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Can You Afford Your Farm? Find Out with FINPACK

March 31, 2009

WOOSTER, Ohio -- With the current economic downturn, farmers may be scrutinizing the future of their operations, and a financial planning tool offered by Ohio State University Extension is available to evaluate the health of on-farm businesses.

FINPACK (Farm Financial Planning and Analysis) is a nationally known agricultural software package designed to aid in farm planning and credit analysis, as well as evaluate the financial position of a farm while exploring business alternatives and improving business decisions. FINPACK was launched by the University of Minnesota in the 1970s, and OSU Extension has been offering the tool to farmers, Extension educators, lenders, and other agricultural professionals since 1984.

Dianne Shoemaker, an OSU Extension dairy specialist and Ohio's FINPACK program leader, said that financial planning is a high priority in any business, and with the current state of the economy, FINPACK might prove to be even more valuable for users in making financial decisions.

"The number of farmers evaluating the production efficiency and financial condition of their farming operation or considering business changes will likely increase throughout the year because of the economic situation. As a result, farmers will be looking for more tools to help them make financial decisions. They are asking whether or not they can afford to keep their farming operation going, if they should let it go, or transition it to family member," said Shoemaker. "FINPACK is an excellent tool for determining the current profitability of a farm and what changes need to be made to get it to where the farmer wants it in the future."

FINPACK is comprised of several components: balance sheets, business analysis (FINAN), monthly or annual cash flow projections (FINFLO), long range plans (FINLRB), and historic trend reports. Farmers can use one or more of the components depending on the needs of their business.

Shoemaker said that financial analysis using FINPACK usually begins with FINAN, which takes an in-depth look at a farm's financial strengths and weaknesses in the most recent business year. FINAN develops accrual income statements, statements of cash flow, and statements of owner's equity, as well as measures the operation's profitability, liquidity, solvency, and efficiency.

"FINAN is what is used to develop a base plan for the state of a farm operation," said Shoemaker.

Users then look to the future with FINLRB, a "what if" tool designed to strategically position the operation to meet tomorrow's challenges.

"FINLRB is probably the most-used piece of the package," said Shoemaker. "It helps farmers and other agricultural business owners look at alternative ways of configuring their business to ensure long-term success of the business."

Once a farmer has developed a clear picture of what the farm business will look like in the future, the FINFLO software projects cash flows for the next year or for several years calculating monthly revenues, expenses, debt repayment and operating credit requirements.

OSU Extension offers FINPACK programs and training workshops every year, in addition to keeping users informed of software updates through Web casts. Since OSU Extension adopted FINPACK, thousands of individuals have benefited from the financial information offered through the software program, said Shoemaker.

"There really is no other financial-planning tool that is as in-depth as FINPACK and provides the thorough information those in agriculture are seeking," said Shoemaker. "It's not a record-keeping package. It uses information from the farm's existing record-keeping system. It's a farm financial management program."

For more information on FINPACK or upcoming OSU Extension events offering FINPACK, contact Dianne Shoemaker at (330) 263-3799 or e-mail shoemaker.3@osu.edu.

FINPACK is just one of countless OSU Extension offerings that provide measurable benefits to Ohioans. In an independent study, the Battelle Institute found OSU Extension is "purposely designed to produce positive economic and social impacts for the state of Ohio" and that it is a "generator of positive economic impacts." For example, every 1 percent increase in agricultural output through Extension programming brings $149 million in output to Ohio and $29 million in income for Ohioans.

Author(s): 
Candace Pollock
Source(s): 
Dianne Shoemaker