Managing Cash Flow for Your Farm

Cash flow statements are very useful – they may very well be the first place where a farmer will spot a trend in business performance that may benefit or harm the operation in the long run. Cash flow statements show the business’s liquidity, the ability to pay expenses as they come due.

In accounting, there are both active statements and reflective statements.

Active Statements

The cash flow statement, a record of the dollars that came into and went out of the farm, is considered an “active” statement because it is completed multiple times throughout the year. The cash flow statement should be regularly compared to projected cash flow budgets, estimated cash in-flows and out-flows that will occur in the business in an upcoming period. This helps the farm manager to identify how the cash in-flows and out-flows that were expected differed from or mirrored what actually occurred.

Reflective Statements

In comparison to the cash flow statement, the balance sheet and the income statement are “reflective” statements because they are completed on one particular day of the year in which the farm manager is able to see how the business has progressed. With careful management of cash, the farmer has power over his or her business dealings. Business owners and agricultural producers in particular need to take time to document all sources and uses of cash within a business to keep their “finger on the pulse” of their operation.

Updating Cash Flow Statements

To be effective, farmers should regularly update their cash flow statements. What does “regularly” mean? The answer to this question varies based on whether you have a very seasonal operation (such as selling Christmas trees) or a business that receives cash throughout the year (such as a dairy farm). It is recommended that new financial managers begin with a cash flow statement that has monthly intervals. Although there is a bit of work keeping the statement current, having monthly statements provides an early warning of cash deficits or surpluses. By using the cash flow statement and the cash flow budget the farmer can make well informed management decisions such as when to purchase new equipment, or when to open a line of credit to cover cash deficit periods.


After keeping track on a monthly basis for a while, you may find that quarterly or six-month cash flow statements and budgets meet your need because the funds don’t change that much month-to-month. On the other hand, if you grow and direct market fresh vegetables for example, you may need to use a weekly cash flow statement through the summer, because of fluctuations in the variety of produce sold and the demand for each item throughout the growing season.


Cash flow statements and budgets can be created for the entire farm operation or for a specific enterprise, or profit center on the farm. For example, a dairy farm might have several enterprises in addition to dairy production, such as custom work, hay sales, and maple syrup production. Analyzing a specific enterprise allows the farm manager to determine whether an enterprise costs more than it generates in revenue. An enterprise budget helps the farm manager determine whether a new enterprise might be feasible.

Article adapted from Farm $en$e©, Farm Management Tools for Financial Success.

Farm $en$e© farm financial management courses are offered every fall and winter in multiple locations in Pennsylvania. Contact Juliette Enfield or Miguel Saviroff  for more information.
The Farm $en$e© text will be available for purchase through Penn State Agricultural Publications in November 2016.

Contact Information

Juliette Enfield

Extension Educator

Email: jse15@psu.edu

Phone: 814-563-9388

Miguel Antonio Saviroff, MS

Extension Educator

Email: mas60@psu.edu

Phone: 814-445-8911 x144

Crowdfunding: An Exciting New Way to Fund a Project

By Juliette Enfield, Penn State Extension Educator, Warren Co.

The success of any business depends on the crowd that supports it.

Crowdfunding captures the essence of the entrepreneurial spirit-that anything is possible. The size and scope of the projects on crowdfunding sites are awe inspiring. In 2012, the JOBS –Jumpstart Our Business Startups Act was passed by Congress and signed into law by the Obama Administration.  This Act eliminated certain restrictions on how new startup businesses could be funded. Since 2012, crowdfunding has become a term that many people are familiar with, but may not have direct experience with. Have you ever considered crowdfunding for your business? Perhaps you are uncomfortable with the high interest rates that may be incurred with a loan, or maybe your credit isn’t the best and you are unable to access a loan in the first place. Crowdfunding can work in a few different ways. Investors can support a new business by buying a share in the business (equity crowdfunding), making donations (donation crowdfunding), or lending money (debt crowdfunding). According to Forbes.com, there are over 500 crowdfunding platforms online, so even if you understand the basic fundamentals of how crowdfunding works, you will need to do some research to find a site that will work well for you. Some sites have stronger reputations than others, and some have easier access to customer service. Also, many crowdfunding sites specialize in a certain type of project or industry. For example, Quirky specializes in funding inventions of new everyday tools, Crowdrise specializes in charitable projects, and GiveForward specializes in funding medical expenses for people will illness. Another difference among crowdfunding sites is how and when payments are received for a project. For example, Kickstarter only accepts payments from investors if the project has been funded, and Indiegogo accepts payments from investors regardless of whether or not a certain goal has been reached. Crowdfunding sites charge a fee ranging from 7-12% of the total project cost, so this may also influence your decision of which platform to use.



Crowdfunding for Farm and Food Businesses

Birchrun Hills Farm, a dairy farm and cheese business in Chester County, PA successfully funded a project to build a new cheese cave on Kickstarter. Kickstarter is a popular donation based crowdfunding website. Kickstarter projects include film, music, art, design, technology, and food. I spoke with Sue Miller, Birchrun Hills Farm business owner, about her experience with Kickstarter. She chose Kickstarter because of the recognition of the site, she liked the all or nothing philosophy of the site, and the fees were reasonable. She also knew of other farm businesses that had success with the site, including North Mountain Pastures in Newport, PA, a meat CSA farm with a charcuterie business. Sue ran a 30 day campaign in December 2014. For different donation levels, Sue offered a variety of different prizes ranging from a hat with the farm logo on it to private cheese and beverage pairing parties. She said the most popular prize she offered was the chance to name a newborn calf on the farm. Sue estimated that less than 5% of the people that were reached about the campaign actually donated. Therefore, the campaign period is an intense marketing time, and having a marketing strategy and a budget in place is essential. Sue said she was delighted to see how the community supported her project, and now that the campaign is over and she is building her new cheese cave, crowdfunding has helped her expand her business network in the region and across the nation. For those thinking about embarking on a crowdfunding endeavor,  Sue recommend that they work for a year or so prior to the campaign period to expand their social media network, since this is the primary way crowdfunding campaigns are advertised. She also said that next time she might consider hiring someone to run the campaign for her, so that she would not have to run the farm and the campaign at the same time. You can still view Sue’s campaign on Kickstarter.

What would you like to do next with your business?

Another crowdfunding site that agricultural businesses should know about is Kiva Zip. Kiva Zip is a debt based crowdfunding site that offers 0% interest loans to funded projects. Kiva was first created to help finance microloans to farmers and small businesses in developing countries, but it has recently grown in popularity in the US with small and beginning farmers. Kiva loans are especially well adapted to new farm and food businesses because the loans are small, from $5,000 to $10,000, and are therefore less risky. Once the money is lent, the business has 3 years to repay the loan. The Kiva fundraising process has three tiers. First, the agricultural businesses must be endorsed by a Trustee, a business or an individual (non-family member) that will vouch for the character of a borrower. Then, once the Trustee is in place, a network of friends and family (ranging from 10-30 contacts) must be the primary lenders to the project. This occurs during the first 15 days that the campaign is launched. And finally, after this primary network has lent to the project, the project is opened for anyone to lend. Kiva projects are live for 45 days. Emily Keebler, Kiva City Pittsburgh Lead, says that the first 15 days of fundraising is the most intense fundraising period. Emily says that many businesses that have a successful lending experience with Kiva Zip then become Trustees themselves for another business, and these small amounts of money continue to support small businesses over and over again. Healcrest Urban Farms, a farm that grows herbs and small fruits in Pittsburgh, PA successfully received a loan on Kiva Zip to pay for the use of a shared kitchen and purchase of an ice cream cart to start their popsicle business, TeaPops. Good Work Farms, LLC, a vegetable farm in Emmaus, PA received a loan on Kiva Zip to purchase draft horses for plowing and lowering energy costs on their farm. BEEBOY Honey, a beekeeper in Pittsburgh received a loan to purchase more hives and a truck for honey deliveries. Kiva Zip may be an option for your food business if you decide that offering rewards for donations may be too much of a challenge and you would rather spend your time and energy repaying a small loan.

Be sure to do your research before choosing your crowdfunding platform. Spend time looking at the projects that are out there. Create a budget, marketing plan, and a clear, concise message about what you are trying to accomplish. Have you had any experience with crowdfunding? Share your comments and suggestions with us!

Sources for this blog:

Caldbeck, Ryan. Crowdfunding Trends: Which Crowdfunding Sites Will Survive. Forbes.com. June 23, 2013. <http://www.forbes.com/sites/ryancaldbeck/2013/06/23/crowdfunding-trends-which-crowdfunding-sites-will-survive> Accessed July 8, 2015.

North Carolina State University Cooperative Extension. Funding Opportunities. June 2014. <http://communitydevelopment.ces.ncsu.edu/funding-opportunities>  Accessed July 8, 2015.

Pollack, Bridget. The Ins and Outs of Alternative Financing. U.S. Small Business Administration Blog. June 4, 2015. <https://www.sba.gov/blogs/ins-and-outs-alternative-financing>Accessed July 8, 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 net worth, 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.

An Agricultural Nonprofit Still Has to Make a Profit

By Juliette Enfield, Penn State Extension Educator, Warren Co

A farm can provide benefits to a community that are not always easy to measure in economic terms. A farm can keep land in agricultural production, be used as a teaching tool or be used to grow food for charity. A for-profit farm may not have the capacity or time to focus on these types of educational or charitable activities. Quiet Creek Herb Farm and School for Country Living in Brookville, PA, Lundale Farm in Kimberton, PA, and The Rodale Institute in Kutztown, PA are a few examples of nonprofit agricultural organizations in Pennsylvania.  Quiet Creek Herb Farm and The Rodale Institute focus on agricultural and homesteading education through classes, publications, and research. Lundale Farm preserves farmland by leasing land to farmers.

A farm can be a valuable teaching tool.

What is a Nonprofit?
Churches, public schools, public clinics and hospitals, political organizations, research institutes, chambers of commerce, fraternal organizations, private foundations, museums, and public charities are all nonprofits. Nonprofits contribute to society by providing social and educational opportunities that we all enjoy. The most significant differences between a nonprofit organization and a for-profit business is that the nonprofit organization does not have to pay property tax, sales tax, or corporate income tax, and they have a charitable mission that drives the organization. The tax code used by nonprofit corporations is 501c3, which you may have heard of already. A typical for-profit business will pay the IRS taxes that amount to between 15-35% of their annual revenue. However, both nonprofits and for-profits have to earn enough revenue to cover their costs in order to function. Just like with any business, the nonprofit must fill a unique niche in order to earn its revenues, and should have a business plan. To determine whether or not your organization would fill a unique niche, research what other nonprofits in Pennsylvania are doing at www.guidestar.org .

The revenue made by a nonprofit organization is used for sustaining the organization and accomplishing its charitable mission, not for distribution to employees or shareholders. The only type of nonprofit organization structure that exists in Pennsylvania is a nonprofit corporation. Corporations have a unique structure that is very different from a sole proprietorship or a partnership. In contrast to sole proprietorships and partnerships, corporations allow business owners to claim the business’s assets instead of the owners’ personal assets if debt or legal issues arise. The state in which the corporation is created assumes some liability for the business and therefore, all finances of the corporation, including salaries, expenditures and revenues must be made publicly accessible. The nonprofit corporation can work with an accountant to keep detailed financial records which they must submit to the IRS and the Department of State every year. These agencies could take away tax exempt status if the nonprofit fails to file these records or if they are generating income that does not relate to their stated mission. In addition to having a sustainable business plan, nonprofit corporations are required to have a board of directors and a fundraising plan.

The Board of Directors
The board of directors must have a protocol for voting on operating procedures for the organization as well as a president, a treasurer, and a secretary. The operating procedures, or bylaws, are voted in and agreed upon by the board. A business attorney can help with the creation of the bylaws. The complexity of the bylaws is up to the organization but they can include rules such as board meeting procedures and roles of employees.  Board directors are either employees of the nonprofit or volunteers who share a passion for the organizations’ mission. The board is responsible for keeping the organization true to its mission, and it ensures that programs and plans are implemented. Although the board of directors is a mandatory part of a nonprofit, offering additional board memberships is optional. Additional members can help to steer the organization, offer diverse skill sets, and help with fundraising by paying membership dues. Board members have to be at least 18 years old and do not have to be residents of Pennsylvania. NOLO gives some great considerations for forming a board.


The board is responsible for keeping the organization true to its mission and it ensures that programs and plans are implemented.

Fundraising
Fundraising is an essential activity for nonprofits to engage in since revenues are low and accomplishing any mission costs money. Fundraising includes soliciting donations and applying for grants. Nonprofit organizations accept donations from businesses and individuals. These donations are tax-deductible for the donor, which is an incentive to donate. Many public and private grants are available for nonprofit organizations.  Since fundraising is an important part of a nonprofit organization, there should be a fundraising coordinator or grant writer on staff or on the board. For example, if the goal of your agricultural organization is education, you may need to seek grants that will cover the costs for school children to come to your farm. Penn State Extension offers grant writing workshops. Look online for dates and locations.

Although a nonprofit organization is mission driven and tax exempt, it has to be just as competitive as a for-profit business in order to succeed. Critical components of a nonprofit include a well thought out mission and business plan, a committed board of directors, a fundraising plan, an attorney and an accountant.

For more information on nonprofit management, The Pennsylvania Association of Nonprofit Organizations offers workshops, publications, and conferences. Additional questions about forming an agricultural nonprofit in Pennsylvania can be directed to the Penn State Agricultural Law Resource and Reference Center.

Starting a New Farm Business? Minimize Your Risk by Joining an Incubator

By Juliette Enfield
Penn State Extension Educator, Warren Co. 

You dream of being a farmer. You love working outside, growing your own food, and being your own boss, but then reality sets in. The time commitment, the loans, and the pressure to produce suddenly make starting a new farm seem like a crazy idea. The statistics aren’t on your side either. The Small Business Administration estimates that 54% of small businesses fail within the first 4 years. Some of the reasons for this high failure rate are insufficient start-up capital, lack of managerial experience, and lack of business planning. Business incubators can help an entrepreneur to develop managerial and business planning skills in an environment where the initial investments in the business are lower. According to the National Business Incubator Association, 87% of businesses that have graduated from incubators are still in existence today (NBIA, 2014).

Incubate your business for the first few years for a better chance of success.

Incubators provide services for a start-up business including mentorship, rental space and equipment, business planning assistance, easier access to start-up capital, lawyers and accounting services, secretarial services, and networking opportunities. The concept of the business incubator has grown in popularity in recent years. In 1980, there were just 12. Today there are over 1,250 (NBIA, 2014). Incubators foster many different types of businesses including technology, service, and manufacturing. Incubators are usually non-profit organizations which receive funding from grants and donors to stimulate business growth in local economies. Typically, businesses stay in incubators for 3 to 5 years until they are able to successfully run their business on their own.

There are incubators that are specific to farming. These incubators offer many of the same services as the multi-purpose incubator as well as rental space for land and equipment. Farmers who participate in these incubators have full or part time jobs off the farm to supplement their farm income. This allows them to gradually transition into full time farming, if they find that their business is successful. There are two farm incubators in Pennsylvania, The Seed Farm, located outside of Allentown, and the Horn Farm Center for Agricultural Education, located near York. The Seed Farm is for vegetable production using organic methods and Horn Farm is for vegetable and fruit production using organic methods.

The Seed Farm offers a farming apprenticeship program and an agricultural business incubator. New farmers at The Seed Farm are currently required to complete the 9 month internship before participating in the incubator. There is a cost associated with this apprenticeship and there is also an application process. This apprenticeship covers farm management training, tractor training, marketing experience, and business planning. The mentoring continues after the apprenticeship from a full time farmer who works at the incubator. The incubator program offers rental space of 1.5-3 acres at a low rate, which is gradually raised to the real market price after 2 years. Farmers in the incubator have access to shared farm equipment by paying a relatively small fee every month. They also have access to a greenhouse, cooler, and storage space. These farmers have their own insurance and business licenses, and market their own produce. They meet with the farm manager regularly to discuss their business plan. The Seed Farm is in its fifth year, currently has 2 farmers in the incubator and 1 graduate, and would like to expand the program. More information can be found at www.theseedfarm.org.

Aspiring new farmers working at The Seed Farm. Photo credit: The Seed Farm.

Horn Farm Center for Agricultural Education offers a farm incubator program where you can rent as small as 1/8^th of an acre to 2 acres at a low rental rate. To use the farm tractor, farmers pay $25 an hour instead of immediately investing in a $20,000 tractor. As with The Seed Farm, there is a full time farm manager who works on the farm and there is a business planning committee that meets with the incubator farmers regularly to discuss their business planning. Horn Farm is in its fourth year and currently has 4 farmers in the incubator. For more information about Horn Farm, see their website at www.hornfarmcenter.org.

As with other business incubators, farm incubators have multiplied across the country as well. In 2010 there were just 38 and now there are over 125 (NIFTI, 2014). Sometimes after participating in an incubator program, farmers decide that farming is not for them, which is also a valuable learning opportunity. If Horn Farm or The Seed Farm are not located near you, you could benefit from the business incubators that are located in your area of Pennsylvania. Business incubators are located throughout the state and are usually affiliated with a university or local municipality. The National Business Incubator Association has a comprehensive listing of incubators across the country which can be found at: www.nbia.org/links_to_member_incubators.

If you are already successfully farming and you are thinking about making an incubator a part of your farm, the New Entry Sustainable Farming Project out of Tufts University and the National Business Incubation Association have some great resources to help you get started.

Sources for this blog:

Scarborough, N. Effective Small Business Management: An Entrepreneurial Approach. Prentice Hall. New Jersey. April 2011. 10th Edition.