At the end of each year, farmers and agribusiness owners routinely complete a year-end balance sheet or net worth statement for their banker and/or their tax return. There’s typically a rush to list all their assets and liabilities to calculate their farm, business or personal net worth.
Most farmers and business people have worked very hard for many years to build their farm or business, but how much time has been spent on documenting and protecting assets from possible losses? As Extension economists in the Farm Management and Agricultural Enterprise Analysis program, we have worked with farmers who have experienced losses due to tornadoes, fire, theft and flood damage. High winds and tornadoes destroy chicken houses, farm buildings, trees, fencing and farm equipment. Then the questions are (a) how much of your farm is insured and (b) how well can you document your losses?
Farmers are very busy this time of year, but let’s take a few minutes to think through a few selected items on your balance sheet and make a plan to minimize your losses in the event of a catastrophic event.
Do you have high-quality pictures or videos of all your farm buildings and documentation on the cost of construction of each building? As economists, we have had the task of trying to determine the cost of a building 5-10 years later from the farmer’s accounting records. It’s not an easy task.
Do you have high-quality pictures of all your farm equipment including serial numbers or other documentation of purchase cost and date of purchase? While most farmers have equipment listed on their farm insurance policy, when was the last time this equipment list was reviewed to see if any current equipment has been left off the policy? Alternatively, are you still paying insurance for equipment that has been sold or scrapped?
Farmers have thousands of dollars invested in small tools and supplies in their equipment sheds or repair shops. If the sheds were destroyed by high winds, could you document and value your tools and small machine inventory? While preparing this type of inventory is not an interesting task, many farmers may be surprised at their total investment. We would suggest beginning by taking a picture of each tool cabinet and then listing each tool over a certain dollar amount (example $10) for that cabinet. Repeat this process for each storage cabinet or tool box. Repeat the process for small machines by taking a high-quality picture of the machine and adding them to your inventory listing. Then consider adding a line item on the farm insurance policy for tools and small machines, and give your insurance agent a copy of your tool and small machine inventory.
In a similar way, farmers and agribusiness owners should consider a regular inventory of fertilizer, chemicals and other supplies on hand as of a particular date. With a written inventory, the farmer could document their losses much more completely than relying on memory alone.
Finally, personal dwellings and their contents should also be adequately documented for tornado or wind damage. High-quality pictures or videos can be invaluable in verifying a loss. There have already been high wind and tornadoes in Alabama this year. If your farm or business was hit, how well could you document your losses?
As a last consideration on loss prevention, farmers and agribusiness owners should remember that if your home or business is destroyed, your files may also be destroyed. It just makes good sense to have a second copy of all documentation in an off-farm location such as a safety deposit box.
Farmers and agribusiness owners work hard to build their assets. Taking time to document and inventory your assets will be much easier on a warm, rainy day than after a catastrophic loss. It’s springtime in Alabama and tornado season is coming. Don’t be unprepared.
For more information about farm management and financial analysis, please contact your County Extension Coordinator or an Extension Specialist: North Alabama: Holt Hardin, 256-574-2143 or Robert Page, 256-528-7133; Central Alabama: Jamie Yeager, 334-624-4016; Southwest Alabama: Steve Brown, 251-867-7760.