Income statements 101
January 04, 2022
Life on the farm can be hectic but having up-to-date and organized financial statements on hand are beneficial when looking at new opportunities for the farm. At DFA Financing, provided by Agri-Max Financial Services, we want to ensure our members have the knowledge needed to understand the importance of financial documents on the farm. In this blog series, we will feature three different financial documents and this blog will feature income statements, one of the most important statements in financial accounting, also known as a profit and loss statement.
Income statements are a measure of a farm’s financial performance over a specified period of time. In addition to helping you determine your farm’s financial health, an income statement can help predict future opportunities, decide on a business strategy, and create meaningful goals to help your farm be more successful.
Income statements tell the story of your business for a certain period. It shows your revenue, minus your expenses and losses. Typical sources of revenue on dairy farms come from the sale of milk, cull cows, calves, excess feed or crop inventory and any governmental program payments. The largest expenses on a dairy farm usually include feed and labor, the rest are whatever you must spend to run your dairy. These statements can be looked at annually, bi-annually, quarterly monthly, or over a time period of your choice.
There are many reasons why having an updated income statement on hand is important. It is one of the first documents that will indicate how your farm is doing from a financial perspective. Most lenders will look at an income statement when determining whether the business is a good candidate for a loan. It will tell a lender whether the business is generating a profit or if the farm is spending more than it earns. An income statement can indicate how much it costs to operate the farm and whether the farm has cash required to covers its’ debt service. A farm’s debt service is all of the payments a farm is required to make each year on all of its’ outstanding loans.

Having updated financial statements on hand for your farm is important but understanding what these statements mean is crucial. The income statement is a summary of your performance and can help you make critical decisions that will help keep the farm operating now and far into the future. If you ever have any questions about your income statement or how to get started, please never hesitate to reach out to our team.