’s really going on.

Your three main financial statements are:

Balance Sheet

This is a snapshot of your operation on the final day of that tax year. The top third will show current assets and liabilities, which will help you identify where working capital is. The bottom two-thirds show intermediate assets and equipment as well as long-term investments, like land.

The balance sheet answers: Looking at these pieces, how can you better manage current cash flow and future profitability. What adjustments should you consider based on that?

Accrual Income Statement

A farmer’s calendar is a little different than other businesses. So you need a financial statement that incorporates those differences, and helps you interpret income in the context of your actual production cycle. An accrual income statement lays out your income according to your own operational cycle and the larger ag calendar. For example, some payments (like crop insurance payouts or government subsidies) might not hit your bank until the following season.

The accrual income statement answers: How much money is coming in, according to the cycles that actually dictate your operation?

Cash Flow Statement

Every farmer has a long list of payments that need to go out the door each season. A cash flow statement helps you balance that outgoing stream of money with what’s coming in, and plan ahead so you’re not caught short during key points in the season. For instance, a farmer might defer their grain to the following year, which means they’re cash-rich at the beginning of the year. Their cash flow statement helps them manage payments throughout the season so that money lasts as long as it needs to.

At FBFM, we also separate this statement into three categories of cash flow: money from the operation, investing, and financing.

The cash flow statement answers: Where is money coming from, where is it going, and when are those streams in or out of balance?

Your Financial Statements Should Be Complementary, Not Siloed

While each of these three statements serves its own unique purpose, the real impact comes from integrating all three together to form a bigger picture, and understanding how those pieces work together to guide your decisions.

For example, tying your cash flow statement and balance sheet together will help ensure that your income will cover not only your operation’s expense line items — but also your family living needs and longer-term debt payments.

Just taking a quick glance backward at your tax return isn’t enough to build a longer-term strategy for your operation. You need data to help you understand where you’re going, not just where you’ve been.

The unique agricultural cycle is one big reason farmers need to pay attention to more financial statements beyond their tax return. Season to season income and expenses don’t always coincide with December 31. You know this feeling well: as soon as you finish a harvest, you’ve already allocated that money to next year’s expenses. You need financial information that understands and incorporates those rhythms.

Keeping a handle on all the moving pieces requires more information than a tax return can give. Monitoring your balance sheet, accrual income, and cash flow statements together help you better identify trends, understand where you could make improvements, and build a long-term plan to reach your goals.

Turn Insights Into Concrete Operational Decisions

True long-term financial management goes beyond just glancing through a stack of documents. This information should be the basis of active decision-making.

For example, these three statements in conjunction can help you better understand your cost-per-acre. Could you drive this down by adjusting your input expenses? If you can adjust your cost-per-acre down by X%, how much income could that lead to? How would that change your cash flow?

Based on those answers, you can build a stronger plan for long-term investment and equipment purchases.

At FBFM, we also offer benchmarking analysis to help farmers understand where their numbers stack up against comparable operations in their region.

Our clients also receive a projected farm income statement. This uses real historical data to forecast what the next few years might look like. Whether you’re eyeing retirement and want to limit your tax liability, or you simply want to build net worth, these projections can help you build a bridge to your goals. You’ll better understand where you’re headed, so you can more confidently make the right adjustments.

Building a profitable operation doesn’t just rest on one decision you make. It relies on consistently strong decision-making, based on as much information as possible. Your yearly tax return is certainly one tool to use in this process. But the wider you can cast your net for more financial information, the stronger your decision-making can be.

At FBFM, we don’t just hand you a set of reports. We actually sit down with you at the farm table to go over each of your statements, answer questions, and help you turn those insights into action steps. For more than 100 years, farm families have trusted us to be that decision-making partner. Reach out to our team today if you’re ready to build a more confident, stable financial future.