Roy Wendte, a farmer from Altamont, Ill., remembers the first spreadsheet program, Visicalc, from 1982. His University of Illinois master's thesis at that time focused on crop-production software. He’s built his own spreadsheets ever since then for budgets, crop production and yield analysis. “I don’t know how a producer could track of all of the farm data without spreadsheets’ immense time savings and analysis of 'what if' scenarios,” he says.
His 86-year-old mother tracks farm income and expenses with a double-entry program for cash basis accounting. “She’s always used Red Wing programs to produce balance sheets and income statements," says Wendte. "I use Excel for budgets, crop production and yield analysis. I don’t know how a producer could track of all of the farm data without spreadsheets’ immense time-savings and analysis of 'what if' scenarios.
"Excel is easy and flexible to use. I can do some 'what ifs' by changing various inputs by field or crop, and the numbers flow down right in front of me," he says. "I can make crop production plans five or six years out and know what I need to do to meet the plan. Your imagination is the only limit."
Admittedly, Wendte knows not all farmers want to create their own spreadsheets. He suggests University of Illinois’ FAST (Farm Analysis Solution Tools – (http://bit.ly/Q62lCM ) is one way to "avoid reinventing the wheel." Pre-made Excel spreadsheets can help perform financial analysis, assess investment decisions and evaluate the impact of various management decisions. FAST spreadsheets have seven areas of farm business analysis and include crop and livestock tools, loan analysis, grain marketing, risk management, yield and land database tools and financial and investment analysis. FAST spreadsheets require Windows operating systems to use, the site says.
Other universities offer similar spreadsheets, including 119 Excel decision tools that are part of Iowa State University's Ag Decision Maker (www.extension.iastate.edu/agdm/ )."We link each spreadsheet to fact sheets and include contact information so farmers know where to go for help," says Ann Johanns, Extension program specialist. "Our spreadsheets cover enterprise budgets and have information from our annual estimates for various crops and livestock. We also have calculators focused on finance, leasing and other business information. Farmers can choose preloaded Iowa data or put in their own."
For example, Johanns says the cash-rent spreadsheet allows tenants and landlords to go through different methods for calculating rents based on the acreage's corn suitability rating (CSR). The spreadsheet contains average CSRs for each Iowa county and the state.
"You can input as much or as little information as you have, change variables, and everything calculates for you," she adds. "It is easy to use and print to share with lenders and landlords.
"Our most heavily downloaded information file is the Iowa custom rate survey. But often, farmers will use the rates in the publication without also using the machinery cost calculator," she says. "You can more accurately assess what to charge when you input your own unique costs. My husband plugged our farm's machinery data into the calculator, and validated that he was within 40 cents of the average and within the survey's range of what others were charging. That gives me great confidence these spreadsheets work."
Another option is purchasing accounting software online for analyzing business decisions, from very basic to managerial accounting capabilities.
Farm Biz (www.farmbiz.com ), for example, is a cash-basis farm accounting program. Reports, such as the transactions with enterprise selections report, can be customized in Farm Biz. Reports are pre-programmed within the software. Ultra Farm offers expanded capabilities for analyzing various enterprises.
"Reports are pre-programmed and ready to use out of the box," says Wally Hoffman, president. "Farm Biz allows farmers to do enterprising, cash flow, check writing and profit and loss statements. Ultra Farm allows enterprise analysis and inventory control and payroll, 1099s and check writing."
Hoffman notes farmers that use the University of Minnesota's FINPACK program for financial planning and 'what if' analysis can export their data from Ultra Farm into FINPACK. FINPACK’s (www.cffm.umn.edu/FINPACK/ )long-range strategic plan option where farmers can determine which options offer the best returns.
PcMars (www.iowafarmbusiness.org/pcmarsaccounting.html ) is used by several state farm business associations for similar uses, including Iowa, Illinois and Minnesota. Kent Vickre, state coordinator for the Iowa Farm Business Association, says the program’s been popular with farmers because it is relatively simple to use on a cash or accrual basis.
"We try to keep data entry simple and familiar. An expense transaction entry looks just like a handwritten check. The program walks farmers through more complicated transactions like crop-insurance proceeds or sealed grain transactions to enter data. Farmers can explore tax-management 'what ifs' and do five-year profitability or enterprise reports," he says.
For management decisions, Vickre recommends farmers use PcMars Plus. "We maybe only have 5-10% of purchasers that use the enhanced program, which can generate accrual enterprise reports from cash records by tracking field and livestock inventory. Most people do not go the extra step. But those who do choose to delve into it can make tax management decisions, for example, and get a complete financial picture with a click."
Ron Swanson, farmer from Galt, Iowa, uses the PcMars Plus program. He and his son Stuart farm together and come up with an annual budget each winter, which Ron tracks against actual on a monthly basis. He monitors corn and soybean sales against expenses, and can run a balance sheet at any time.
"You have to have the diligence to stay on top of the program and make it effective for your operation," says Ron, who also serves on the Farm Financial Standards Council. "We use the program to explore 'what ifs' for cash flow for the upcoming year. I also like the family living (non-farm item) option that allocates money to our families on a monthly basis."
Swanson says if a shoebox is the lowest rung on the planning tools ladder, PcMars may be a few steps higher. "Someone more enterprising may want to look at full-blown management accounting programs from FBS Systems or Red Wing that allow more 'what ifs,'" he says. "Another option is to use a program like PcMars and work with a farm-business association consultant on 'what ifs.' The two dovetail together nicely. You also can benchmark your performance against other farmers in the association."
Swanson recommends that, especially as an operation grows to the $2-3 million gross revenue threshold, farmers may want to add a part-time accountant. He also suggests farmers consider ordering and reviewing the Farm Financial Standards Council's management accounting guidelines for agricultural production (www.ffsc.org/guidelines/ ).
"The guidelines opened the Pandora's box of financial and management reporting criteria, from the shoebox some may still use, to professional managerial accounting. The information is useful for any size operation or expertise level," he says.
"Farmers should pick one they are comfortable understanding," Swanson says. "Some programs like QuickBooks that are not built on an agriculture format can frustrate farmers. Choose something that doesn't force you to determine a bunch of workaround solutions."
Rental rate tool
Spreadsheets, such as those on the Ag Decision Maker website, provide a way to test different scenarios to discuss with landlords and lenders. The Cash Rental Rates for Iowa 2012 survey is a downloadable document at the site. The survey information can be used with other resources, including Computing a Cropland Cash Rental Rate (C2-20) and Flexible Farm Lease Agreements (C2-21), to estimate a fair cash rental rate.