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Inventory of the Legacy:. Dr. Bart Eleveld Extension Economist, Farm & Ranch Management Agricultural & Resource Economics Department. Balance Sheet and other lists . Need to know what’s being transferred. Personal possessions of emotional value Where are possessions on “heirloom scale”?

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Inventory of the Legacy:

Dr. Bart Eleveld

Extension Economist, Farm & Ranch Management

Agricultural & Resource Economics Department

Balance Sheet and other lists

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Need to know what’s being transferred

  • Personal possessions of emotional value

    • Where are possessions on “heirloom scale”?

  • Values and traditions

    • Can’t be forced on next generation, but they can’t continue them if they don’t know what they are.

  • Human resources, management skills and capabilities

  • Titled property

    • Core of the business that’s being transferred

    • Partially determines strategies of transfer, ownership and future management plan for the business

    • Assets: What does the business/family own?

    • Liabilities: What are the claims by creditors?

    • Equity or Net Worth: What is left if assets are liquidated?

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Balance Sheet is starting point for all business planning

  • Gives an instantaneous or “snap shot” view of financial strengths and weaknesses.

  • Tells how vulnerable to risk or downturns the business may be.

  • Shows the liquidity and solvency of a business / family / individual

  • A convenient way to list titled property

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What is liquidity?

  • Ability to pay short-term debts and obligations of the business/family without major disruptions or liquidations of long-term (durable) capital.

    • Can you pay all claims that are expected during the next 12 months?

    • Can you “ride the waves” and stay afloat?

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What is solvency?

  • Ability to pay ALL debts and obligations of the business/family by liquidating or selling of whatever assets might be necessary.

    • A more extreme measure of financial well-being.

    • Will you survive a catastrophe (liquidation) with something left over? Lifeboat, raft, or just floating debris?

    • In the context of today’s seminar, the catastrophe may come unexpectedly, or the liquidation may be planned, or the ship may continue to sail along, albeit with a new skipper, depending on the preparation and plan.

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Current Assets

Cash, bank accounts and inventory items readily convertible to cash

Intermediate Assets

Machinery, breeding livestock

Long-Term Assets

Land, buildings and improvements to real estate


Separate or combine with business?

Current Liabilities

Notes and accounts payable within 12 months

Intermediate Liabilities

Loans payable over 2-10 years

Long-term Liabilities

Loans payable over 10+ years

Net Worth (+ or -)

Retained earnings

Change in market valuation

Useful way to inventory physical and financial assets and liabilities

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How do they balance?


+ Net Worth




Current: Liquidity

Total (Long-Term): Solvency

Balance by definition:

Assets = Liabilities + Net Worth

Net Worth = Assets - Liabilities

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Example Scenario: Max and Marlene Profit

  • 50-something couple with three kids they want to bring into the business

  • Complete case study is in binder

  • Will look at Balance Sheet today and in next workshop will look at the Income Statement and planning budgets

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Max & Marlene Profit

  • 3 children, oldest wants to farm with family

  • Marlene has full-time job, Max does custom work plus part-time job

  • 1500 ac. cropland in wheat-barley-fallow

  • 2500 ac. private rangeland

  • 50 ac. irrigated pasture

  • 80 cow-calf pairs

  • How to make it work ?

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What, you can’t read this?

There’s a copy of it in your binder. And we’ll look at it a piece at a time.

Blank worksheet for FINPACK in binder

Excel spreadsheets on website:

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Current assets

Cash and bank accounts

Inventories of supplies

Inventories of marketable commodities

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Current liabilities

Accrued interest (if loan payments were made on balance sheet date) and accrued taxes

Notes and accounts payable

This year’s principal on long-term loans

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Intermediate assets

Useful life of > 1 year and < 10 years.

Breeding livestock

Machinery and vehicles

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What value to use?

  • Cost or book value

    • Purchase price minus accumulated depreciation

    • What an accountant would use

  • Market value

    • What you could realistically expect to sell asset for

    • What a lender would use

  • Raised breeding livestock?

  • Both are useful to know

    • Cost: Net worth shows “retained earnings” due to income accumulation

    • Market: Net worth shows “actual market equity”

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Intermediate Liabilities

Notes and loans on intermediate assets (2-10 years)

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Long-term assets

Useful life of > 10 years

Real estate: land, buildings and other improvements to land.

Potential for large differences between cost and market value

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Long-term liabilities

Notes and loans on long-term assets: usually mortgages and contracts on real estate

Deferred or contingent liabilities: If you liquidate, who besides creditors do you have to pay?

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Deferred or Contingent Liabilities

  • On current assets:

    • ordinary income and social security taxes

  • On intermediate and long-term assets

    • Capital gains taxes on gains or recaptured depreciation

    • Also allow for selling costs of durable assets

  • In succession/estate planning context it may be useful to include estate and inheritance taxes

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Summary of

Balance Sheet




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Resources for Balance Sheet

  • FINPACK financial analysis software

    • Center for Farm Financial Management @ U. of MN.

    • Does balance sheet plus feasibility and cash-flow budgeting for whole farm/ranch management plans

    • Free trial download available:


    • Can “rent” an annual license for ~ $100/yr.

  • 2 spreadsheet formats

    • Montana State University’s

    • OSU/WSU Integrated Financial Statements

    • Both on Succession Workshop website: