Understanding Liabilities: A Farmer’s Guide to Smarter Financial Management

Most producers would rather fix a busted gate in a January wind than sort through financial statements. Still, understanding liabilities is one of the smartest ways to strengthen your financial management and walk into your lender’s office with confidence. When you know what you owe, when you owe it, and how those obligations fit into your balance sheet, you’re no longer guessing. You’re running a farm business with clarity and control.

Liabilities are not something to fear. They are essential tools that help you understand your financial position and make sharper business decisions. Lenders appreciate borrowers who know their numbers because it signals preparedness, responsibility, and strong risk management.

Why Liabilities Matter More Than You Think

Your balance sheet gives a snapshot of your farm’s financial health. Liabilities sit at the heart of that picture and influence almost every financial conversation you will have with a loan officer.

Liabilities matter because they affect:

• Profitability
• Liquidity
• Cash flow
• Solvency
• Your ability to secure credit
• Your repayment strength
• Tax implications
• Long-term sustainability

Put simply, liabilities shape the story your financial statements tell.

How Liabilities Impact Your Daily Decisions

When you keep liabilities updated in your accounting software, you gain clearer insight into your financial performance. That allows you to make stronger decisions about your farming operation.

Liabilities influence:

• Whether you can take on a new line of credit
• If you can safely expand your acreage
• How much working capital do you really have
• Whether you can invest in breeding livestock or long-term assets
• How do you plan for year-end tax filings
• Your ability to forecast cash inflows and outflows
• Whether you’re ready for farm succession

And they play a major role in tax planning. Depreciation, taxable income, and your tax returns all hinge on accurate liability tracking.

The Two Types of Liabilities Farmers Must Track

Your farm balance sheet includes two key categories:

1. Current liabilities

These are obligations due within 12 months. They directly affect your cash flow and short-term flexibility.

Examples include:

• Accounts payable
• Credit card balances
• Short-term operating loans
• Interest due
• Any payment owed to suppliers

2. Long-term liabilities

These are debts that stretch beyond one year. They impact long-term financial management, owner’s equity, and the valuation of your farming operation.

Examples include:

• Farmland loans
• Real estate debt
• Machinery or equipment financing
• Breeding livestock loans
• Multi-year notes

When combined, they make up your total liabilities. This number matters because lenders compare it to your total assets to evaluate solvency, repayment strength, and overall financial position.

What Lenders Look For When Reviewing Your Liabilities

Your loan officer isn’t trying to catch you off guard. They simply need to understand the full picture of your farm business.

Lenders typically evaluate:

1. Accuracy of financial records

• Are liabilities current
• Are accounts payable and accounts receivable updated
• Do your numbers match your financial statements

2. Cash flow and repayment ability

• Do you have enough cash inflows to cover debt service
• Are operating expenses controlled
• Does your cash flow statement make sense

3. Liquidity and solvency metrics

• Current ratio
• Net worth
• Debt to asset ratio

4. Sustainability and long-term risk

• Are your liabilities positioned to support growth rather than strain it
• Is your financial information consistent year to year

Farmers who understand their liabilities walk into lender meetings prepared, confident, and respected. That goes a long way in securing better loan terms or faster approvals.

How Clean Liability Tracking Improves Your Farm’s Financial Health

Tracking liabilities carefully strengthens your farm financial management in several ways:

• Helps you plan debt repayment
• Improves strategic planning
• Supports the responsible allocation of resources
• Reduces stress during year-end reviews
• Strengthens risk management
• Improves your ability to forecast income and expenses
• Supports sustainability by helping you evaluate long-term commitments

It also helps you avoid surprises. There is nothing worse than realizing a forgotten payment is about to hit your cash flow the same week you need to buy feed.

How FarmRaise Helps Farmers Stay Ahead of Their Liabilities

FarmRaise makes liability tracking far easier by allowing farmers to:

• Generate a balance sheet instantly
• See current liabilities and total liabilities in one place
• Track depreciation on long-term assets
• Keep current assets and long-term assets updated
• Log transactions in the field
• Organize accounts payable and accounts receivable
• Maintain clean financial records for lenders and tax professionals
• Create an income statement or cash flow statement with one click
• Store real estate, equipment, livestock, and other farm assets with accurate valuation

This makes record-keeping faster and ensures your financial statements stay bank ready year round. It also prepares you for USDA and FSA loan programs that require detailed financial information.

Why Lenders Are Partnering With FarmRaise

Banks and credit unions are increasingly partnering with FarmRaise because it simplifies the lending process for everyone involved.

For lenders:

• Borrowers provide cleaner reports
• Loan processing becomes faster
• Financial analysis becomes easier
• Risk decreases
• Conversations become more productive

For farmers:

• Financial statements stay organized
• Cash flow becomes easier to understand
• Year-end stress decreases
• Liability tracking becomes automatic
• Loan applications take less time

It’s a win on both sides of the desk.

Encourage Your Lender to Partner

FarmRaise partners with agricultural lenders who want to improve the lending experience for their farm clients. If your bank isn’t partnered yet, encourage them to reach out. Partnerships give their borrowers access to simple tools that improve financial position, strengthen financial management, and help farmers make informed decisions all year long.

The truth is simple. Understanding your liabilities makes you a stronger business owner. When your financial information is clear, your planning improves, your lender conversations become easier, and your operation becomes more sustainable.

If you want your lender to join this network, give them a call. Sometimes all it takes is a nudge to bring better tools to your community.