Thursday, April 23, 2015

Building Your Farm Management Team - Finding a Good Accountant

By Juliette Enfield, Penn State Extension Educator, Warren Co
I recently met a farmer who said “I got into farming because I didn’t want to sit in front of a computer!”, and I’m sure she’s not alone. Oftentimes the farm accounting is at the bottom of the list of farm chores. Farm accounting can be tedious and daunting to those who are unfamiliar with spreadsheets, accounting terminology, and computer accounting software. However, the fact remains that if you are not managing your farm finances, you are unable to determine:
1. Whether or not your farm is profitable, which can only be determined from an income statement
2. Whether or not you are increasing your business’s assets, which is evident from comparing several years’ balance sheets
3. Whether or not you are spending your money in the right place and at the right time, which is shown from a monthly or quarterly cash flow statement
Farm accounting can be daunting.
Fulfilling Legal Obligations-Tax Accounting
When I ask farmers what kind of accounting services they use for their farm businesses, most tell me they use a tax accountant once a year. Finding an accountant who is familiar with farm taxes (the Schedule F) is essential.
According to the US Internal Revenue Service, most farmers use the cash method (assessing accounts based on what is currently in the bank) for their income taxes because they find it easier to keep records this way, as opposed to the accrual method of accounting (assessing accounts based on what is in the bank after all accounts receivable and payable are calculated). This is because in agriculture expenses from one year may not generate income until the following year when the crop is sold. In other businesses, expenses and income cycle much more frequently, so the accrual method is used to report income earned in a year. Agriculture is also allowed payments for certain practices such as planting native trees and shrubs or keeping livestock out of streams by building stream bank fencing. An accounting firm that works regularly with farmers will be familiar with these incentive programs.
Some tax accountants offer auditing services for an additional fee, in which they will represent you in case of an audit.  Find an accountant who is in support of you and your business, and who you can establish a relationship with year after year. Talk to other farmers in your area for recommendations on good accounting firms to work with. If you fail to file your taxes, you will be fined and/or charged interest on the amount you owe, and it will be difficult to get access to a loan or do business at all until taxes are paid.
The Farm Bureau has a network of accountants throughout Pennsylvania that work with farmers on tax and payroll preparation, bookkeeping assistance, and financial consulting. If you are a Farm Bureau member, you may be eligible for discounted services.
Going Above and Beyond-Financial Analysis
Taking care of your taxes is a legal obligation, but analyzing your business finances is not. Tax preparation brings you one step closer to being ready to analyze your finances. Your tax forms can be used to create your income statement. Your receipts and sales records can be used to create your balance sheet and cash flow statements. Penn State Extension offers a course on understanding basic farm finance called Farm $en$e. This 4 session course helps farmers understand basic accounting terms, how to prepare accurate records, and how to use these records to better manage the farm.
Be pro-active about your farm finances.
If you are not sure that you will have time to learn how to use accounting software or you don’t feel comfortable doing your own financial analysis, you can hire a consultant. This service can range from $30 an hour to $150 an hour, depending on what your needs are and the consultant's level of expertise. The amount of contact you make with the consultant depends on the state of your business, your level of understanding of farm finance, and your commitment to making your business financially sustainable.  You could arrange meetings monthly, quarterly, or yearly. As with tax accounting, financial analysis also requires some level of expertise in your industry. This person should understand how your business operates and how it compares to others in the same industry. AgChoice Farm Credit is one source of accounting services with agricultural expertise.
In conclusion, the best place to find a tax accountant or a financial consultant for your farm business is by talking with other farmers in your area or in your ag industry. Be pro-active about your farm finances. If you don’t want to, or are not able to understand your farm’s  financial situation, hire someone to help you look at the big picture. Accounting services are different at every practice, so be sure you understand the range of services offered before signing a contract. Shop around for pricing that you can afford, as well as an accountant that you feel comfortable working with.

Sunday, April 5, 2015

First Impressions Count – Marketing Display Techniques from the World’s Best Markets

"Pile it high and watch it fly" is a popular marketing tactic that is alive and well in some of the best international markets. This month, members of the Penn State Extension Marketing team traveled to Barcelona to participate with market professionals from 6 continents and learn from some of the most profitable markets in the world. A recent trip through many of our host city’s most famous farmers markets yields interesting merchandising techniques to start your 2015 summer market season off with a bang and hopefully a few more bucks in your pocket!


Successful marketers in Spain’s bustling market places are pairing age old techniques with bright new merchandising tricks to make their produce pop!

Here are a few tips:

1. Careful stacking is paramount! First, form a solid base. You can’t pile it high if it rolls on the floor! Start with a stair step type foundation made of boxes, plastic reusable containers that stack to transport from the farm, or simply small boxes that you packed your product in to bring to market. Next, pad your stack to create a non-slip surface. This can be done with tissue paper or organic material such as leaves. Then stack your product in a pyramid formation, depending on its shape and resilience to stacking.









2. Display vertically. Think of the vertical space on your table and make good use of it! Typically customers can reach across a table at a distance of up to 4 feet if a display is tilted at an upward sloping angle compared to only a reach of 2 feet if they are forced to reach straight across the table in order to reach your item for their shopping basket. This can be achieved by providing steep sloping stair steps behind baskets and boxes angling them so products are served directly up to the customer’s ideal height and reach.



3. Think outside the box when making display rack choices. A unique display container or shelf can stand out if you limit your number of racks or other display items. Be sure not to crowd your stand with many small shelves or racks as this tends to give an over-decorated or busy look and distracts the customer from your product.





4. Height matters in the height of the season! When produce is plentiful and you must expand outside of your primary table be sure to raise items to an ideal level for your customer. An easy way to do this is to stack crates or boxes that you used to bring your product to market. Topping them with an eye-catching basket, cloth or other material makes items placed here stand out. This technique is also useful for special items you would like to highlight for the day in addition to when you have an overflow of tomatoes or large items such as winter squash.


Whatever your product or variety throughout the year, plentiful displays, friendly smiles, consistent easy-to-read signs and a thoughtful display will get your product noticed this market season.





by Carla Snyder, Ag Entrepreneurship & Marketing Educator, Penn State Extension

Friday, March 27, 2015

Hiring the Right Web Developer for Your Business's Website, Part 2

My last post focused on some of the terminology used to describe different types of web developers including website designer, website programmer, graphic designer, and internet marketing consultant.  It is important to know what each of these people does and how they can help you build a great site for your business.  (Hopefully you can find a web developer who has skills in more than one of these job descriptions.)

As I discussed before, the article "How to Choose a Web Designer" by Karyn Greenstreet has some great tips on hiring the right web developer for your agricultural business website.  Below, I've highlighted some of these great pointers.


  • Pay attention to how much they ask you about your business. They should want to get to know you and your business intimately. How else can they design a site that reflects you, your brand, and your business, unless they spend time to get to know you?

  • Look at sites they've designed to see if you like their style. Is there a certain feel to ALL their sites, or are they flexible in their designs?

  • Ask them if they did the actual graphic and layout design of the site, or if they just did the programming. If they don't do the graphic work themselves, can they recommend a graphic artist?

  • Ask them what they know about internet marketing and search engine optimization (SEO). Be sure that they're creating a site for you that meets your larger marketing and business goals. (A pretty site is no good to you unless it generates revenue and prospects.)

  • Ask the designer for their fees and what is the estimated cost for the site you want. They may not be able to give you a good estimate until you discuss content and features of the site. Expect to pay between $60 - $125 an hour, depending on their skill and their location. A quality website with good graphic design and layout will cost around $2,500 - $5,000 for a simple business website. If you add a blog, newsletter, shopping cart, autoresponders, email address setup, SEO, membership site, or logo design (or if you have many page on your site), expect the price to be higher.
More tips to follow in Part 3!

Friday, March 20, 2015

Determining the profitable areas of your business.


Traditional financial reporting describes the whole business. But the average can hide a lot of details – both good and bad! Learn how to tell which segments of your business are pulling their own weight and which ones are dragging down the average. Then, learn to tackle each segment’s strengths and weaknesses to improve your bottom line.

Diversified farms present particular financial management challenges. Let’s use, as our example, a farm with a farm market and a bakery, as well as pick-your-own and wholesale fruit sales. The farm products are sold through three different channels. Which of these channels earns the best return for the fruit produced? Which should the farm do more of? Is the growing enterprise cost-efficient, or could the market and bakery buy in fruit from a less expensive source?

Have you ever wanted to learn about analyzing the true profitability of each of your enterprises? The complexity diversification brings means that we’re often managing by the average. But averages can hide a lot. If the farm boasts an 8% profit, it’s likely that the combination of enterprises includes at least one very profitable segment and one that’s losing money (or barely breaking even).

Focusing on the individual enterprises means business owners can put their efforts in the areas that need it the most in order to improve profitability.
  • What is an enterprise analysis?
  • Practical tips for completing an enterprise analysis
  • Pricing considerations for homegrown produce (when selling from the farm enterprise to the market enterprise)
  • Which enterprise should get the capital investment?
Can you tell which of your enterprises is the most, and least, profitable?
During a farm-market visit this past winter; farmer Jim, Rudy, Greg and I were discussing consumer behavior, promotional activities, and market management. As you have probably experienced yourself there were many twists and turns to this talk as we looked at the many enterprises and how they did, or could, fit together. Recognizing many other marketers might also have these same concerns Jim said “yes” when I asked if we could use his market as the demonstration site for a full day exploration of intensive study.

If the market / farm you mange has some of the above concerns, perhaps you may want to consider actively participating in an upcoming Intensive Study Day. Check the details of this March 31st event and register today.

The idea for this event is for you to come with your knowledge and your questions. We have confirmed a distinguished farm-marketer panel ready to share their perspectives and practices. We also have an industry professional with years of experience consulting with marketers and agritourism operators to help us understand concepts of profitability.

This is an open event to get your concerns addressed. Country Barn is the laboratory in which we will explore the topics and resolve the problems. Farmer Jim is being gracious by allowing us to use his businesses as our living examples. He hopes to get concrete answers to his questions. Perhaps you will also?

Friday, March 13, 2015

Hiring the Right Web Developer for Your Business's Website, Part 1

In my previous post titled "Building a Website for Your Small Business", I posed some questions to ask yourself before starting your website design.  From that post, you can see that you personally don't have to be a web designer to create a website; there are do-it-yourself site builders to help you through the process.  

If you aren't satisfied with the DIY site builders or you want complete customization, you will need to hire a web developer.  To begin your search, it's important to know some terminology.  Here are some definitions from the article "How to Choose a Web Designer" by Karyn Greenstreet. 

  • Website Designer - helps you to determine the page layout, graphics, text location and colors of your site, as well as the navigation and how pages will cross-link to one another. He may also do the actual computer programming and graphic art work for the site, or may hire out that work to a programming specialist. A Website Designer is the project manager for your site design.
  • Website Programmer - takes the design from the Designer and creates the code to make the site run. She is also responsible for all the technical stuff that happens behind-the-scenes to make sure the site works properly for your visitors.
  • Graphic Designer/Artist - creates or choose the graphics for the site, including page layout, colors, logo, photos, illustrations, etc. Think of this person as the "visual artist" who creates the brand image for your site.
  • Internet Marketing Consultant - helps you to determine how your website fits into your overall marketing strategy, and how to get more traffic and sales from your website.
Person developing a website. (photo credit: morguefile.com)
For the sake of simplicity, I will use the term "web developer" to describe anyone you hire to build and design your site, but it is important to know the skill sets and types of deliverables each of these web technologists creates.

Entrepreneur.com stresses the importance of hiring the right web developer.  A web developer "will create the online face of your company and enable you to interact virtually with your customers.  So, it's especially important that you hire the right talent the first time out.  Otherwise, you risk hurting your business, as well as wasting time and money seeking a replacement."


More posts to follow on tips for selecting the right web developer!

Friday, February 20, 2015

What's New in Crop Insurance for 2015?

By Jayson K. Harper, Professor of Agricultural Economics, Penn State University

The answer? A lot.  There have been many new changes coming out of the 2014 Farm Bill, as well as several improvements in recent years that have made crop insurance more flexible and provide additional coverage for your farm.  Some of the changes you should consider for your risk management plan in 2015 include: enterprise units, trend adjusted yields, the supplemental coverage option, and whole-farm revenue insurance.  There have also been improvements made for organic producers, new benefits for beginning farmers, and a provision that allows farmers to exclude extremely low yields due to bad weather from calculation of their Actual Production History (APH).  With the improved NAP (from FSA) with Buy-up protection the 65% coverage level at 100% of established prices, producers can purchase meaningful protection for each crop that they grow.

Remember, the sign-up deadline for spring seeded crops is March 16, 2015.  A list of crop insurance agents who sell crop insurance in Pennsylvania can be found here.

Another important deadline that farmers should be aware of is the deadline for conservation compliance certification.  In order to be eligible for the premium subsidy on crop insurance policies in 2016, farmers must file form AD-1026 (Highly Erodible Land Conservation (HELC) and Wetland Conservation (WC) Certification) with FSA by June 1, 2015.

Enterprise Units.  Enterprise units have been available for several years now, but many farmers are not aware of how they work.  When choosing your crop insurance coverage in Pennsylvania you have the choice of basic, optional, or enterprise units.  Your choice of insurance unit will have an impact on your cost of insurance, the likelihood of collecting for losses, and how you will need to keep and report your yield records.

You receive one basic unit for the land you own and cash rent within a county.  You also receive one basic unit for each landlord with whom you crop share rent.  Each crop share landowner can also insure their own interest in the crop as a separate unit.  Each different crop also creates a separate unit, and tracts of land in different counties must be insured as separate units.  Each crop/county can have a different type of policy and level of coverage, and could receive a loss payment separate from the other units.  Separate production records must be kept for each basic unit.  Insuring all acres as basic units entitles producers to a discount on their premiums.

Basic units may be divided into optional units when a crop is being grown under distinctly different production practices.  For example, a grower with both irrigated and non-irrigated acres of the same crop may qualify for optional units.  Other special farming types or practices may also qualify acres to be insured as separate units.  Optional units may also be established by FSA farm serial number or on a section equivalent basis for annual crops.  Optional unites based on section equivalents must be requested through a crop insurance agent, contain a block of land at least one mile square, and be clearly indicated on a map using identifiable boundaries.  Separate APH records must also be kept and reported for each optional unit.  Farmers selecting optional units do not receive the premium discount allowed for basic units.

An enterprise unit combines all of the acres of a single crop within a county in which you have a financial interest into a single unit, regardless of whether they are owned or rented, or how many landlords are involved (separate enterprise unites may be available for irrigated and non-irrigated acreage of a crop).  Because enterprise units are usually larger than basic units or optional units, this would make it less likely that the overall yield in a given year would be low enough to trigger a loss payment.  This is especially true if you have a very large acreage of the insured crop that is widely dispersed.  However, this isn't the case for most Pennsylvania farmers and in many of these situations there is no real difference between choosing basic and enterprise units.  This is important because enterprise units are eligible for additional premium discounts over basic units.

Examples of the cost of both yield protection and revenue protection coverage for a farmer with 130 bushel APH yield in a medium risk county are given in Table 1.  Using basic units rather than option units generally results in a cost savings of around $2 - $4 per acre.  Switching from optional units to enterprise units would result in substantial savings, in some cases up to $15 per acre.  Carefully consider the difference between using basic and enterprise units for your farm; you could reduce your premiums and keep the same level of overall protection.  The cost savings from using enterprise units could also be used to purchase higher levels of coverage for your farm than under either basic or optional units without increasing your farm's crop insurance costs.  For example, if you insured at the 75% level before using either optional or basic units, you could now insure at the 80% level with enterprise units and also save a couple dollars per acre.

Table 1: Example of farmer paid premiums for yield protection and revenue protection coverage by unit structure (130 bu. APH yield, medium risk county)

Coverage level
Yield Protection
Revenue Protection

Optional
Basic
Enterprise
Optional
Basic
Enterprise
85%
$39.94
$36.34
$27.55
$51.88
$47.85
$36.27
80%
$28.90
$25.34
$15.60
$37.30
$33.28
$20.48
75%
$21.41
$18.04
$9.22
$27.31
$23.49
$12.00
70%
$16.54
$13.38
$6.53
$20.82
$17.19
$8.39
65%
$13.89
$10.76
$5.25
$17.26
$13.71
$6.69
60%
$10.12
$7.50
$4.17
$12.41
$9.44
$5.24
55%
$8.29
$5.88
$3.26
$10.09
$7.40
$4.11
50%
$6.14
$4.14
$2.51
$7.44
$5.23
$3.17

You may not want to use enterprise units if you have variable farms and inconsistent crop production histories, if disease and quality issues appear only on some farms, if the farms are dispersed throughout the county or if you have irrigated and non-irrigated acreage in the same unit.  For many farmers, however, enterprise units could provide a simple way to cut costs and provide additional coverage for their operation.

Trend Adjusted Yields.  Pennsylvania farmers have the option to use trend adjusted (TA) yields to increase their actual production history (APH) yields for corn and soybeans.  This adjustment better reflects increases in yield experienced  by farmers using certain farming practices, including hybrids with modified genetic traits.  This change is important because the APH yield underlies the insurance guarantees for both the yield protection and revenue protection crop insurance plants.  The TA option has been available to Pennsylvania farmers since 2013.

Your main choice when electing to take the TA option will be either to: 1) benefit from the protection afforded by a higher insurance yield or revenue guarantee or 2) move to a lover level of coverage and take advantage of higher premium subsidies.  A producer electing the TA option and keeping the same coverage level will likely pay a slightly higher premium because of the higher TA APH yield (because your premium cost is influenced by many factors, it is important to discuss all your options with your crop insurance agent).  A benefit for some farmers may be the opportunity to use a TA APH and opt for a lower level of coverage that provides a similar yield or revenue guarantee.  Although the overall level of protection would be similar, selecting a lower coverage level would be less expensive because of the way in which crop insurance premiums are subsidized by the Federal government.  For example, if you are currently insuring your corn or soybeans at 85% coverage level, you may be able to get a similar level of protection at lower cost by using the TA option and insuring at the 80% level.  The amount of subsidy varies greatly depending on the coverage level and insurance unit (ie. basic, enterprise, optional, or whole farm units) you select.

More information on trend adjusted yields can be found here; contact your crop insurance agent for a more detailed evaluation of your coverage options.

Supplemental Coverage Option.  The Supplemental Coverage Option (SCO) provides additional coverage for the deductible on your crop insurance policy based on purchase of additional county level coverage.  SCO is available for corn and soybean for both the yield and revenue protection policies.  Like your other crop insurance, SCO is heavily subsidized with the Federal government paying 65% of the premium cost for you.  Because higher levels of crop insurance are subsidized less than lower levels, SCO may be a more cost effective way to provide additional coverage for many farms.

SCO is purchased as an endorsement to your crop insurance coverage and must be purchased by the sales closing date.  The amount of SCO coverage depends on the liability, coverage level, and approved yield of your underlying policy.  If you elect to participate in the Farm Service Agency's Agricultural Risk Coverage program (ARC) you are not eligible to participate in the SCO.

The SCO works the same as your underlying crop insurance policy: it provides additional yield protection for yield yield protection policies and additional revenue protection for revenue protection policies.  The loss payment trigger for SCO is different because it is based on county yields or revenues rather than your farm's yields and revenues.

SCO is meant to help cover potential losses between the coverage level you select and 86% of the expected county yield or revenue.  For example, if you have a revenue protection policy at the 75% coverage level, you decided to accept the first 25% of any losses as a deductible (in exchange for lower crop insurance premiums) before the crop insurance policy kicks in.  In the case of a 75% coverage level, up to 11% (86% - 75%) of the expected county yield or revenue could be covered using SCO.  Lower levels of coverage would have higher levels of coverage under SCO.  If the underlying coverage is revenue and the harvest price is lower than the spring projected price, the loss trigger for SCO may increase proportionally.

An interesting feature of this coverage is that you will now have both individual and county loss triggers.  It is possible that you could: 1) have a loss payment based on losses calculated both at the county level and at the farm level, 2) have a loss payment based on losses at the county level, or 3) have a loss payment based on losses on your farm.  Because your crop insurance policy will now have both individual and county insurance triggers with SCO, it is very important to consider how your farm's risk compares to the risk at the county level and if SCO provides the protection you are expecting.

Whole-Farm Revenue Protection.  The WFRP insurance plan provides a way to cover all commodities sold by the farm under a single policy.  A farm can protect up to $8.5 million in revenue under this plan.  Any farm meeting eligibility requirements can purchase WFRP including those with specialty or organic commodities (both crops and livestock), or those marketing to local, regional, farm-identity preserved, specialty, or direct markets.  WFRP replaces the Adjusted Gross Revenue plans (AGR and AGR-Lite) that were available in previous years.

WFRP is available at the 50, 55, 60, 65, 70, 75, 80, and 85% coverage levels.  The 80% and 85% coverage levels are only available to farms producing at least three commodities that meet minimum revenue requirements.  The premium subsidy levels range from 55 to 80%.  You can buy WFRP alone or with other buy-up level (additional) Federal crop insurance policies.  If you buy WFRP with another policy, the WFRP premium is reduced due to the coverage provided by the other policy.  You must purchase your other crop insurance policies at buy-up levels of protection to participate in WFRP (catastrophic (CAT) levels of coverage do not qualify).

In order to be eligible for WFRP you must have five consecutive years of federal tax returns for your farm (ie. for eligibility in 2015 you must have 2009 - 2013 tax records), be able to meet the diversification requirements of the policy, and produce commodities on-farm that generate at least 50% of your farm's total revenue.

Other Crop Insurance Improvements.  There have been several other improvements to crop insurance that came out of the 2014 Farm Bill including:

1) Improved protection for organic and contracted crops

  • Organic elections have been made available for more crops
  • Organic price coverage has been extended to eight more crops (oats, peppermint, apricots, apples, blueberries, almonds, pears, and grapes for juice) for a total of sixteen (producer has the option of using organic or conventional prices).  Organic prices and additional crops will be available for 2016.
  • The 5% premium surcharge for organic price options has been eliminated.
  • For many crops, a contract price may be used if the crop is contracted by the acreage reporting deadline and the price is higher than the established price.

2) New options for low APH yields

  • Farmers can choose to exclude disaster years from their production history if the county yield in that year was less than 50% of the county (or adjacent county's) 10-year average
  • New and beginning farmers get a 80% yield plug for replacing low APH yields; the current 60% yield plug is retained for everyone else.


3) New benefits for being beginning farmers (available for the first five years of insurable crop interest)

  • Beginning farmers are eligible for an additional 10% premium subsidy buy-up coverage
  • They are exempted from paying the administrative fee for catastrophic (CAT) and buy-up policies
  • They can use the production history of an existing farming operation, if they were previously involved in the decision making or physical activities of the farm
  • An increase in the substituted yield for yield adjustment, which allows a replacement of a low yield due to an insured cause of loss, from 60 to 80 percent of the applicable transitional yield (T-yield) for the crop in the county.