C22—Lancaster Farming, Saturday, July 18,1981 Fifth in a series of six article on how to get started in farming NEWARK, Del. Farming is big business today. High capital requirements, extensive credit, high product sales volume, and large production expenses characterize the financial situation of commercial farmers. You need more financial know-how when you’re setting up in farming than at any other tune, if the venture is to prosper. The foundation of any profitable business is a well-organized set of accounts and production records, says University of Delaware ex tension farm management specialist Dr. Don Tilmon. Suc cessful control of your financial affairs depends on an accurate account of the* flow of money into and out of the business. The records you keep are the basis tor future production and capital investment decisions. A complete farm account and records system should contain information on bills paid, income received, accounts payable, ac counts receivable, an inventory ot farm assets, and documentation on the status of partnership, rental and other business agreements. These records will help you file your income taxes, report on social security funds paid out, maintain historical data for estate purposes, provide a cost basis for real property, and handle insurance coverage and claims. A good set of books will make it possible to analyze your farm business so that you know which enterprises are paying tor themselves and which aren’t. You need accurate records in order to determine the net worth of the business. They also will provide the factual basis for budgeting and planning future management changes. They establish your known resource base and past production record. Here are some of the things Tilmon says your farm records should include in order to carry out these functions; An asset and liability account this is a physical listing of all your resources or assets, with values assigned, together with any claims or liabilities against them. The asset value minus the liability - INSULATION - Urethane & Fiberglass Free Estimates - We Can Do The Job i jiSKfrk FETTERViLLE SALES value provides the net wuith or balance sheet ot your farm business. A net-worth statement is an account ot> your financial position at a given point in time. A receipt and expense account tins covers receipts to and ex penses paid by the business, usually over a period ot one year. A capital account-this is a record of capital assets and im provements which can’t be fully debited as expenses in the year purchased. To recover their full cost you must either depreciate them annually or debit them as a cost to your annual operating account. A credit account-this records your farm liabilities, keeps track ot loans and accounts payable as well as the interest on principal payments and unpaid principal balances. It also covers accounts receivable. A cash flow account-covers receipts and operating expenses, principal and interest payments, plus new loans and cash purchases for the capital account. It indicates the net cash flow or residual cash ot the business, excluding a wage and management allowance tor yourselt and any unpaid family labor. Many farmers combine personal cash flow with their business cash flow. To find out exactly where you stand m both areas, combine your living expenses, personal tax obligations and other committed personal cash expenditures with your farm-business cash How. Cash flow accounting indicates your ability to meet operating expenses and to carry a given debt load seasonally, annually, and lor the life of the debt commitment. Production and statistical records-relate the production ol crop and livestock enterprises on the tarm to the resources used tor their production. This information lets you analyze performance and budget for production and management changes. Enterprise accounts and records-make it possible to separate out ol the total farm production record information on individual enterprises for detailed analysis. A farm business analysis combines both financial accounts Spouting & Accessories Wheeling Chaneldrain Painted steel Roofing/Siding Aluminum Roofing & Siding John M. Esh RD 2 Box 267 East Earl. PA 17519 Cali us for low prices - (717)354-7561 Getting started in fanning TRUSSES and production records so that you can identity stiung and weak management aitnt' it thus provides the basis tor tuture decisions on the organization and operation ot your tarm business. By comparing data trom ditterent years; you can measure your financial growth and production etticiency. Operating a tarm business requires _ large investment ot capital and the handling ot large sums ot money annually. Almost all the decisions you make have an ettect on the income tax to be paid and on the amount ot money available tor the business. As a farmer, you need to understand the tax consequences ot various transactions in order to minimize your tax burden while maximizing after-tax income. To accomplish this objective, says Tilmon, requires an un derstanding ot the tax con- j WHITEWASHING I 9 IfIfITII " I DAIRY WHITE j | -DRIESWHITE | I - DOES NOT RUB OFF EASILY H I -NO WET FLOORS * | -IS COMPATIBLE WITH DISINFECTANT AND FLY i I SPRAYS I X - WASHES OFF WINDOWS & PIPELINES EASILY * i ALSO BARN CLEANING SERVICE i I AVAILABLE WITH COMPRESSED AIR I I To have your barn cleaned with air it I 5 will clean off dust, cob webs & lots of the x I old lime. This will keep your barn looking I f cleaner & whiter longer. I I MAYNARD L. 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