As family businesses, most of you probably know that regular family meetings and good communication are key to your success. But somehow, when it comes to dealing with financial issues, we often fail to communicate with each other.
Let me share an example from a meeting involving a farm partnership and its year-end tax-planning strategies. Normally, both partners and their wives attend this meeting so that each is aware of the financial position of the partnership, as well as the actions required to minimize the tax obligation for the current year. However, this year’s meeting was somewhat strained because of issues surrounding the financial records.
The eldest brother had historically been responsible for the financial transactions for the partnership. He and his wife maintained a single-entry record book for the business, and posted entries each month after they received the bank statements. However, for 2006, all financial transactions were entered into an Excel spreadsheet, which pleased me, but created quite a discussion between the partners and their spouses.
It turns out the spreadsheet was created by one of the daughters of the elder partner who had no interest in the family business. The younger partner and his spouse were not aware — until this meeting — that someone else had access to the financial records of the partnership. They were upset that outsiders had access to their records, and they had not been consulted about the change, nor had they been provided a copy of the 2006 records. I spent more than an hour mediating issues that had apparently been building over the past five years. The end result was that the partners decided to use a third-party bookkeeper who would provide complete copies of the partnership records to each partner on a monthly basis.
A better way
There is a standard clause I’ve seen in almost every partnership or corporate operating agreement that reads like this: “The books and records of the company will be open to inspection by any partner or shareholder during normal business hours.”
Instead of making partners or shareholders have to ask to see the records, make it standard procedure to share them. Prepare and distribute copies of the farm records and the bank statement for the farm each month. This way, each business owner may review the records in the privacy of his own home, at his leisure, and create a list of questions to be addressed at the next meeting.
Tools you can use
Before the beginning of each year, you should create a projected cash flow for the farm business. A new online tool — which is one of the best I have seen — makes this quite easy. You can obtain a copy for free by visiting the farmdoc Web site at www.farmdoc.uiuc.edu. You’ll need Excel software to run this program.
In addition to creating a monthly cash flow, this program can create an accrual-basis income statement that you can use to help determine the true profitability of your business. You may not know all of the yields and prices for the coming year, but most operations have a pretty clear picture of their expected expenditures. The monthly cash flow creates a road map for the farm in the coming year.
Once you have your annual records, use them for more than tax preparation. Use them to determine how you compare with peer producers also. Do you really know why your business was successful in 2006? Were your expenses higher or lower per hundredweight of milk produced than those of similar operations? Benchmarking can help you answer those questions.
There are many farm recordkeeping and business- analysis services throughout the United States that provide income and expenses comparisons of the same size and type of farming operation. Most of the farm-analysis organizations belong to a group called the National Association of Farm Business Analysis Specialists. You can find an organization in your state by dropping me an e-mail at firstname.lastname@example.org or by giving Charles Cagley a call at
Use these ideas to do a better job of sharing financial information with your business partners!
Darrell L. Dunteman is an agricultural financial consultant and accountant with offices in Bushnell and